Trading Lesson: Stop loss Strategies

[TitanGEL]

Hello guys! I just want to give you an idea and concepts about how to set stop loss or cut loss. I created this thread because I observed that most of the traders here in the forum are just buying certain cryptocurrency without set of rules and also without risk management. Let’s define first what is cut loss or stop loss, cut loss is simply a strategy or concept that you can use in order to protect your capital. I’m sure that there are some of you that have these thoughts in your head like “why do I even bother to learn it?”. Remember this!!! Without a cut loss strategy in every trade, for sure that your portfolio will be wipeout immediately. This is the example if you will not put stop loss or if you will not consider any risk management.

This chart is the daily chart of Litecoin. It created double top pattern last February and imagined that you buy in that price without a cut loss strategy. When it breakdown, it created lower lows and lower highs and it is simply sign of downtrend. This is the reason why stop loss should be part of our rules whenever we enter in a specific trade.




These are the 3 Stop loss strategies


1.   Technical based. This stop loss strategy is a concept where you rely on price action, price structure, oscillator or indicators when setting a stop loss. The most common stop loss is placing below the support level Let me give you an example.

Exhibit A
This chart is hourly chart (1h) of BTC/USD. As you can see that the price is ranging between the support level at $9350 and $9476. If you want to enter through long position in that trade, the ideal stop there is at below support level which is at $9350. Remember that it requires discipline because a real trader have a set of rules that he/she should follow. Whenever the price reached that level, make sure that you will sell your positions in order for you to not suffer major losses.



Exhibit B
This chart is hourly chart (1h) of BTC/USD. Unlike the other one, this cut loss strategy is relying on the indicator that I use which is 100 MA. Whenever the price reached this area, I immediately sell all of my positions in order to protect my capital.





2.   Time based. This stop loss strategy is a concept where you rely on time or date. For example, you have a time base stop loss strategy and you set it within 5 days, when the price never reaches your target profit within 5 days then you will sell your position. This kind of strategy is for experiential trader.


Exhibit A

This chart is the daily chart of BTC/USD. For example, you bought BTC in its current level which is at $9393 and your target profit is at its current resistance level at $10470 and you have a time base stop within 5 days. You will only close your position if the price reached it within 5 days or if the price doesn’t reach the target profit in the given time period.



3.   Percentage based. This stop loss strategy is a concept where you rely on percentage of a certain cryptocurrency. According to some experts in trading, the ideal percentage stop is at -8%. It only means that if the cryptocurrency that you buy reached -8%, you should immediately sell it.

Exhibit A.

This chart is the daily chart of ETH/USD. For example, you bought ETH at its current level which is at $244 per each, the ideal stop loss in percentage is when the price reached the -8% which is at $227 per each.




Thank you so much for everyone, I hope you learn concepts and ideas from this. Please use it whenever you trade in order for you to protect your capital and also to have consistent earning in the market.

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[palle11]

   
Please use it whenever you trade in order for you to protect your capital and also to have consistent earning in the market.

Is nice to use stop loss but sometimes the purpose can be defeated when you consistently hit it. It takes your profit and capital off. Stop loss is not really a strategy but a way to minimize losses if you have a strategy 

[LeGaulois]

I know it's something obvious for some users but it's good to add that it's not free. When a stop-loss order is executed, so a market order, it incurs taker fees.
You forgot to mention the Negative offset from the current market price, which is similar to percentage-based, for those lazy with percentages.

There are also more advanced Stop loss limit orders

[maxreish]

   
Please use it whenever you trade in order for you to protect your capital and also to have consistent earning in the market.

Is nice to use stop loss but sometimes the purpose can be defeated when you consistently hit it. It takes your profit and capital off. Stop loss is not really a strategy but a way to minimize losses if you have a strategy 

And that was happen to me often times because my stop loss always triggered and hit. But honestly, I didn't know there is a good way on what price will we put stop loss. I just set on that below resistance level price and sometimes above it when entered long position. Though it will lessen our huge losses, the market is so tricky but it really be a great help not to be liquidated the whole fund.

[crwth]

I like how you made the use cases on how Stop Loss could be used and utilized. The Time-based one is the one I'm not that familiar. I haven't thought about using time as a factor in trading. I always focus on the price and how much it would go in one direction. I don't think it's going to be quite useful on my strategy, but it's nice knowing that type. Maybe we could incorporate it in our bot, Gunbot. Time-based strategies, but I doubt it's going to occur most of the time.

There are also more advanced Stop loss limit orders

Trailing stop-limit, I think, could be considered with this advanced application, right?

[cheezcarls]

Hello guys! I just want to give you an idea and concepts about how to set stop loss or cut loss. I created this thread because I observed that most of the traders here in the forum are just buying certain cryptocurrency without set of rules and also without risk management. Let’s define first what is cut loss or stop loss, cut loss is simply a strategy or concept that you can use in order to protect your capital. I’m sure that there are some of you that have these thoughts in your head like “why do I even bother to learn it?”. Remember this!!! Without a cut loss strategy in every trade, for sure that your portfolio will be wipeout immediately. This is the example if you will not put stop loss or if you will not consider any risk management.

