Bitcoin Forum

Note: This article shows why the use of stop loss is 100% mandatory, despite what suicide traders (who call themselves professionals may say). This article comes from someone with over 60 years of experience in various financial markets.


Would you ever think of jumping out of an airplane without a parachute? Of course not, but that's what some people do when they trade the markets. They are very willing to put their money on the line, but they don't have much to protect them from a major disaster. Placing a stop, for example, can prevent you from allowing a small loss to turn into a big one, but many traders avoid placing stops. Why do some traders take risks by not placing stops? It can be difficult to know where to place a stop. If you fail to account for volatility, you will get stopped out too soon. Other people are afraid to place stops. Placing a stop requires you to consider the worst-case scenario, and to many, it's difficult to consider failure. It's easier to deny the potential problem, and to pretend it will not possibly happen. Many experts, however, suggest placing stops. They know that nothing is certain when trading the markets. They view protective stops as a kind of insurance policy that prevents a catastrophic loss.

One seasoned trader I talked to, says "I never take a trade without knowing my stop. When I take a trade, I'm pretty convinced it's something worthwhile. I've already figured out my stop. I've accepted the (potential) loss before I ever clicked the button or made the call. So if it starts going against me, I don't feel a flood of emotions." For that trader, stops not only protect him from losses, but they help him control his emotions. Stops give him a feeling of security, and allow him to feel calm and relaxed.

Experienced traders may use stops all the time, but even the most experienced traders have difficulty following them. For example, one trader I know, admits, "I've blown stops and it's painful. The weird thing is that money does not seem to be driving it. Afterwards, I sit and try to analyze the incident. I certainly knew better. I believe trading is something of a self-journey. It involves learning about your character, your self-control, and your ego."

Still another trader also admits he blows his stops: "Sure. That happens all the time. There's nothing I can do about it. That's one of challenges that continue to engross me. Do you hold them or do you fold them? If you fold a long position and prices go up, you get angry because you made a mistake. If you hold a long position and prices go down, you become angry again. Nevertheless, you have to stay focused on what's going on and learn from the experience and try to apply it to the future. You're going to take your lumps in the market."

Even though stops are difficult to set and difficult to keep at times, they are an essential component of risk management. Losses are commonplace in trading. As hard as it is to focus on losses, they are impossible to avoid. Rather than avoid thinking of the worst-case scenario, face it head on. Figure out what could go wrong and where you can place a stop to protect you from a huge financial loss. In the long run, you'll find you will limit losses and trade more profitably.

Author: Joe Ross
Source: TradingEducators.com


The note below ends this piece.

“So, what is a trader to do?  Well, one of the things to do is to re-evaluate the way you envision the markets and your relationship to loss.  What you want to develop is an I don’t care attitude regarding your trading.  You must look at the markets as being exactly what they are, totally unpredictable. 

No matter how good a level looks, it is not a foregone conclusion that any particular outcome is definite.  What we look for is the high probability trade. There are times when the probability may get very close to 100%, but no matter how close it gets it can never be 100%.  This means that whenever you enter a trade you must embrace it as a possibility for loss. When you do this, it detaches you from the loss potential because you are prepared for it.

Of course, you already have begun this process whether you realize it or not.  You have put in a hard stop! This is imperative. The stop’s first and main job is to protect your capital.  If your capital is gone you cannot trade, so it follows that this is the most important part of your trading; and, of course it is derived from an appropriate risk calculation.” – Dr. Woody Johnson (Source: TradingAcademy.com)


www.tallinex.com wants you to make money from the markets.

Stoploses very often leads to looses because in this unregulated market coins price can jump -20% in 1s to jump back to its backprice only to eat stoplosses. Atacks on stoplosses happend here every day. If you have possibility i would rather set some kind of allarm or monitor trade with "mind stoploss".

Forex, stock are regulated and -20% jump is not happening. There are also insitutional investors setting huge walls making stoplos attacks less profitable (that makes them happend less often).

Trading in forex and stocks is much different in crypto.

If you trade with Altcoins you trust like ETH/XRP will only mean that nothing is loss if you set a price. If your buy orders aren't picked, it doesn't matter you still own the coins and if its picked, you own another coin still. Where as in FOREX there is a margin call which will exit your open position and you loss money.

If you are familiar with the market, you don`t need stop loss orders.I was having negaitve experience with stop loss orders,when I was trading on eToro 3 years ago.I was young and newbie trader and all my trades where red,because of the stop loss orders.I recommend using stop loss,only if the market is in a bullish trend.

But this is exactly how the market works and that is why the stop-loss orders are made, so that we don't blow up our accounts immediately but to blow that particular proportion we want to lose in a trade as stop-loss.

Imagine what would happen if the stop-loss are not in place and the jump happens?

