It is an amazing feeling to be a beginner in any industry as it is a whole new world of opportunities. You can see that part of the world through new eyes and take different approaches that other people aren’t.
That’s very valuable as you can push through where experts or older people may be stuck in some industries.
But being a fresher also has its own drawbacks and overall issues.
The first point is that you may not know about all the risks, the fundamentals, and the essentials necessary to participate in the industry in a meaningful way. This is true for a wild world such as investing and speculation.
It is even more complex for an emerging asset class such as bitcoin and the rest that have their respective intricacies and details that one must pay close attention to over the long run.
Investing in cryptocurrency and digital assets is quite difficult. The markets can turn against you and can deal you heavy blows to your mind, your heart, and your bank account. That is why you must enter the game with the right wisdom and knowledge.
You must know the different ways to protect yourself and the specific settings to place to ensure that you can obtain success in the world of cryptocurrency.
It is a fact that you can protect yourself in these wild and volatile cryptocurrency markets but you must learn about the options available to you when you are making your trades.
Here is what you must know about two methods that you can turn to protect yourself in the trailing stop loss and trailing stop limit.
The Trailing Stop Loss
Facilitators within the speculation industry have strong incentives to minimize speculative losses. Remember that losses will hurt most people present within the game in most cases. Why is that? Well, if more people run out of funds with which to invest, you can be quite certain that they will not spend their time looking at risky assets like cryptocurrencies but would be figuring out how to earn stable money and become whole.
The less funds that people have to move around the more likely that entities such as Binance and Coinbase will lose out on their own earnings.
That is why these exchanges and facilitators in general make sure to provide options such as the trailing stop loss to help investors protect themselves.
Now, facilitators do not require people to utilize these tools but they do provide them because they realize these tools can provide beneficial aspects.
They know that if you can protect the downside that you are more likely to last and endure, trade, earn, and create more value for everyone involved in the process.
But where does this come from? They come from the stop loss order.
What is a Stop Loss Order?
This mechanism is fairly simple and it is fairly straightforward overall.
How does it work?
Imagine that you are holding on to bitcoin for dear life and that it starts to slide down. You are somewhat worried because there is always a tendency for it to fall down in a large fashion. But you will have less concern if you have a stop loss order.
Why?
Well, if you have a stop loss order, you can know that bitcoin can go down but that the facilitator will sell your units as soon as it hits a specific price point.You can sleep soundly knowing that you have nothing to worry about and that your value will be safe. You won’t have to worry about steep hurt and can continue to go on about your day while maximizing for the upside.
That is why people appreciate the method. Now, let’s talk about the trailing stop loss and why it matters.
What You Must Know about the Trailing Stop Loss
We just saw how the first method of the stop loss enables you to conduct a sale as soon as the asset falls to a certain price point to minimize financial pain.
The trailing stop is a great addition because it can improve the overall value of the stop-loss by making it to where it is not about one specific dollar value. Instead, it is called the TSS because it is more geared to a % that is under a particular bitcoin price point.
Imagine that bitcoin is at $7,000 but then goes to $10,000. You want to make sure that you adjust your value to a specific amount and can preserve your gains while mitigating pain from sudden market movements.
What should you do?
The answer is simple, you want to place a TSS so that when bitcoin stops flying high, you can have an adjusted loss price so you partake in the gains while protecting your downside. This option is present in the traditional financial sector and the emerging blockchain asset sector as well.
Indeed, it is pretty nifty.
What You Must Know about the Trailing Stop Limit
Let’s take a look at stop limits before we delve into the trailing stop limit. When you input the setting in a stop-limit placement, you will hit a specific limit, then the machine executes the order.
The limit only takes place when the level reaches the specified value. If you only want to sell at 9000, then when the market hits 9000, that is when you will sell.
Those who want to speculate in the markets will do well to use this limit option as they can find a way to get out of the trade without losing a large portion of their funds.
You can leave the trade gracefully as opposed to without grace.
If you find that you are betting against an asset like Ripple, you can find that you will get out of it when it reaches the limit level. Again, this helps out when you want to minimize your losses while on the opposite side of the spectrum.
As such, it is essential to pay attention to two points in this process, the stop point, and limit point. Here’s the difference between the two points.