This chart is the daily chart of Litecoin. It created double top pattern last February and imagined that you buy in that price without a cut loss strategy. When it breakdown, it created lower lows and lower highs and it is simply sign of downtrend. This is the reason why stop loss should be part of our rules whenever we enter in a specific trade.




These are the 3 Stop loss strategies


1.   Technical based. This stop loss strategy is a concept where you rely on price action, price structure, oscillator or indicators when setting a stop loss. The most common stop loss is placing below the support level Let me give you an example.

Exhibit A
This chart is hourly chart (1h) of BTC/USD. As you can see that the price is ranging between the support level at $9350 and $9476. If you want to enter through long position in that trade, the ideal stop there is at below support level which is at $9350. Remember that it requires discipline because a real trader have a set of rules that he/she should follow. Whenever the price reached that level, make sure that you will sell your positions in order for you to not suffer major losses.



Exhibit B
This chart is hourly chart (1h) of BTC/USD. Unlike the other one, this cut loss strategy is relying on the indicator that I use which is 100 MA. Whenever the price reached this area, I immediately sell all of my positions in order to protect my capital.





2.   Time based. This stop loss strategy is a concept where you rely on time or date. For example, you have a time base stop loss strategy and you set it within 5 days, when the price never reaches your target profit within 5 days then you will sell your position. This kind of strategy is for experiential trader.


Exhibit A

This chart is the daily chart of BTC/USD. For example, you bought BTC in its current level which is at $9393 and your target profit is at its current resistance level at $10470 and you have a time base stop within 5 days. You will only close your position if the price reached it within 5 days or if the price doesn’t reach the target profit in the given time period.



3.   Percentage based. This stop loss strategy is a concept where you rely on percentage of a certain cryptocurrency. According to some experts in trading, the ideal percentage stop is at -8%. It only means that if the cryptocurrency that you buy reached -8%, you should immediately sell it.

Exhibit A.

This chart is the daily chart of ETH/USD. For example, you bought ETH at its current level which is at $244 per each, the ideal stop loss in percentage is when the price reached the -8% which is at $227 per each.




Thank you so much for everyone, I hope you learn concepts and ideas from this. Please use it whenever you trade in order for you to protect your capital and also to have consistent earning in the market.

I had to admit that this is a well-detailed explanation about the strategies of stop losses. This is definitely helpful for newbies, beginners and average traders who are struggling to profit in trading because of not learning so much.

There are so much things to learn here in cryptocurrency trading, and I would definitely bookmark this thread of yours man. Despite that there are no guarantees in cryptocurrency trading due to the unpredictability of the market nowadays, this would really improve our trading skills.

Thanks for this detailed explanation man. Really appreciated it.

[jossiel]

Thank you for the trading lesson about stop loss. I mostly use the technical-based, it's the most common stop loss strategy and even the stock market traders are using it.

Stop loss is not really a strategy but a way to minimize losses if you have a strategy  

Cut loss is a strategy to avoid further losses.

[bitgolden]

I am using trailing-stop-loss which is derived from technical analysis and percentage based.
When your entry and exit points are provided by technical analysis then your stop-loss also should be derived from same technical analysis. So, there is no point of using time based stop-loss unless otherwise, you do not want to mess up against news hour then you may exit your positions based on clock. Still, your technical analysis must have guided you on both positive and negative outcome.

When your stop-loss is too far away and you do not want to wait more with the expectation of market to bounce back then you can go for percentage basis stop-loss if you're planning to recover your losses in same percentage levels. Percentage is here just the count to make use while recovering with the help of future trades.

[TitanGEL]

I like how you made the use cases on how Stop Loss could be used and utilized. The Time-based one is the one I'm not that familiar. I haven't thought about using time as a factor in trading. I always focus on the price and how much it would go in one direction. I don't think it's going to be quite useful on my strategy, but it's nice knowing that type. Maybe we could incorporate it in our bot, Gunbot. Time-based strategies, but I doubt it's going to occur most of the time.

There are also more advanced Stop loss limit orders

Trailing stop-limit, I think, could be considered with this advanced application, right?

Yeah it is a semi advanced lesson but I can post again another lesson about trailing stops. So I will give an idea what is trailing stops. In a nut shell, stop loss are using to protect your capital while trailing stops is to preserve and protect your gains in market. So basically trailing stops is using whenever you have now gains in the market. Why we should use this? It is simply because there are times that we have profit but our biased turned against us where our profit is becoming losses. So for simple terms, trailing stop is to lock in our profits and to make sure that we will preserve our profit.

[crwth]

Yeah it is a semi advanced lesson but I can post again another lesson about trailing stops. So I will give an idea what is trailing stops. In a nut shell, stop loss are using to protect your capital while trailing stops is to preserve and protect your gains in market. So basically trailing stops is using whenever you have now gains in the market. Why we should use this? It is simply because there are times that we have profit but our biased turned against us where our profit is becoming losses. So for simple terms, trailing stop is to lock in our profits and to make sure that we will preserve our profit.

