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    The Importance of Stop-Loss Points in Investing

    ByVitNhoNho17/01/2021
    The stop-loss technique is a crucial risk management method in cryptocurrency investment. Stop-loss is a way for me to survive in the market over many years. Cutting losses is part of the game, and making mistakes in the market is normal. Therefore, I am always prepared to encounter mistakes in the market; however, what is important is how I handle and control risk to achieve success in cryptocurrency investing. This is something that every cryptocurrency investor needs to do.
    Stop-loss is part of the game
    Stop-loss is part of the game

    1. Why is the stop-loss point important?

    The stop-loss technique is an indispensable part of cryptocurrency investing, even if you just want to buy, sell, and hold coins. Before explaining why stop-loss is important, let’s consider a basic issue in trading. You need to accept that no one can execute 100% of trades accurately, not even experts. The risk of loss is always present in this game. Thus, cutting losses is an essential part of an investment strategy. Successful cryptocurrency investors keep their trading results within these ranges: small losses, breakeven, and large profits. They never let their accounts fall into severe losses, as such losses might never recover or take a long time to recover. Therefore, the stop-loss technique is a crucial risk management method in cryptocurrency investing, helping you control and minimize the risk of losses.

    Respecting stop-loss means respecting your account, and stop-loss is the only way for you to become a profitable trader, even if your win rate is very low. I will provide an example of how not cutting losses can damage your account.

    stop-loss

    During the bull run of 2017, Bitcoin's price peaked near $20,000 and then dropped significantly to around $11,000, losing nearly 50% from its previous high. However, many still believed Bitcoin would continue to rise and decided to buy into the market. Even though it was just a corrective wave, Bitcoin’s price rebounded to around $17,300. Market sentiment at this time was very optimistic and greedy; people thought Bitcoin would break the $20,000 mark and potentially reach $25,000 or even $30,000. Due to high expectations, few had the courage to sell at this point.

    However, Bitcoin’s price later dropped sharply to $6,000 and then $3,200, causing their assets to be divided multiple times, leading to a feeling of helplessness. Ultimately, they had to accept losses without knowing how to address the situation. Thus, for many years, they had to live with the burden of unrealized losses, which I imagine would be very uncomfortable. Those who felt helpless and cut losses at the bottom might have completely lost faith in the market.

    2. How to Stop-Loss at the Right Time?

    Method 1: Cut Losses When the Trend is Broken

    To apply this method, you need to know how to identify trends. For example, with LINK, if the uptrend is broken:

    The nearest low in LINK’s uptrend is around $12.9. When this low is broken, you need to cut losses because the price has started to reverse from rising to falling. If you don’t cut losses, the price may create new lower highs and drop to around $7.23. Your account would be almost halved, and those trading with margin would have been wiped out long ago if they didn’t cut losses.

    Method 2: Stop-Loss Based on % of the Account

    This method relates to how you manage your capital. For instance, if you have $10,000, you should only use 5-10% of your capital for a trade. And most importantly, if you lose that $10,000, your life should still be okay.

    By using 5-10% of your capital, set a specific loss limit for yourself, such as 30-40% of the total amount invested in the trade. If the loss exceeds this limit, cut the trade. This is for regular buying and selling; for margin trading, you also need to consider the leverage you are using to set an appropriate stop-loss level.

    The above are two methods I commonly use for cutting losses, and they are relatively easy for those who do not have much technical analysis experience. Additionally, there are many other ways to cut losses depending on your trading plan and the indicators and strategies you apply. As long as you have money, you can continue to fight; never endure losses just to avoid cutting losses. If you're good at enduring, endure the profits instead

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    Disclaimer: This article is for informational purposes only, not financial advice. Join the Bigcoinchat chat group to update the latest information about the market.

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    VitNhoNho

    VitNhoNho

    Một người yêu thích crypto, liên tục học hỏi, tìm hiểu những nội dung mới nhất trên thị trường

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