There have been and will be many developments in the month we are in. The start of the bull season started to be signals due to reasons such as the FED rate hike, what the regulatory board thinks about stablecoins, and the fact that inflation and unemployment do not regress in the world.
During all that development, you want to get your earnings by selling your cryptocurrency investments, right… ?
The very long-term HODL logic doesn't make sense to me anymore, except for some criteria... I'll explain why in my next article... Now let's analyze what to do when it's time to turn our investments into profits...
If you hold your cryptocurrencies on exchanges or use exchanges as a middleman to cash out, you must know where and how to sell.
In this article, I would like to talk about one of the most important processes, STOP-LOSS, by helping you during the sales process.
What is Stop - Loss … ?
Stop - Loss; often used as a stop loss. A stop loss is an order sent to the broker to sell a cryptocurrency when its price reaches a predetermined level. It is often associated with long positions. A long position investor has invested and holds a cryptocurrency.
If the price drops to a certain level, the stop loss will be activated and the position will be closed by selling the relevant cryptocurrency. Similarly, the stop loss can be used for a short position. An investor holding a short position will gain thanks to the fall in the price of the relevant cryptocurrency. However, if the price of the cryptocurrency rises, it will lose, so if the price reaches a certain level, it can give a stop loss order to stop its loss.
Does Stop-oss Protect the Investor?
There is only one important point to be noted here. Placing a stop loss order does not always protect the investor. Because the order may not be executed at the given level. In sharp price movements or gap openings, there may be no transactions at the desired price. In this case, the stop loss will not protect the investor.
Where should the Stop - Loss order be placed?
This is the most important question in stop loss trading. Generally, the answers given to this question are "it's up to you, adjust it at your own risk..." and do not provide any benefit to the investor. One valid method is to determine a level based on the *Average True Range (ATR) value. In this way, the ATR of that period can be calculated in whichever period it is viewed. For example, if you are working with the 15-minute chart, you should use the ATR for the 15-minute chart, and if you are working with the 4-hour chart, you should use the 4-hour ATR. If you are not short-term trading, a one-day price chart will give you the most results.
* Average True Range (ATR); It is the indicator used in technical analysis to measure the volatility of an asset over a certain time period. ATR was developed by analyst J. Welles Wilder. The average true range measures the degree of volatility, not the price trend of an asset. The indicator, which measures how much price changes an asset has experienced on average over a period of time, usually 14 days, helps traders enter or exit a position and determine Stop - Loss levels.
Stop - Loss does not have to be a fixed level. Using trailing stop loss can be a more effective risk management. The trailing stop loss is not a predetermined point. Indicates a distance from the current price. For example; Let's say the price is currently 5,0150. If the price drops to 5.0100, Stop - Loss will be activated and the position will be closed. However, let the price increase from 5.0150 to 5.040. In this case, when the prices start to fall, the stop loss will come into effect at the level of 5.0350. If we were using a fixed Stop - Loss, the price would be expected to drop as low as 5.01.
My Last Words; Traders place a Stop-Loss order near support and resistance levels, or around price levels that are round numbers because they are easy to remember. This makes them clear targets for whales. Therefore, avoiding round numbers and not placing a Stop - Loss order near support and resistance levels without being sure of the price trend can be a simple but useful measure. Entering the Stop-Loss order below the levels where clusters are seen is an effective method that protects both from Stop-Loss hunting and from real price drops.
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