I will be looking forward to that as well. I'm quite familiar with those types of orders already, but a review wouldn't hurt as well. Some techniques even are entirely new, like what I said in my previous post. But I like the trailing stops too because I could adjust it while I trail the market with profits and possibly gain more if the market gives it. That's the goal that everyone wants, preserving the profit, right?

[andreibi]

I believe setting stop-losses is just one side of the story. After determining your stop-loss, a pro trader should define how much loss he's willing to take. For example, I only want to lose $100 per open position out of my $10,000 capital. The size of the position should result in a $100 loss once stop loss is triggered.

[Tahsin Kabir Kollol]

Stop-loss Strategies is an essential trading part to reduce your loss and save your asset on a sudden market collapsed. Every skilled trader uses it based on market analysis and experience estimates. Not every market analysis of the trading is accurate and this strategy helps traders to make a decision. I use stop- loss strategy based on market analysis, support resistance, and the amount of damage to my assets is based on what I can accept.

[SARA ISLAM]

Giving a very important lesson Determining the stop loss in trading is very important, those who do not use stop loss will suffer today or tomorrow, I use Technical based stop loss. If you do not trade without stop loss, then it is expected that the balance will not be zero.

[TitanGEL]

I believe setting stop-losses is just one side of the story. After determining your stop-loss, a pro trader should define how much loss he's willing to take. For example, I only want to lose $100 per open position out of my $10,000 capital. The size of the position should result in a $100 loss once stop loss is triggered.

What you just say is definitely part of the percentage based stop loss strategy, It is called VAR or the Value at risk. Why we should use it? In order for us to know how much capital are we going to put in a trade and also to know how much risks are we going to take. The ideal risk in every trade is 1%. The formula to get the bar is you going to divide the percentage stop loss that you prefer to your 1% capital. For example if you have $100,000 as a capital and your plan is to have cut loss whenever the price reached -3%. You will basically get the 1% of the 100,000 which is 1,000 then you are going to divide the 3% to $1000 because it is the 1% of $100,000 then you will get an answer of $33,333. Which means that you can only put maximum of $33,333 in one trader if you plan to have stop loss which is at -3%

[GreatArkansas]

I'm very thankful that there are still people believing on stop loss because there are some people telling that using stop-loss is useless.
Newbies should really learn this first when they want to start trading, cryptocurrency, or non-crypto currency. This is a MUST for me when we do trading.
Risk management is important in trading and we can achieve it with the help of course of using stop-loss.

[pooya87]

stop-loss could come in handy and save you from bigger losses in some occasions but not most. it may work a lot more in bitcoin too but when it comes to altcoins it becomes a lot harder to use and less effective specially the types that rely on analysis such as the Technical based ones. the problem with altcoins is that they are mainly pump and dumping and during that process it is impossible to predict their movements and make good decisions. you'll end up hitting the stop loss multiple times during the time when the manipulators are trying to get the pump started or when the initial phase of the pump finishes and the next phase is to start.

[Cryptoababe]

I like the time base part. Honestly, the strategy have been using is setting stop loss not to loss.
Like for example. When I buy at 9350 so I watch the price to get to above 9420 and I set my stop loss to 9390. This have been working for me. But I think your strategy is safer incase there is a huge dump.
Your time base strategy brings a lot to my notice. That's good.

[crzy]

   
Please use it whenever you trade in order for you to protect your capital and also to have consistent earning in the market.

Is nice to use stop loss but sometimes the purpose can be defeated when you consistently hit it. It takes your profit and capital off. Stop loss is not really a strategy but a way to minimize losses if you have a strategy 

Well that's part of your strategy and you must always have this or less, you can reach the bottom of your losses and it will be hard for you to recover. I always use TA for my target price and stop loss, and my strategy is so simple I buy when the price is on the support level and do sell when it reach the top again.

Trading is stressful, and it will become more stressful seeing your portfolio bleeding so better to have the stop loss strategy which can prevent you from losing more. If you do trade without it, then you must depend on your luck which is too risky.

[FanEagle]

Engaging stoploss in the trading is important for in two cases:
1.You do not have plan to hold for long-term.
2. The asset that you are trading is not suitable for holding.

For the case of bitcoin trading against fiats, I guess we do not need any stoploss if you are buying it only with the money which is surplus after your all expenses for any given time frame. I mean this is what experts here are always emphasizing through "buy at every dips".

So when stoploss is more important and when we should strictly following the habit of using stoploss in our trading?

When you're having plans to trade again and again which will get you to cover your losses which might have occurred due to hitting stoploss in the previous trades, then making use of stoploss is highly recommended.

If your asset is good for long term holding (only for the case like bitcoin trading) then you can avoid exiting at stoploss.

[Gozie51]

Engaging stoploss in the trading is important for in two cases:
1.You do not have plan to hold for long-term.

I think stop loss is important and needed in all types of trade if you want to apply it. The difference is that the range for it could be smaller or longer. Or the expected time might be different. For instant, a long time trader also can activate the stop loss to avoid losing more than expected.