In our blog about Day and Swing Trading, we mentioned that both methods of trading require good strategies, logic-based decision making, discipline and learning through practice. But probably the most important is that both require risk management. We want to tell you about Stop-Loss-Limits and Take-Profit-Limits at SpectroCoin Pro!
When talking about both beginner and expert trading risk management refers to measures put in place when trading to help keep losses under control. This can help prevent traders from losing more money than they make in profits. This may include setting Stop-Loss-Limits and Take-Profit-Limits, diversifying and hedging, using the 1% rule, etc.
Use a stop-loss-limit or take-profit-limit order to buy or sell when a specified price level is crossed. For this type of order two prices must be set. One price is the stop price that triggers the creation of a buy or sell order that will be indicated in the second price set - limit price. Let’s take an example with a hypothetical cryptocurrency - COIN.
If the price of COIN is currently $100/COIN and we think the price will drop we can set a Stop-Loss-Limit order. For the stop price, we decide to set $90/COIN and the limit price at $85/COIN. If the price falls to $90 then the order will be triggered and a limit order will be created to execute a sell when the price reaches $85. Each trader should choose what loss or profit is acceptable to them. More specific calculations, using support and resistance or moving averages can be done depending on the market and the asset.
Stop-Loss Limits prevent you from losing too much in case of price drops or closing at a price you are not satisfied with. Since some cryptocurrencies can be especially unpredictable it is a good idea to set such orders to prevent unnecessary risk. On the other hand, Take-Profit Limits allow you to close with a price you’re happy with in case the price of an asset starts moving up or you predict such movement in the future. Also setting such orders helps prevent emotion-based decisions, which can be very dangerous in trading.
Note: If your specified stop price was already met, the order will be triggered immediately.
We hope this blog post was helpful. For more blogs be sure to head over to the SpectroCoin blog.
If you have any questions about SpectroCoin, don’t hesitate to contact our customer support through the LiveChat available on our website or drop an email at [email protected]