The first one, the stop, is where you trigger the limit. The limit is where you are at the stop, you purchase at the limit.
What is the difference here?
The stop limit with the stop works like this, the stop by itself does not trigger a purchase or any action for that matter. The stop limit does trigger an action where you may divest or acquire an asset at the present price or better.
Let’s look at this a bit more closely now with the concept of the trailing stop limit.
What You Can Learn from the Mere Trailing Stop Limit
We will refer to stop loss as SL to make things a bit easier and stop limit as SLt. Then the limit order will be LO.
Say you are taking a random walk on crypto street and spot a cryptocurrency that you fancy. What are you going to do? You are going to make a purchase.
You purchase 2000 units of NMR at $5 and set a stop loss at sixty cents below the max value point. Then you input a limit at thirty cents beneath the stop loss.
The price of NMR rises to $7, and you are very happy. But then you see that it goes to $6.40, and that initiates the SL. Your facilitator will then book an LO to divest the security.
But the facilitator will not divest at the present market price but will do so when NMR hits $6.10 (the 30 cents below the SL).
Do you see why this is helpful or how it works? The first one is where you are marking where you will make your decision. That is the first level that you start conducting risk management, and then when it dips to your SLt, the facilitator will sell at the best price possible.
This enables you to get the best value while preserving your gains.
Isn’t that fantastic? We think it is.
Everything You Must Know
You might still scratch your head after you see the concepts above.
Indeed, it can be a tricky subject when you are just entering into the world of speculation. But you must learn to navigate this complex world so you can preserve your value and get the most out of your allocations.
The trailing stop loss order generates a market order (MO) which will cause you to leave at the current going rate on the financial markets. This action occurs when the trailing stop loss level occurs within the markets.
But the trailing stop limit order works in a different manner.
How does it work?
The answer is quite simple, it works like this:
- You will set the TSL and it will initiate a LO when the SP (the stop price) hits.
- That means that the order takes place when you have the present limit price or better.
- This is wonderful in general, but it can be quite inefficient when the markets fall into the abyss rather quickly.
The TSL works quite well in regular and less turbulent times, but you may want to be wary of relying on it when everything is quite hectic.
Why?
You must be able to fill the order. If people are fleeing quickly, then the price will change quickly, and there will be no one who will provide liquidity for your order.
Trailing SL In-Depth
When initiating a TSL, know that these security methods will follow the asset price. They are not stagnant but rather dynamic.
What does that mean?
It is not about a certain specific price point in a TSL, but a portion of the new adjusted price point in a wonderfully bullish financial world. So that means that if you buy at 11,000 and then it goes up to 16,000, you can expect your TSL to move along and start the necessary risk maneuvers when it hits a certain proportional point.
How to Calculate and Set TSL?
Most people set it for a certain portion from the topmost point. For instance, if the max point is $30,000, the investor will start the risk management procedures at $28,000.
Conversely, if you are betting against the market, then you will look at by adjusting against the lowest point.
Therefore, it will dynamically adjust itself in relation to your positioning within the market, regardless of your long or short position.
A few individuals will also turn to the concept of moving averages within this structure. For instance, you will enter into a position and then will note how the MA goes in line with the momentum.
When it reaches the MA, the activation occurs, and the steps to exit begin.
What is Right for You?
The method that works best for you will vary based upon your discretion and style. It is up to you to decide which one will work best for your situation.
You should know that the LO will enable you to have more protection but can come with a few risk factors. That is why you must be careful when utilizing this one.
Remember that you should be comfortable with divesting your cryptocurrency asset at a certain level and will practice patience when the level goes below the acceptable level.
You will want to wait for it to come up to a certain point before you exit the space.
The reason why you will use a TSL is that you want to adjust automatically instead of at a fixed point. This helps you to leave the position and take on more security in protecting gains and minimizing losses.
This one is about quick risk management as opposed to static methods. You want to do this if you feel that you are participating in extra volatile assets and would like to join in the gains and exit before you receive heavy blows.
You would do well with these if the asset can dip big and then take a long time to recover.
Remember bitcoin in 2017? It flew to the moon and then took you all the way down to earth. If you initiated TSL’s you would be in a better spot if the market went against you.
Practice patience and due diligence and always continue to learn! Have fun and good luck!