Cleo.finance: Risk management: How to set a Stop Loss

[thecryptogandalf]

Hey Guys, I have an article about how to set your stop losses. Here is a quick summary:

Full Article is here:

• What is a Stop Loss (SL)?

Stop Loss is an order designed to limit an investor’s loss on a trading position.

• Why is SL important?

Every time you enter a trade, you expose yourself to the risk of losing your capital. If you don’t use a stop loss order, you are exposing your entire portfolio to a loss every time you trade.

Stop loss defines the risk you are taking for that particular trading opportunity.

• Determining where to set a stop loss:

You are looking for an area, where your trade will be invalidated = where your trading idea is wrong.

Popular options are:

Price invalidation based on Support or Resistance levels – Identifying a price invalidation based on Support or Resistance levels

Stop Loss based on ATR or another volatility indicator – It shows the average volatility for the past 14 bars. The idea behind using it: “I better put my Stop Loss outside the zone of normal volatility to avoid getting stopped by normal market moves”.

Stop Loss based on the trend - There are many ways traders try to identify a trend and its strength. The easiest way to analyze them using Technical Analysis would be through moving averages (MAs). Whether you are looking at the slope of the moving average, its relationship to the price (being above or below the MA), price, or another moving average with different settings crossing it (fast and slow MA cross combinations) – all of these options can help you determine the trend direction.

Fixed PnL Stop Loss - This is generally not a very efficient way to place a Stop Loss, because the market doesn’t care what % of your account you are willing to lose. If you’re for example always opening a position with the same size and using the same, say 2% stop loss, it will get placed on price levels with no regard to the previous market movements, volatility, or anything else but your balance. This can lead to you getting stopped out a lot, even though the underlying signal might be good.

Trailing Stop Loss - This dynamic way of setting stop losses follows price. If you set a 5% trailing stop loss and the price keeps going up, the stop loss moves up with the price. It can be useful in trending markets or when the asset enters price discovery and traders don’t have known price levels to work with.

• Stop loss order types:

Limit orders - set a specific price and can be executed only at that price.

PROS:

In crypto: Limit orders tend to cost less than market orders as they are considered “market-making” (Maker Fee)

It guarantees the execution price

CONS:

This stop loss can be set off only if there’s an equal or bigger buyer at that price. You risk not getting your full position closed.

Market orders: set to trigger when a certain price is reached, but will execute until full position is closed – even if it means slippage (“eating through the order book”).

PROS:

It will close your full position

CONS:

The actual execution price may vary (due to slippage = defined by volume and how thin is the order book).

In crypto: Tend to cost more (Taker Fees)

Stop Limit orders - There can be even more niche categorization of limit orders.

• Executing your Stop Loss
  

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

Automatic stop loss:

This is the more conventional way these safeties are implemented. In trading platforms cleo.finance you can set several simultaneous take profit orders and stop loss orders, close positions based on indicators or price movements, and set position sizes with a lot of flexibility.



Closing thoughts

Stop Loss defines your risk. The use of stop loss will ensure their longevity in the markets.

Hope you find this helpful.

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[palle11]

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

[thecryptogandalf]

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

I definitely agree, you have a point. I do automation in order to avoid from emotional factor when trading.

[tbct_mt2]

One of best weapons in trading (stop loss order)
What is a stop limit order ?

Stop loss order is a good one to start when you want to manage your position better. However if you want something better, let's try stop limit orders. The stop limit order gives you more time and opportunity to close your position before any kind of terrible liquidation like Cascade effect on the market appears.

These orders are useful even you only use Spot trading. It helps you to exit when price breaks a trend downwards and if you still really want to buy that coin, you will have chance to buy it at lower price.

[AicecreaME]

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

Leaving a trade overnight is still good as long as you set a stop loss as well as take profit, it will just automatically stop if the commands are successfully done. It will only become dangerous if you didn't put those things, and I can't see any reason why anyone would not put those two important things to lower the risk of losing money as much as possible.

[palle11]

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

Leaving a trade overnight is still good as long as you set a stop loss as well as take profit, it will just automatically stop if the commands are successfully done. It will only become dangerous if you didn't put those things, and I can't see any reason why anyone would not put those two important things to lower the risk of losing money as much as possible.

