Stop Loss
A stop-loss order (also known as a ‘stop loss’) is placed with an exchange (or trading platform) to sell a crypto token when it hits a certain price point. This is designed to limit the loss on a position. A stop-loss order is usually placed after entering any trade in order to set a maximum loss the trader is willing to tolerate.
To set a stop loss, a trader must first identify a price point at which they no longer will want to hold the position. This may be a percentage below the entry price, a specific price level, or below a technical indicator like the moving average or support level.
Common stop-loss strategies include:
Price percentage-based:
Place a stop loss X% below the entry price. For example, if a trader buys BTC at US$30,000, they may place a 5% stop loss at $28,500. This limits the maximum loss to 5% if the trade moves against them.