In the volatile world of cryptocurrency, users must know how to protect their investment, maximise profits, and minimise loss. One way to do this is with the use of stop loss and take profit. Not to say that this is the only way, there are many more tools and indicators for maximising gains and minimising loss in crypto. But for the sake of this article, our focus will be on stop loss and another you might not have heard of, ‘sell target’.
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Moving on with our education for you today on stop loss and sell targets.
Often, people might try to use these two concepts/ terms interchangeably. But they have their differences and can even be used at the same time. So, for this article, we will assess the concepts of stop loss and sell targets in the crypto space. After which, we will discuss how you can use both stop loss and sell target at the same time.
As its name denotes, ‘Stop loss’ is a tool that seeks to prevent the loss of a trader in the market. How it works is that it automatically liquidates a trade once it gets to a required value set by the trader. At this level, the trade closes and the trader’s loss is minimised, especially in a downward trending market.
Therefore, stop loss is a key component of a trader’s risk management strategy in cryptocurrency. If a trade is left open in the crypto market without a stop loss, the volatility of the market can wipe off a trader’s entire profit and investment. A good example is a current crash in the price of LUNA, traders of LUNA who didn’t set a stop-loss would likely have been wiped off the market with the massive dip in price. But setting a stop loss would have minimised that, cutting your losses and keeping you safe from the massive dip in price.
So, with stop loss traders can calculate their position size and determine their profit to loss ratio in such a way that their potential loss per trade has a lesser percentage than their potential profit. This is a very important skill in cryptocurrency.
Unlike stop loss which is used to set a level where trade is automatically liquidated to minimise loss. The sell target is used to set a level where a trader predicts that the price of a digital asset will drop and sell such asset from that level to rise the dip and make a profit.
It can be seen as an order type used to sell digital assets on crypto exchanges. But it can be used alongside a stop loss when placing an order.
How to Use a Stop Loss and Sell Target at the Same Time
It is uncommon to find traders using sell targets at the same time when they are using a stop loss. This is as confusing as you think it is and we will explain this for you to comprehend.
Bearing in mind that traders use various types of crypto exchanges with different features the process might differ slightly on each platform. But for the sake of this discussion, we would be explaining using the Binance crypto exchange.
While stop loss and sell target, one comes before the other. Sell targets often come before a stop loss because it is an order type while stop loss isn’t.
To set a sell target or stop-limit order on Binance follow these steps;
Let’s assume that you want to place a sell stop-limit order on BNB/BUSD. You create a Binance account or login into their website. Then, navigate to the market section and open the market space for the trading pair BNB/BUSD. After that, you select the stop-limit tab and input your prices. To effectively use the sell stop limit, the limit order price has to be a little lower than the stop trigger because when the market price gets to the stop trigger it opens your limit order.
So, in this case, we set the stop price at $289 and the limit price at $285, the actual price to open the sale at. You go ahead to fill these details into the required boxes, as well as the amount of BNB you want to sell, then click on sell. A confirmation message will pop up and you check the details and click on place order. You can view your opened order in the order section.
Stop-limit order can be useful to hedge against any potential loss. This is especially so when you make a buy trade that you’re not so sure about. You can then set a sell stop-limit order at the initial price you bought to protect against any dip in the market. So, it is like setting a stop loss, only this time you’re using a sell stop-limit order.
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