Well I have observed it that it is better to start on the next day so exit the current running trade is more professional for a daily trader except to take the risk of losing even when you can avoid it and do a set up for the next trading day. This advise is fine for daily trader, not for swinging. The good thing about leaving the running trade to next day is you can be lucky and take profit on it.

[mrkfdr]

The classical methods practice mentioned above of setting a Stop Loss that are derived from the regulated market will not work as expected in the free Bitcoin market, therefore, other methods should be considered.

[alik111]

Using stop loss is much important for any traders. But beside it you can share about TP which calls Take profit. Because sometimes if you use only stop loss it will hit oftenly and won't able to take profits. So traders should use Take Profit and Stop loss at the same time.

[adaseb]

Here is a tip if you are going to be using stop loss.

Try and not set it right above or below the daily high or low. Those are very common stop loss areas and traders know there is a lot of volatility in those areas and will usually try and run them. If you put it in those areas you need to put it much earlier than the daily pivot or further away.

Or just enter a trade where you normally would put your stop.

[EarnOnVictor]

Stop loss has saved a lot of trading accounts, it is a crucial tool in trading and it is being used by traders that are managerial in nature. I have heard many traders arguing that they trade without a stop loss, but most of them often come back to share their regrets.

It is a matter of time, if a stop loss is not used, the account of the trader will always be lost. To some, it takes days, months or even years. A good trader will always use stop loss for protection's sake, it helps in precalculating the traders' risk, and gives the clue on how to balance the risk with a good reward to make good risk management (risk to reward ratio).

[Oshosondy]

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

We have scalping and day trading. If you are a scalper or a day trader, you have different strategies if you are compared to swing traders. There are some trades you can leave for more than a day. You may have the intention to leave it for some hours but later you lose and decided to leave it until it came to your profit on the next day (I know most traders do high risk trading which can liquidate their trading asset if leaving trades like this longer). But the way some traders open position with high leverage and no averaging may lead to liquidation or high loss of money. I always wonder why most traders talked more about stop lose when not needed for all types of trading strategies.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

Stop loss is good, but low leverage, averaging and appropriately making use of increasing leveraging on an opened position without getting beyond 1x or 2x leverage can help without no stop loss, or just with little loss.

We should also know that stop lose has its own disadvantages, but also helpful to some good traders, I agree.

Stop loss has saved a lot of trading accounts, it is a crucial tool in trading and it is being used by traders that are managerial in nature. I have heard many traders arguing that they trade without a stop loss, but most of them often come back to share their regrets.

It is a matter of time, if a stop loss is not used, the account of the trader will always be lost. To some, it takes days, months or even years. A good trader will always use stop loss for protection's sake, it helps in precalculating the traders' risk, and gives the clue on how to balance the risk with a good reward to make good risk management (risk to reward ratio).

What I know is that people that uses stop lose are those with high risk trading, those that trade with higher amount of money and professional enough prefer not to use stop lose because they prefer to begin with a very low leverage. These are the kind of traders that trade with even less than 1x leverage, or not more than 1x. For a trader that trade with high amount of money, starting to trade with 0.25x and not going more than 1x, but increased the money to 1x when he noticed the market would favour him. This would bring the entry price closer to the mark price four times more and a slight correction towards its position might lead to profit or reduced loss. I do not know why people do not talk about this before they should think of using stop loss. Maybe because most traders uses low amount of money to trade and starting trading with over 1x or higher leverage. But the truth is, those that profit more about trading have no option than to increase their trading fund, open position with very low amount first and average from less than 1x to 1x or not more than 2x before thinking about stop loss. Traders have different strategies though.

[cozytrade]

Is that necessary to post something that is already available all over the internet? I haven't found something new in your post.

BTW I am not a guy who will use stop loss in trade. I think stop loss is a tool only to lose money. I have seen many times that the market goes up right after hitting stop loss. These features may be useful to other markets like forex or stock but in crypto, it could be your worst tool ever.

So how do we manage our funds if we do not use a stop loss? Pretty simple my friend. Do not invest your full funds in a single trade instead do DCA slowly and gradually. This will increase your portfolio size, lower the risk and at the same time give you a handsome average buying price.

