What is a Bitcoin Stop Loss? and the Aspects a Trader Should Consider When Setting Stop Losses

Stop Loss is a type of Bitcoin trading order that is placed after opening a Bitcoin trade that is meant to minimize losses if the market moves against you. It's a predetermined level of closing a losing trade position and it's meant to control losses in trading.

A stop loss order is an order placed with your online broker who will automatically/mechanically close-out your trade when the BTCUSD price gets to a pre-determined price. When the specified level is attained, your open trade is liquidated so that to cut your trading losses.

These stop losses are meant to limit the amount of money which a trader can lose: by closing out the trade position if a specified price that is againstcontra-tocontrary-tocounter-to the trade is reached.

For example illustration, one might buy BTCUSD at $5950.000, and place a stop loss at $5900.000. If the BTCUSD price moves against you and reaches $5900.000, the stop loss order will be filled ==22==& the transaction will be closed out thereby limiting the loss to 50,000 points ($50).

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

One of the most advanced things in BTC USD Bitcoin cryptocurrency trading is setting these stop losses. Place the stop loss orders too close to your entry price & you're liable to exit the position because of some random price volatility. Place it-toothe-stop-loss-order-too far away and if your'e on the in the opposite market trend side of the trend, then a small loss may turn into a big one.

Critics will point out several disadvantages of using these orders; that by setting them you are guaranteeing that should your open position position go in the wrong direction, you-willyou'll end up selling at lower prices, not-highernot-at-higher-prices.

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

Experienced Bitcoin traders always use stop loss orders as they are an important part of the discipline that's required to succeed because they can prevent a small loss from becoming a large one. What's more, by diligently setting these stop losses whenever you enter a position, you end up making this important decision at the point in time when you're most objective about what is really happening with BTCUSD market price, this is because most objective technical analysis is done before opening a trade. After entering market a trader tends to interpret and analyze the market much differently because they have a bias towards a particular side, the direction of their market trading analysis.

Unexpected news can come out of the blue & dramatically affect the BTCUSD price: this is why it is so crucial to have a stoploss order. Its best to cap losses early when a trade is moving against you, it is best to cap your losses immediately rather than waiting for it to become a big one. Again, if you set your stop orders when you're opening a trade transaction, then that is when you're most unbiased.

A key question is precisely where to place this order. In other terms, how far should you as a trader set this below your buy price? Many BTCUSD traders will tell you to set predetermined - max acceptable loss, an amount that is based on your equity balance rather than use of indicators of the BTCUSD pair.

Professional money managers advice that you shouldn't lose more than 2% of your account equity on 1 single BTCUSD transaction. If you have got $50,000 in trading capital, then that would mean the maximum loss you should set for any single transaction is $1,000.

If you bought 10 standard lots of a BTCUSD pair, then you'd limit your risk to no more than $1,000. In which case you would put your stop loss at 100,000 points ($100 per each lot) & would have $49,000 left in your account if you exited the trade position at the maximum loss allowed. The topic of money management principles/guidelines & risk management is wide and it's discussed under money management topics.

Equity Management Introduction - Learn Money Management Methods

Factors to Consider When Setting StopLoss Orders

The more important question is how close or how far this order should be set from the price where you entered and opened the BTCUSD trade position. Where you put this order will depend on various factors:

Since there aren't any rules set in stone as to where you should put these stop loss levels on a Bitcoin price chart, we follow general rules which are used to help set these stop losses correctly.

Some of the general guidelines used are:

1. Risk - How much is a trader willing to lose on one trade? The general rule is that a btc usd trader should never lose more than 2 percentage of the total equity on any 1 single BTCUSD trade.

2. Volatility - this refers to the daily price range of the BTCSUD pair. If the BTCUSD pair routinely moves up and down in a range of 100,000 points($100) or more over the course of the day, then you can't put a tight stop loss. If you do, you'll be taken out of your trade by normal volatility.

3. Risk: reward ratio - this is the estimate of the potential risk:reward. If the market conditions are favorable then it's possible to comfortably give your trade position more room. However, if the market is too choppy it then becomes risky to open a trade position without a tight stop loss, then don't open the trade position at all. The risk:reward ratio is not in your favor & even setting tight stops won't guarantee profitable results. It'd be more wise to look and search for a better trade setup next time.

4. Position size - if the position size opened is too big then even the smallest decimal point movement will be fairly large in percentage terms. This means that you have to set a tight stoploss order which might be taken out more easily. In many cases it is better to move to a smaller trade position so-as-tosothat-to allow your Bitcoin position more space for fluctuation, by placing a sensible level for this stop loss order while at same time reducing risk.

5. Trade Account Capital - If your ==22==trading account is under-capitalized then you will not be able to set/place your stop losses accordingly, since you'll have a big amount of money in a single trade position which will force you to put very tight stop losses. If this is case, you should consider seriously about if you have enough capital to trade Bitcoin in the first place.

6. Market conditions - If the price is trending upwards, a tight stop loss might not be necessary. If on the other hand the price direction is choppy and there is no clear direction then you should use a tight stop loss order or not open any Bitcoin transactions at all.

7. Timeframe - the larger the chart timeframe you use to trade Bitcoin Crypto Currency, the larger the stop loss set should be. If you were a scalper your stop losses would be much tighter than if you were a day trader or swing trader. This is because if you're using longer time-frames to trade and you determine the price will be moving up it does not make sense to set a very close stop loss because if the Bitcoin price swings a little then your stop loss order will be taken out.

The formula of setting stop losses that you choose will significantly depend on what type of Bitcoin trader you're. Most common used technique to figure out where to set stop losses is - resistance and support areas. These areas give good points for placing these stop loss stop orders as they are the most reliable levels, because the support and resistance levels will not be tested many times.

The formula of how to put these stops which you choose should also follow the guidelines above, even if not all of them, at least those that apply to your Bitcoin trade strategy.

Study More Courses & ==22==TutorialsGuidesCourses:

• How Can You Open a Demo MT5 Trade Account in MetaTrader 5 Software?
• How to Sign up BTCUSD Trade Account Procedure
• What's BTCUSD Trade System?
• Best Time of Day to Trade Bitcoin Cryptocurrency
• What is an Bitcoin Example illustration of a Trend Reversal?