What's a SL Bitcoin Order? & Factors to Consider When Setting

Stop Loss Bitcoin Order is a type of order that is positioned after opening a trade that is designed to minimize losses if the btcusd market moves against you.

It's a preplanned level of closing a losing position & it is intended to control losses.

A stop loss order is an order placed with your cryptocurrency broker that will automatically close your bitcoin trade transaction when it reaches and gets to a predetermined bitcoin price. When set level is reached, your open trade position is liquidated.

These crypto orders are designed to cap the amount of money which one-can lose: by exiting the transaction if a specific bitcoin price that is against the trade is reached and attained.

Regardless of what you might be told by others, there's no question about that whether if these orders should or shouldn't be set - these stop loss orders should always be placed.

One of the most trouble some things in Bitcoin is setting these orders. Put the stop loss order too close to your entry bitcoin price and you're liable to exit the trade due to and because of some random market volatility. Put it-toothe-stop-loss-order-too far away & if you are on the wrong side of the market trend, then a small loss might turn into a big one.

Critics will point out several disadvantages of these orders: that by placing them you're guaranteeing that, should your open trade position move in the wrong direction, you'll end up selling at lower btcusd crypto prices, not higher.

Skeptics will also argue that in setting and placing stop losses you are vulnerable to exit a transaction just before the btcusd market heads in your favor. Most investors have had the experience of setting a these orders and then seeing the bitcoin price retrace to that level, or just below it, and then go in the market direction of their original and initial market bitcoin trend analysis. What may have been a rather profitable trade turns in to a loss making trade.

Experienced traders always use stop loss orders as they are an important part of the discipline that is needed to succeed because they can limit and prevent a small loss from becoming a big one. What is more, by purposefully putting these orders whenever you enter a trade, you end up making this important decision at the point in time when you are most objective about what is really happening with btcusd market, this is because the most unbiased analysis is done before entering a trade position. After entering btcusd market a trader will tend to interpret and analyze the btcusd market differently because they now have a bias towards one side, the direction of their trading analysis.

Unexpected news can come out of nowhere & significantly affect the bitcoin price: this is why it is so important to have a stop loss. Its best to cut losses early when a position is going against you, it is best to cap your losses immediately rather than waiting it to become a big one. Again, if you set your stop loss orders when you're opening a transaction, then that's when you're most objective.

A key question is precisely where to place this order. In other words, how far should you as a trader place and set this below your purchase bitcoin price? Many traders will tell you to set pre-determined - max acceptable loss, an amount that is based on your equity balance rather than use technical cryptocurrency indicators.

Professional money managers advice that you should not lose more than 2 % of your trading equity on 1 single bitcoin trade. If you've got $50,000 dollars in capital, then that would mean the maximum loss you should set for any single trade is $1,000.

If you open a bitcoin trade, then you'd cap and restrict your risk to no more than $1,000 dollars. In which case you'd set your stop loss order at the number of pips that are equal to $1000 and would have $49,000 left in your account if you closed the trade at the maximum loss allowed. The topic of Bitcoin risk management is wide & it's discussed under money management topics.

Factors to Consider When Setting

Most important question is how close or how far this order should be from the bitcoin price where you opened the trade position. Where you set will depend on various factors:

Because there are no guidelines cast in stone as to where you should set these levels on a chart, we follow general guide-lines which are used to help put these levels correctly.

Some of the general guidelines used are:

1. Risk - How much is a trader willing to lose on a single trade. General rule is that a bitcoin trader should never lose more than 2 percentage of the total equity on any 1 single transaction.

2. Volatility - this refers to the daily bitcoin price range. If bitcoin regularly moves up and down in a range of 100 pips or more over the course of the trading day, then you can't set a tight stoploss order because if you do, you will be taken out of the trade transaction position by normal market volatility.

3. Risk Reward ratio - this is the measure and estimate of potential risk to reward. If the bitcoin market factors and conditions are favorable then it's possible to comfortably give your trade more space. However, if the btcusd market is too range bound it then becomes very risky to open a transaction without a tight stop then don't make the trade transaction at all. The risk to reward is not in your favor & even placing tight stop loss orders will not guarantee profitable results. It would be more wiser to look for a much better trade transaction next time.

4. Position size - if the position size opened is too big then even the smallest decimal bitcoin price movement will be fairly big in percent terms. This means that you've to set a tight stop which might be taken out more easily. In most cases it's better to adjust to a smaller trade size so-as-tosothat-to give your trade transaction more room for fluctuation, by placing and setting a fair level for this order while at the same time limiting the trading risk.

5. Trading Account Capital - If your account is under-capitalized then you will not be able to set/place your stop losses accordingly, because you'll have a large sum of money in a single trade which will constrain you to put very close stops. If this is case, you should think seriously about if you have enough capital to trade Crypto in the first place.

6. Market conditions - If the btcusd crypto price is trending upward, a tight stop might not be necessary. If on the other hand the bitcoin price is choppy and has no clear trend direction then you should set a tight stop loss order or not open any positions at all.

7. Time-Frame - the bigger the chart time frame you use, the bigger and larger the stop should be. If you were a scalper trader your stops would be much tighter than if you were a day or a swing trader. This is because if you are using longer chart time-frames & you figure out the bitcoin price will be move upwards it doesn't make any sense to set and place a very tight stop loss orders because if the bitcoin price swings just a little, your order will be hit.

The method of setting that you choose will mostly depend on what type of trader you're. Most oftenly used method to figure out where to set is - resistance & support zones. These areas give good points for setting these stop orders as they are the most reliable zones, because the support and resistance areas won't be hit many times.

The technique of how to set these stop loss orders which you select should also follow the trade rules above, even if not all of those apply to your bitcoin strategy.

More Topics and Tutorials:

Trade Bitcoin Trading

What's a SL Bitcoin Order? & Factors to Consider When Setting

Factors to Consider When Setting