[EarnOnVictor]

What I know is that people that uses stop lose are those with high risk trading, those that trade with higher amount of money and professional enough prefer not to use stop lose because they prefer to begin with a very low leverage. These are the kind of traders that trade with even less than 1x leverage, or not more than 1x. For a trader that trade with high amount of money, starting to trade with 0.25x and not going more than 1x, but increased the money to 1x when he noticed the market would favour him. This would bring the entry price closer to the mark price four times more and a slight correction towards its position might lead to profit or reduced loss. I do not know why people do not talk about this before they should think of using stop loss. Maybe because most traders uses low amount of money to trade and starting trading with over 1x or higher leverage. But the truth is, those that profit more about trading have no option than to increase their trading fund, open position with very low amount first and average from less than 1x to 1x or not more than 2x before thinking about stop loss. Traders have different strategies though.

Any trader is welcome to follow a trading approach that is best for them, but this will not stop the right ethics of trading for productivity and account safety. Regardless of using a low risk in trading, you might still lose the amount that is too much for you to bear in some market conditions even if you do not lose all your money. So, you now think it will be easy to recover such an amount again if you would want to maintain the low risk?

This is where the beauty of using the stop loss comes in, it does not let you lose more than what you could bear or easily recover (good trading management).

[palle11]

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

We have scalping and day trading. If you are a scalper or a day trader, you have different strategies if you are compared to swing traders. There are some trades you can leave for more than a day. You may have the intention to leave it for some hours but later you lose and decided to leave it until it came to your profit on the next day (I know most traders do high risk trading which can liquidate their trading asset if leaving trades like this longer). But the way some traders open position with high leverage and no averaging may lead to liquidation or high loss of money. I always wonder why most traders talked more about stop lose when not needed for all types of trading strategies.

Surely stop loss is good for every trade order and strategy whether scalping, day trading or swing. A spill over running trade is preferred for swing trading but not scalping or day trading. The reason that it is preferred for swing is because of the long time that it is expected to last and within that time, a losing trade can revert to profit before it hit on the stop loss. But using low leverage is also good for every trade except for high risk traders and they should be ready for any liquidation any time trade go wrong.

[ultrloa]

Each one of us have different settings towards having risk management since only us can identify on how much money we can afford to lose and what percentage we can accept before we call done on a day on trading. So we need to develop a personal strategy since for sure we can all manage the risk since experience will be one of the factor which we can learn something valuable or helpful on our daily or weekly trades.

[Oshosondy]

Any trader is welcome to follow a trading approach that is best for them, but this will not stop the right ethics of trading for productivity and account safety.

What I hate in trading are losses, losing small amount overtime with stop loss may also totally lead to complete loss. If not complete loss, the trader may not make profit over long term. Trading is easy to explain, easy to write about, but not easy to make profit, even with stop loss, losses is possible.

Regardless of using a low risk in trading, you might still lose the amount that is too much for you to bear in some market conditions even if you do not lose all your money.

If someone lose much, that means it is not a low risk trader. It is not good for traders to look for amount of profit they can not afford to lose.

Example is if a trader open BTCUSDT long position at $20000, some people are still fine if the price of bitcoin decreases further up to $15000 because of the low risk leverage they used, even the return on equity in percentage may not be still more than -5 which is a safe trade. It all depends on your strategy. Stop loss can be helpful, but it has disadvantages, especially when the market later abruptly favour the trader, but stop loss triggered already.

So, you now think it will be easy to recover such an amount again if you would want to maintain the low risk?

Surely stop loss is good for every trade order and strategy whether scalping, day trading or swing.

Bitcoin abruptly decreased from $19000 to $18050 recently, that is one of the disadvantages of stop loss, those that did not use it later gained while many that used it later blamed themselves as bitcoin increased above $20000 not long after. I have experienced this reversal many times in a way stop loss is not an option for me again, rather I prefer to reduce my leverage and make use of averaging and increase leverage not more than 2x just like I talked about it in my previous post. If done wisely and not emotionally, it is highly profitable.

[Zilon]

Here is a tip if you are going to be using stop loss.

Try and not set it right above or below the daily high or low. Those are very common stop loss areas and traders know there is a lot of volatility in those areas and will usually try and run them. If you put it in those areas you need to put it much earlier than the daily pivot or further away.

Support and resistance(S&R) zone help find those areas of less volatility. It is eminent to place stop loss few pips below those S&R zones since it is a rare case for price to retrace below the zones especially in trending and range market. To catch the best out of this stop loss means joining the trend when it just broke into an existing trend like forming either new supports or new resistance depending on the trend.

