In trading the crypto market, no-one has a crystal ball. The price of cryptocurrencies can move down, as well as up. What is mostly required is an exit Strategy that will enable you to survive the bad coins, and make a good profit on the good cryptocurrencies.
The method that we have found to work the best is a trailing stop loss. For those who don’t know what a stop loss is, here is an explanation.
A stop loss is an option to sell your coins if the price dips to the level that you have stated.
There are two ways of doing this. The simplest method is to decide on how much you are willing to lose as a percentage of your investment.
A good rule is not to go less than 10%. Work out the price of the coin at this level and set that as your stop loss. As the price of the coin surges, keep moving the level of the stop up to keep the percentage gap the same. Some exchanges offer a trailing stop loss service, where you ask them what percentage to set the loss at and they process it for you.
The second method is to some extent more complicated. The markets tend to flow in stages a coin on the rise will reach a peak, and then dip back down. It may do this several times at each point. The indication is to follow the chart of the coin and observe where the dips are the lowest, and set the stop loss just below them.
A second part which experts propose is that when the coin breaks out of the sideways trend, to buy more of the coin, and when the coin starts going sideways again to move the stop loss up again to just below the lowest part of the dip.
Using the stop loss as an exit strategy only works if you stick to it, and not lower it, thinking that the price will go up again in a few days.
In a few cases you will be right, but what usually happens is the price keeps moving against you and you lose even more money. As a secondary to this, the money still tied up in the first coin that is falling can’t be used on another trade.
There are times when the crypto market undergoes a fast fall in price. If it falls this maximum distance, it can bypass your stop loss, and you may be unable to sell. Although these situations are rare, it is better that you know about them. So that they are not a shock when those situations occur.
This information is for Learning purposes only. We are indeed not financial mentors. It should not be considered legal or financial advice. You should consult with a financial advisor or other professional to find out what may be the finest for your individual needs and risk tolerance.
Please do your own research.