What is stop loss?
Many questions have been asked by our followers about stop loss and how to benefit from it to prevent or reduce losses during trading.
The importance of stop loss:
1. Minimize losses: Prevents large losses that may occur as a result of market fluctuations.
2. Controlling emotions: It helps the trader to make informed decisions rather than emotional reactions.
3. Risk Management: An essential part of a trading strategy.
Examples of stop loss:
Example 1: Simple Stop Loss
• Let's say you bought BTC at $100,000.
• You expect the price to rise, but you want to protect yourself from big losses.
• Stop loss is set at $98,000.
• If the BTC price drops to $98,000, a sell order is automatically executed, limiting your loss to $2,000.
Example 2: Dynamic Trailing Stop Loss
• I bought ETH at $3,500.
• The price started to rise and reached $3,800.
• You can use a trailing stop loss of 10%.
• If the price drops by 10% from the highest price, the sale will be made automatically.
Example 3: Using Percentage
• You decide to risk only 5% of your capital.
• If your capital is $10,000 and you buy a currency at $100.
• You place a stop loss at $95 (5% below the purchase price).
Tips for setting stop loss:
1. Don't make it too close to the entry price: because that may trigger your stop loss due to minor fluctuations.
2. Calculate the risk/reward ratio: The ratio should be reasonable (such as 1:2 or 1:3).
