Manual Stop Losses
Right now we are using what I call a "manual stop loss" and I will explain to you why.
Trading cryptocurrency isn't that easy, conventional markets are way easier to trade. Here the cycles are faster and the bots are more advanced , there are many ways that beginners can get lost in the simple actions that are: buy, sell and hold.
The purpose of a stop loss is to close a trade if the trend changes or is certain to change. Meaning, if we are aiming for a target to the upside and the price of an altcoin starts to go down, we close our trade when we confirm that the price will continue falling rather than bounce and go up. This confirmation normally happens where we analysts place our stop loss.
Now, it happens that the same place where a change of trend can be confirmed is also where support is found, in the example above. So imagine the price of the altcoin you are trading quickly going down and hitting support. A conventional stop loss would get activated and you lose your money, but with a manual stop loss, you don't close the trade unless the candle closes below the stop loss price. So in the case that the price is hit but quickly bounces, then there is no need to close the trade as the uptrend will be resumed.
I will share some charts to make it easier to understand why we use a manual stop loss.
Imagine your stop loss is set at $3579. BTCUSD goes down and hits this price, your trade is stopped and you lose money, but the price quickly bounces up.
With the manual stop loss, you would have to have the candle close below $3579, meaning at least $3578. And the candle on the chart above would look completely red/yellow (negative).
This manual stop loss requires more work as it needs to be checked manually, but this is something necessary when trading crypto as the markets are very volatile.
Other types of stop loss
The basic stop loss is the one where your trade gets closed as soon as a certain price level is hit. If you use this type of stop loss when trading cryptocurrency, I would suggest placing the stop loss at least 5-8% below the actual support.
One final strategy to take your stop loss effort even further, more advanced , is the full candle close below support.
This is a method that I highly recommend as well. For some people it isn't enough to close below support to confirm the trend change, they expect to see a full candle close below support before closing their trades. Taking it even further, you can look for big and any type of or pattern for additional confirmation.
Piece of advice
We use a stop loss in order to avoid losing money in the case our trade goes wrong. The stop loss is not meant to indicate if the trade is active or not, or if I got it right or wrong... That's not the purpose, we are here to make money.
If you are trading and learning you can always adapt to the moment and make your own decisions based on what you see and not what is written. For example, if a stop loss is hit by 3 satoshis or few cents (in USD) but you notice that the price will move back up, you can keep your trade.
The purpose of the stop loss is to cut your loses but not to close a valid trade.
So take into consideration the market, the charts, signals and everything that is going on. You can also contact me and send me the PAIR you are looking at and I will be happy to help.
For beginners, you can simply follow our trade instructions and start creating your own strategy as you get used to these markets.
Thanks a lot for reading.