WhatisaStopSellOrderandHowtoUseitinCrypto Trading?
Determining the right risk management plan is the most important part of a successful trading strategy. Before entering any trade, the trader must have a rigid idea of where you should plan to exit any trade. There are different kinds of strategies and order types which one can chose from while trading cryptocurrencies. If you have ever done crypto trading, you may be puzzled when it comes to placing an order.
But, now the question is, what are these order types, and how can you use them in your trading strategy? The best cryptocurrency exchanges usually offer different types of basic orders to place their trades. But if you want to earn more profits, then you need to add more advanced tools like stop sell order, stop orders, trailing stops, etc. to your trading strategy.
Here in this article, we will discuss in detail about stop sell orders. But, before that you should understand first, what is a stop order?
Stop order
Stop order is a kind of conditional order that a trader utilizes to either enter or exit any trade if the traded security has reached to a specified price level. These orders are utilized to make profits, limit losses, or to enter a new trade under some specific or predefined conditions.
Automated crypto trading has become a new trend in cryptocurrency market and making use of advanced order types automates the trades. Stop orders allow traders to buy or sell any asset, once its price reaches a predefined level which you have set in advance. As soon as the market price of that particular asset reaches your predefined price, a stop buy or stop sell order will be executed automatically at the current market price.
All this means is that if a trader is looking to sell BTC, he has two choices on how to sell it with a stop order. Either the trader can sell it at a higher price using a take-profit order, or he can prevent or limit his losses by setting a minimum price at which to sell the asset, using a stop-loss order.
And, the same is true if he is planning to buy Bitcoin (BTC). The trader can set a specific price or the trigger price at which they want to buy BTC as per the current market conditions. Generally, a stop sell order is placed below the current market price, and it can be used to protect the gains and limit the losses on a long position. And, the buy stop order is just opposite to stop sell.
Stop sell order
The traders can use stop sell orders when it comes to selling a crypto asset. This order type includes stop price which triggers a market order. A stop sell order is placed whenever any trade enters at a stop price which is actually lower than the current market price of the asset. In case of sell stop order, the trader needs to define a stop price to sell an asset. Usually, the expert or smart traders use sell stop orders so as to protect their gains and limit the losses on the crypto assets which they own.
Let’s understand it with an example:
Suppose a trader has bought BTC at $35 per coin but wishes to risk no more than $5 per share loss on this trade. He places a stop sell order just below $30, say at $29.50. If the market price moves down to $29.50, then a sell stop order will be triggered, and BTC will be sold at the next available price.
Most trading platforms only allow a stop order to be initiated if the stop price is below the current market price to sell and above the current market price to buy. Sometimes,
this order type is also termed as stop-loss order as this order type can be used to help protect your gains, and seeking to minimize a loss.
Confused? Let’s understand this order type in deep with other examples while longing or shortening a position:
1. Using a sell stop order to enter a short position
If you are looking to initiate a short position below the current market price, then you should use a stop sell order to enter the short position. For example, if any asset ABC is trading at $50, and you want to get short the asset if the price falls to $47.50. You might place a stop sell order at $47.50.
2. Using a sell stop to enter a long position
If you have bought some coins of a stock, say XYZ, and are holding an open position, here you may place a stop sell order below the market price to exit your position.
Advantages of using stop sell order
Here are a few advantages or the top reasons to use stop sell order:
Minimizing losses -The stop sell order helps traders to cut their losses. Many a timewhenever the price of an asset falls steeply, there are chances that your trade would have turned out to be ugly if you haven’t placed a stop sell/buy order.
Automation- The stop sell order helps to automate the selling of the crypto assets and hence you need not to watch the market all the time. This order type is triggered automatically in case the asset reaches the predetermined price.
Balancing risk and reward- When it comes to trading cryptocurrencies, maintaining risk and reward is important. In order to earn profits, you need to stick to a fixed amount of risk and using sell stop order will let you do so.
Conclusion
Here we have seen how stop sell orders work and are one of the best tools to lock in profits while trading cryptocurrencies. TrailingCrypto is one of the best crypto trading platform offering all the advanced order types and allowing traders to place their trades automatically.
For more information visit https://www.trailingcrypto.com/