Lesson 5: Stop-Loss Strategy | A must needed for traders

2018년 5월 19일

Hello Traders,

I am back with yet another helpful lesson for y'all. This one is a must needed for any trader, and it is extremely important to get this right. A lot of people face a situation when they buy a coin at a higher price, and it just starts going down, and you just hold it in the hopes that it will go up soon. But instead, it just keeps going down more and more. Believe it or not there are many people out there who are still holding that coin because of just one mistake. They did not had a stop-loss order opened after they bought a coin. If they had a stop-loss order opened up, they would have been out at a minimal loss rather than waiting few months for the coin to come back up. If they had set up a stop-loss order, they could've bought the coin at its lowest, and then earned all those profits in lesser time.

Don't you worry. I will go over this in a simple way so you can understand this topic really well. Keep in mind this is extremely important to cut your losses especially when we are not sure about the direction that BTC is heading in.

Below are the topics we will go over today:
What is a Stop-Loss Order?
Strategize your Stop-Loss order price
Advantages of Stop-Loss
Disadvantages of Stop-Loss

Note: For the above topic, please refer to the BTC chart above.

Lets go over the topics now.

What is a Stop-Loss order?

A Stop-Loss order is an order set by a trader which will sell the coin if its price reaches below a set price (Stop Price) in this case. Basically if we buy a coin at $10, and you set a stop price at $8. Now, if the coin goes below $8, and if you have a Stop-Loss order up, it will open a Limit Order at the limit price you gave once the price reaches below your set Stop-Loss price.

In simple terms, lets look at an example below:
i0.wp.com/www.bitbaba.xyz/wp-content/uploads/2017/12/stop-limit-satis-kullanimi.jpg?resize=300,198&ssl=1

Coin Buy price: 23000
Coin Stop: 20000
Coin Limit: 19000

Refer to the link above to see a image of how stop-loss looks like on Binance.

Now lets say you buy a coin at 23000, and after you buy it, you set a stop-limit sell order with a Stop price of 20000, and sell (limit) price of 19000. So now once your coin goes below 20000, the system will automatically open a sell order at your set limit price which in this case is 19000. The benefit of this is that it cuts your losses if the coin keeps going down from that level.

I know what you might be thinking right now. What if the coin doesn't keep going down from that level. This would go against you then. You are correct, but it is extremely important at what price you set your stop loss order at. We will discuss that strategy in the next topic below.

I hope it is clear to you so far. That was just the intro on what Stop-Loss actually is. Now we can look at what sort of strategy we can use around it.

Continue reading below....

2018년 5월 19일

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Strategize your Stop-Loss order price

For this part we will look at the chart above.
There are two ways we can set our stop-loss orders:
1. Timeframe using percentages
2. Below Support Zones

1. Timeframe using percentages:
This method is the one that I do not recommend, although many trades use this to set their stop-loss orders. So basically the shorter the timeframe you are doing the trade in, the tighter your stop-loss would be. This is totally up to an individual trading style. If you are doing a trade on a 5min - 30min timeline, you would set a stop-loss at around 5% below your buy price. If you are looking to hold for long term, you could open a stop-loss order at around 10-20% below your buy price. This is pretty simple. But I do not recommend this because you do not know where the support levels of a coin are if you are using this method. You are just taking a guess at it. You can lose money in this and then regret not setting a stop-loss at a correct place. A better way to set your stop-loss would be below the support zones or before a pattern support. Lets go over that in details.

2. Below Support Zones:
So here is the exciting part. I was talking about a better way to set your stop loss order correct? We know that most of the times, a price bounces off a support, unless there is some mass sell of and the price dips a lot. So why don’t we put our stop losses right below those support zones? This way we know it might just bounce off the support. If it doesn’t then our stop-loss will get triggered and then we can buy the coin again at a lower support level. Lets look at an example.

In the chart above, you can see that I have the support lines drawn at the price levels where the price had bounced from. Also we can see the BTC is currently in a falling wedge. The bottom line of the wedge is the support. Lets say we bought BTC right at the support level at 7949.07. So as I said, we should be setting our stop-loss order below the support line, and notice here, I do like to count in the wicks from the candles when we are drawing a support line too. Now lets say we set a stop-loss right below our support as around 7889. If BTC has fallen that deep, and our stop loss had triggered, the chances would be that it would go down to the next support level, and we then buy it on the bounce off of the next support level.

This was just an example. I am sorry, if I’ve not been clear enough. I tried. The idea here is to set a stop-loss order a little below the support line, and above the next lower support.

This way you can buy a coin, set a stop-loss and go to sleep without any worries of losing big on a trade. Also, this way assures that you will always remain in the game. A lot of people do not set stop-loss and end up in a trade for a long long time.

Now that you’ve understand how and where to set a stop-loss, I would suggest you to try this with small amount of trades and get a better handle at this before going for big trades. Let us go over some advantages and disadvantages of stop-loss.

2018년 5월 19일

노트

Advantages of Stop-Loss:
* Do not have to monitor a stock all the time especially when you are spending some family time or busy with other things.
* Allows you to make a decision without any emotional feelings coming in between.
* This makes you more confident to go in a trade and not worrying about a big loss.
* You make yourself secured from incurring bigger losses.

Disadvantages of Stop-Loss:
* The only disadvantage of a stop-loss is that sometimes when a sudden fluctuations in price trend happen, your stop-loss might easily get triggered. This is where and why we want to set stop-losses below support levels rather than picking up random percentages.



Lets Summarize:

* You first draw your horizontal support lines, below the current price.
* Draw any patterns you see the price trend forming.
* Once you set your entry, put a stop loss right below the nearest support level.
* If your stop-loss order gets filled, buy the coin again at the lower support level and repeat the steps.

Remember one thing, stop-loss orders do not guarantee that you’ll make money in this market, for that you still have to make better trade decisions which you can improve at by following the previous lessons. But with stop-loss even if you make a bad decision, you will lose much less and much slower than without a stop-loss order.

So, always have your stop-loss ready.

Trading Rule: If the trade starts going against you, do not give the trade more “room to breathe,” by moving to stop further away from your entry. Ir rarely pays off.  If you move your stop to avoid taking the loss, you are defeating its protective purpose.

I know this might be confusing for a lot of y’all to understand, but take it step by step and it is fairly simple. If you have any questions, I am always here for you to answer them, or just the telegram groups below to reach me. I hope it is helpful for y’all. I will be back with Lesson 6 really soon which will be on Breakout Patterns.

Stay Tuned and Happy Trading!