In an area full of data calculations, reasoning, speculation, quick action ... it's easy to forget the little things.
A stop loss is one of those small things, but it is enough to make a difference.
What is a stop loss?
Stop Loss Order (also known as stop loss order). It is a type of order used to limit a loss at a set price.
As the name suggests, it is used for risk management purposes, to prevent the case of adverse market movements, it is still possible to limit the level of losses.
Stop loss orders are often placed with buy / sell orders. A stop loss order is placed to limit the loss at a predetermined position.
For example: You buy gold for $ 1.700 and place a stop loss at $ 1680. That means you are accepting a loss of $ 20. Instead of losing $ 100 if the price of gold drops to $ 1600.
What is a stop limit?
Stop limit, also known as stop limit, is similar in nature to Stop loss, it only has a different name.
Another difference is that it has 2 prices: stop price and limit price. When price fluctuates to stop price then one limited order will be placed.
Why cut holes?
Surely many people wonder why to cut holes? Losses that sell. There are many people because of their confidence in themselves or their egos.
When trading, they will take this loss lightly because they believe their choice is correct. Initially, they lost a few% after that, the number kept growing. By the time they lose 50% of their assets, they have to earn back 100% to break even.
While cutting 10% losses, they only need to earn back 11,1% to be able to break even.
So the cutting loss must be done decisively and disciplined, not based on emotions, but "rude".
Advantages and disadvantages of stop loss orders
- Limiting the risk of entering orders to avoid strong pump dump makes you lot of losses.
- Manage orders at risk.
The disadvantage is the price point where the stop loss can be triggered by a short-term volatility.
But people call it stop loss hunting or stop loss hunting. This means that you will suffer a stop loss after that it will begin to recover and return to your original price even higher.
How to cut holes appropriately?
There is no exact rule for where a stop loss must be placed.
This completely depends on the trading style. If your day trader can use 5% while long-term investors can choose from 15% or more.
Here are ways to cut losses for people to refer!
Cut losses based on the% capital
This means that you will set a certain percentage of the stop loss, for example 3% of the account. You have an account of 1000 USD, so the first loss must not exceed 1 USD. So if you want to comply with this 30 usd loss, when you trade 30 EURUSD, you set a stop loss of 0.1 pips (30 pips of 1 lot is equivalent to 0.1 usd). Tomorrow you have a profit and account up to 1 usd, then the stop loss will be at 1.500 usd, from which you will calculate the appropriate trading volume.
This kind of stop loss is the basis of every stop loss method, because the stop loss method must be calculated in% of the capital at that time.
Cut losses according to the pattern on the chart
This way of stopping loss requires you to know about chart patterns - chart patterns - or candlestick patterns - or what patterns you are trading.
More specifically, for example, if you trade a head and shoulders pattern - then you can stop loss on the top of the head or on the top of the right shoulder.
If trading a 2-high pattern, stop loss on the highest high; If trading the Evening Star candlestick pattern, put a stop loss at the top of the candle in the middle of this cluster of 3 candles ... In general, it is necessary to understand this pattern + have experience in fighting the pattern to use it.
Cut losses according to actual market fluctuations
The market is constantly fluctuating and at each stage, the price moves sharply differently, so the stop-loss is also different.
One indicator that can be used to measure volatility that many brothers often use is the Bollinger Band. The Bollinger Band is basically an indicator formed from an MA line in the center, plus two standard order lines forming the upper and lower bands.
The price will usually stay inside this ribbon and when it goes out of the ice it's its peak state, and usually then it turns in. Therefore, the stop-loss method with Bollinger Band is to put a little bit away from the 2 bands, in order to avoid the "noise" price fluctuations that sweep our stop loss.
How to place a stop loss order Binance
Step 1: Go to the trading area and then select stop-limit
There will be two red buy and sell tabs. For stop-limit orders, it is often used on the sell tab to cut more losses.
On the buy side there are still some cases used to buy in cases where the price breaks the downtrend and turns into an uptrend.
Step 2: Fill out the order information
Next, you fill out the command information.
For example you bought BTC for $ 8900 and you accept the loss of $ 120 per BTC (cut losses at 8780), you enter the following:
- Stop: 8800 (trigger price limit order)
- Limit: 8780 (limit order price)
- Amount: The number of BTC you want to cut loss
This price of 8800 and 8780 means that when the market price reaches 8800, the system will place a limit order at 8780.
- Stop> limit price in case you cut your loss on the sell tab. Stop price <limit if you want to buy on downtrend break.
- There should be a gap between the stop price and the limit price. Because when the market fluctuates strongly, your order will be "drifted" (not matched) if you place these two prices too close together.
Step 3: Confirm the command information
After you have filled in the information of a stop limit order, click the buy or sell button. The floor will display a confirmation of information. You just need to press the confirm button to finish.
As for Binance App, you go to the transaction area -> select mua or be -> select stop-limit -> set the stop and limit price information as above, as instructed above.
Here is a video of the stop loss command on Binance, please refer to it. (You can adjust the Vietnamese subtitles to make it easier to see.)
Through this article, you understand what a stop loss is, right? When trading, remember to cut losses at the right time!
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