Im talking about atacks on stoploses.
https://i.imgur.com/expbInz.png

This scenerio. Imagine where would you sell if you would have stop-loss on it? On the f... bottom with 1/10 of your investment because you order will appear in orderbook after this big order which eat walls and will be realised last on the lowest price set by this guy who attack. Stop-limit could safe you from that but stoplimit wont protect you from this scenerio:

https://i.imgur.com/tz0TS6I.png

If those red candle was set by 1 huge sell order becouse your order will pop in orderbook after realisation this huge order without realising yours (your stop-limit price will be too high. Thats why its very hard and sometimes very risky to set stoploses on unregulated small market susceptible for stoploss atacks.

Whales also loves to eat stoploses because 90% of investors set it in the same place. Thats why when you are a whale you know execly where huge supply will apear. I bet that now 90% bitcoin traders have stoploss on one of those points : ~6050-6100 or ~5900-5950

Marketcaps in crypto are lower and coins are easier to manipulate. A lot of profitable traders dont use stops at all...

Stop lost is a great strategy and its a must in trading, we know that the market could be unpredictable and can suddenly drop so fast, some people consider stop lost as the act of admitting lose and ready to lost money, but if we used it correctly it can help us to prevent more lost

Have you really withnessed a very strong news that is very decisive? It becomes very volatile and its effect could be felt through out the week. Sure news cause a very huge jump and can close a big account that is traded without stop-loss.

To prevent the lose,we have to act wisely.Huge reduce in the price of bitcoin and altcoin now.Since their is no negative news about crypto currency.Then why the price is not start to increase.To avoid the price loss we have to hold the bitcoin.We know the price will increase,then why should we have to sell at low price.

Apart from trading crypto on an MT4, I doubt if any one can use stop loss in his trading on a normal exchange. In crypto, unlike forex trading, stop loss seems irrelevant. You open trade in crypto and hope it goes up you win.

I show you on picture what i mean by -20% in one minute and back to the same price. My post totaly describes whats are the risk with stoploss and stoplimit. How stoploss wile atacked can turn your portfolio into 1-10% of your investment and how stoplimit could not save you in some circumstances. And it didnt have anything with news. Its just speculative atack on stoplos. Look at picture. Thats why stoploses on crypto has huge risk. I can put here dozens of screens of ataks like that. You only need to set buy order at 1% price and than destroy walls with huge sell order and all stoploses are hitting your offer at 1%  of value. Put here 1 atack like that from forex... Thats why on forex stoploses are mandatory beacause there is less risk with stoploss atacks.

https://i.imgur.com/q0vO1vP.png

BQX BNT and even XLM atack on stoploss. Just 3 finded in 3 min. Thats what im talking about. News has nothing to do with that.

-20% sudden jump on forex or stocks market can really be considered as price manipulation which people behind or institutions would be subjective to be investigated but since we are talking here about crypto then those kind of percentage jumps arent rare which it do almost happen everyday,imagine how many coins in the market is being traded those kind of red long candles can really eat up stop losses.Its good to have SL but once its being hit up then its considered as loss compared on having no SL where you can still able to hold of on your current position.

Totally agree with you, crypto is not like stock market and crypto trading definetely is not like jumping out of an airplane. I am better off as I don't use it.

I have never used one single stop loss order while I was trading. Instead, I have always believed that from time to time massive 'dumps' do pop up in certain artificially triggered situations, which is why I always used to have very low buy orders waiting on various levels. Ironically, instead of leaving my buy orders open, I withdrew them and then a week or so later, BTC-E tanks from close $700 to $102.

Admittedly, my buy orders (before I withdrew them) were more in the range of $400 at that time, but still, it would result in a quick profit that I missed out on.

GREED Is the only reason
They just want as much profit as they can, and they do not want to lose money because of the stop loss, that is why

The reason why people from crypto trading doesn't really use stop loss is because the crypto market is so volatile ,
The market could go down for a couple of hours then go up after a couple of minutes ,
They couldn't really predict what would happen next so they choose to hold their coins or token.

because they are too greedy to create their profits.
whereas if we refer to our own finances, if we trade and have to lose 1% it is normal, than you trade but the loss is up to 70%.

That must be painful.

The best way to explain from those people are because they hate losing even for a small amount of money, and that loss becomes huge until they want to get out.

They aren't called suicide traders for nothing. I bet the stop losses aren't gonna stop cuttibg losses if that's what the article wants you to believe to. In this world,  in any field,  if the risk is great and the rewards are big and you have all the resources you need,  the stop losses will be considered small if they  can benefit big from it.

Greediness is the root of all of these. They turn the trading into gambling. If you they would just patiently wait for the perfect time and for the perfect position to place their entries they will not lose the trade.

Using stop loss is not necessarily a good thing or bad thing I think it is a matter of choice depending on the strategy trader use. I don't use it, rather I do it myself.

I don't think this is related to greed. Some traders don't use stop-loss because they don't have any knowledge of the market, or they don't know the risks in this market. They don't know how to "manage capital" or "manage risk".

This answer deserves a merit.Its just short but do direct to the point which i do completely saw the same thing.I had already make some explanations earlier but i would like to add up that using stoploss would vary on what kind of trading you are into. If you are on long term then its not necessary but if you do make swings or shorts then its your decision on how deep would be your stop loss and how high would be your take profit.Its just like that.

