Stop-losses are a risk management tool used to limit losses in trading. It is an order that automatically closes a position if the asset price reaches a specified level. The main goal of a stop-loss is to protect your capital from significant losses.
How stop-losses work:
1. Setting the price level:
You specify the price at which your trade will automatically close.
2. Activation:
If the market moves against you and the price reaches the stop-loss level, the order is triggered, limiting the loss.
3. Use for risk management:
Stop-losses help adhere to the trading plan and avoid emotional decisions in a volatile market.
Example:
You bought cryptocurrency for $100, expecting the price to rise. However, you don't want to lose more than 5% if the price goes down. You set a stop-loss at $95. If the price drops to $95, the order will automatically close, minimizing losses.
Advantages of stop-losses:
Limit losses: You know in advance how much you are willing to lose.
Automation: No need to constantly monitor the market.
Discipline: Helps to stick to the strategy and avoid impulsive decisions.
Tips:
1. Choose the level reasonably: Consider the asset's volatility and analyze the charts.
2. Don't set the stop-loss too close: This may lead to premature closures due to market fluctuations.
3. Use a trailing stop: This is a moving stop-loss that automatically adjusts in favor of profit if the asset price moves in your favor.
On Binance, stop-losses can be set up through 'Stop-Limit' or 'Stop-Market' orders. If you need help with specific steps, let me know!