Risk Management Strategy 2: Stop-loss and Take-Profit orders in crypto

Some days back I deliberated on risk management as an important aspect in crypto trading and investments. My mentor usually tell me that if you want to be a successful investor/trader, you must learn how to manage your risks so as to avoid getting eaten up by the market. I listed out two strategies on risk management of which I deliberated on one, the 1% rule.

It has proven to be effective but the second strategy is what most investors/traders use today after doing the necessary checks and balances. This strategy is Setting Stop-loss and taking-profits.

It's no new that traders so use this. They'll detect a signal,look for possible take profit points and then look for ways to minimize their risks of loosing in case market turns other way round. This Stop-loss and Take-Profit strategy is usually employed when opening positions for trades on different assets.

Stop-loss is setting a price that's predetermined for an asset in a trade at which the position would close to avoid losses. It is usually set below current price.

Take-Profit : acts in the opposite as you'll set a price you want your position to close and also lock it in a particular profit.

Why is this strategy helpful? It is helpful because it's done or executed automatically and doesn't need you to be online 24/7 monitoring the trade. When traders set their SL/TP, they can do other things and then come back later to check instead of monitoring the trade to close positions when market turns.

It would also be appropriate to set these limits SL/TP in advance to avoid further losses when market turns upside.

These Stop-loss and Take-Profit strategy of risk management as highlighted earlier serves lot of purposes which includes;

• Stop-loss and Take-Profit orders removes emotional biases as emotions influences one's trading decisions . This is when it calls for discipline because some traders can make certain decisions based on fear or greed, but with this strategy, traders or investors would be able to stick to their plan .

• Stop-loss and Take-Profit sane time and allow traders carryout other activities without needing to watch his or her trades as this is carried out automatically at desired levels and exit points.

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• It preserves one's capital used in entering a trade. When you set goid Stop-loss and Take-Profit order, your trades act on what you set and won't go beyond.

• It also enable traders secure profits and also lock in their gains once their targets are met.

• It is an effective risk management strategy as Stop-loss helps reduce potential losses by triggering a set sell order when the price reaches the desired level.

When setting Stop-loss and Take-Profit orders, you must consider the following to ensure you manage your risk in the volatile market and maximize profits.

• The timeframes to which you set it is very important. Longer timeframes have higher volatility in the market while those of shorter timeframes have a higher volatility in the market.

• Risk-Reward ratio must be considered as higher Risk-Reward ratio tend to produce potential profits which subdues the losses.

• Fundamental analysis, support and resistance, technical analysis indicators and risk tolerance should also be considered when setting up Stop-loss and Take-Profit. For more intels, read up on this link to gain full knowledge.

Reference

Disclaimer: Any financial and crypto market information provided in this post was written for informational purposes only and does not constitute 100% investment advice. It's just basic knowledge every crypto trader or investor should have.

Cc,
@patjewell