It is everything about the money management system. Surely, every professional or experienced trader knows that respecting the money management system is a key to success. Amateurs so not use the money management becaus they do not know how to use it correctly. There is another important problem when amateurs cannot cut their losses by closing thier losing positions in the hope of the changing a situation to their way. I cannot blame them for that because I know how it is difficult to close a position with losses especially if in that position you was absolutely sure.   
I have noticed else that traders who have small capital do not use the money management because it is not interesting to trade by respecting risk management as an income in that case is very small

Using stoploss might lead to severe loss in trading as the market can go lower than your cutloss point and recover, emd up you lost money, it is very hard to pick up a cutloss point as the high volatility of this crypto
World, that why many traders don’t want to use it

yes I agree, stop loss is very helpful in minimizing losses
the method that I used to use stop loss is 20-40% of my purchase price and below the coin support point because the coin that falls past the support point will go down deeper, and if for long term for example the coin I buy goes up I will raising my stop loss little by little in line with the increase in the coin
note you must be 100% sure in installing stop loss because so there is no regret in that, because in some cases the price touches our stop loss and then the price bounces, some people may think I am losing even though the price goes up, such thinking will make we are hesitant to use stop loss because it believes 100% with the decision that you take to stop loss is a mandatory thing to support your mentality because sometimes you are saved from a big loss or failure in profit, so it's immediately decided then accept without regret

My last 3/4  trades I was stopped out on all occasions, and the market turned in my favour on all the occasions lol...

Rather than have made an easy $1000+ dollors im down about $300/400.  Its happened to me a number of times this last month..


I have been trying to analyse and see what I could have done differently, What were my mistakes etc.

My trading style is to try and catch trend/move reversals.  I Favour undersold/oversold RSI divergence etc as well as try to catch the pullbacks of sharp/sudden moves. Like the ETC pump yesterday.  I shorted ETC at 14.50, could have taken $100 profit but was convinced it was going to go down further... I was stopped out a bit later at 14.85... AND then it reversed down to 13.69 something.... so was well annoyed.

Placing a stoploss can be very tricky, and in my case, I placed too close to price action which resulted in a loss rather than profit.

Not placing as stop loss is extremly dangerous too, especially with crypto as coins can drop 20%+ in value within no time, however out of the two scenarios I think having stops is a must, like the previous OP said.  It helps with the emotions, you accepting a small calculated loss, allows you to trade another day!!!

It's actually a technique they use in the forex and other markets called "stop grabbing" where they clean out orders by striking stop losses before entering a larger order in the other direction. This allows them to gain further momentum with their gigantic moves and slingshot their way to profits. You can see it almost every morning on the London opening on major pairs like USD/EUR, EUR/GBP, etc.

Stop losses are necessary because they help you to calculate risk, but they absolutely need to be placed far away in crypto because of the volatility. This is why I don't really like trading crypto with leverage for long term positions. It's hard to keep yourself from getting hit.

In this issue, I fully agree with you, but the main reason seems to me to be laziness. People are just lazy and do not want to learn something new and therefore do not use stop loss.

i honestly don't like using stop-loss in all of my trades for various reasons :
1- whales tend to manipulate the prices through make a little dump to activate all stop-losses of conservative traders and thus huge false low followed by a
 big bullish bar.
2- crypto market isn't like other markets (forex,stocks) as even if i'm losing in some coin , i won't consider this trade as a loss as i'm still HOLDING , so maybe i'll just make it a long-term trade.

If you have experience what they called " stop loss hunting' you will understand how frustrating stop loss can be sometimes. Market will go your way just after hitting your stop loss and this is the main reason behind not using of stop loss. However, this is a very bad habit and should be avoided if one is to remain profitable on the long run. One philosophy that have been helping me is... ' minimize your risk and maximize your profit'

They believe that their strategy is perfect and greedy, those are the main reason why trader not use stop loss for safety. There's no perfect strategy and because greedy some trader change their stop loss point or ignore it, this behavior should be leave for good. I believe everyone already know this thing but they don't have disciplines and have wrong faith, trading is easy.

When firstly i jump in to crypto trading, i used exchange that does not have function stop limit order and this is one of the my reason dont use stop loss. I did not know if any others exchange offer stop limit order. Dont use stop loss in trading just the same thing like we are playing gamebling, and this my mistake bring me loss alot of money. And for now i trading only on the exchange that offer stop limit order because stop loss should be use whenever make open potition.

Greediness is root of all non-attractive qualities. We hate some attributes that mustn’t be possessed by a man, greed grow them in you. Be sensible when you are trading. Don’t let your train run on track that leads you to greed. It is natural that you want more money every time but don’t let this cause be the cause for your destruction. Keep things under your control.

Yesterday all price of crypto dumped hard just afew hours but i loss only 5% because i used stop loss, if i did not use it will be possible i loss more than 10%, so stop loss is very important in trading to reduce the loss. Stop loss also will helpfull to recover the loss soon, because we can buy more in cheaper price so when the price going up again, loss will be recovered and we will make some profit as well.