Or just enter a trade where you normally would put your stop.

If the trade is entered where stop loss is fixed it doesn't guarantee the analysis is right. I think the idea of stop loss is to prevent excess loss incase the analysis goes wrong so in that case even after waiting for the price to hit where the presumed stop loss was meant to be and it the trade gets executed a stop loss will still be needed incase things goes wrong.

[EarnOnVictor]

Any trader is welcome to follow a trading approach that is best for them, but this will not stop the right ethics of trading for productivity and account safety.

What I hate in trading are losses, losing small amount overtime with stop loss may also totally lead to complete loss. If not complete loss, the trader may not make profit over long term. Trading is easy to explain, easy to write about, but not easy to make profit, even with stop loss, losses is possible.

Regardless of using a low risk in trading, you might still lose the amount that is too much for you to bear in some market conditions even if you do not lose all your money.

If someone lose much, that means it is not a low risk trader. It is not good for traders to look for amount of profit they can not afford to lose.

Example is if a trader open BTCUSDT long position at $20000, some people are still fine if the price of bitcoin decreases further up to $15000 because of the low risk leverage they used, even the return on equity in percentage may not be still more than -5 which is a safe trade. It all depends on your strategy. Stop loss can be helpful, but it has disadvantages, especially when the market later abruptly favour the trader, but stop loss triggered already.

You are getting the whole concept wrong, and mind you, nothing is perfect, the concept of using a stop loss is not perfect, but far better than your concept of not using it. My tradition is to plan my trades cleverly with the use of stop loss, this is the best to protect my account according to my experience. Also, I am still trading an account without the use of stop loss, the account has lasted 7 months, so I have experience with both.

Once your trading strategy is good, the use of stop loss is the best. This is because I quickly recover my losses after losing through stop loss, but it takes more between 3-4 trades at time to recover some losses of not using it.

[Oshosondy]

If the trade is entered where stop loss is fixed it doesn't guarantee the analysis is right. I think the idea of stop loss is to prevent excess loss incase the analysis goes wrong so in that case even after waiting for the price to hit where the presumed stop loss was meant to be and it the trade gets executed a stop loss will still be needed incase things goes wrong.

Exactly, the idea of stop loss is to cut further losses, but also it means part of your trading fund liquidation. But stop loss are for high risk traders is all that I know, low risk traders are still perfectly fine with high volatility to some extent after making use of averaging and increasing leveraging. I do not expect a trader that start with 0.2x leverage to be thinking of stop loss while having backup to increase it to 1x after the trade against him.

Once your trading strategy is good, the use of stop loss is the best. This is because I quickly recover my losses after losing through stop loss, but it takes more between 3-4 trades at time to recover some losses of not using it.

If a trading strategy is good, it depends on the strategy, stop loss could be detrimental in some cases, and low risk trading is just one of it.   Why setting stop loss after you only still has little unrealised loss after few volatility? Only a good strategy is the strategy that makes you have a net profit, nothing else.

As people say newbies should use the amount of money they can afford to lose to trade, so is stop loss recommended for newbies, just newbie. As they further trading, they may decide to use it or not after developing different strategies to see if it works for them or not.

I am not against the topic though, I am only against that stop loss is not for every trader which is 100% correct.

[gabbie2010]

Manually: Watching the price and manually clicking when the level is reached. Good if you are an intraday trader, and don’t leave open positions overnight. It is not good when price moves violently, especially in crypto, often you will not have time to react.

I find this interesting and it looks like an advise never to leave running market over to the next trading day, this is dangerous. Every trading day has it own challenges so never expect total continuation of the previous day. So close your running trade if on profit or you put stop loss if you are losing before the night falls.

Every day is new, prepare a fresh set up and see direction of the market because if you leave a running to the next day, you will be emotionally confused to take accurate trading decision.

I do plan my trade before pulling the trigger, I have zones for virtual Stop Loss usually at the last swing of the price while sitting down to monitor my trades, if the price reverses and move against my intended direction and once it reached my predetermined zone for placing a Stop Loss I manually close the trade and take profits as well manually if profitable, I have enough time to monitor my trades, I don't use Stop or Buy limit and Sell or Buy Stop, I always consider the high volatility of the price and wouldn't take things for granted like if the broker or exchange couldn't trigger off an automatically placed Stop Loss which will consequently lead to liquidation or wipe off my account.