Definition
Stop-Loss — a pre-set order that automatically sells an asset when the price falls to a specified level. The primary risk management tool in trading.
How Stop-Loss Works
Bitcoin purchase: $50,000
Stop-loss: $45,000 (-10%)
If price drops to $45,000:
→ Automatic sale
→ Maximum loss: 10%
Types of Stop-Losses
Fixed Stop-Loss
Set at a specific price and doesn't change.
Trailing Stop
Follows the price at a set distance:
Purchase: $50,000
Trailing stop: 10%
Price rises to $60,000:
→ Stop-loss automatically moves to $54,000
Price drops to $54,000:
→ Sale triggered
→ Profit locked in: +8%
Stop-Limit
Combination of stop order and limit order:
- Stop price: activates the order
- Limit price: minimum sale price
How to Set Stop-Loss
Percentage Rule
- Conservative: 5-10% from entry price
- Moderate: 10-15%
- Aggressive: 15-25%
Technical Analysis
- Below support level
- Below moving average
- Below local minimum
By Volatility
- For Bitcoin: minimum 10-15% (due to volatility)
- For altcoins: 15-25%
Common Mistakes
- Stop too close — normal volatility triggers it
- Stop too far — large losses when triggered
- Moving stop lower — breaking discipline
- No stop at all — hope instead of strategy
Stop-Loss and DCA
With DCA strategy, stop-losses are typically not used:
| Approach | Stop-Loss |
|---|---|
| Active trading | Essential |
| DCA (long-term) | Not needed |
| Mixed strategy | For speculative portion |
DCA involves long-term accumulation without trying to time the market.
When Stop-Loss Is Essential
- Margin trading — to avoid liquidation
- Altcoins — can drop 90%+
- Short positions — loss potentially unlimited
- Active trading — impossible without stops
Stop-Loss Psychology
Important: A stop-loss is not an admission of failure, but professional risk management. Better to lock in a small loss than to lose everything.
Experienced traders' rule: "Cut your losses quickly, let your profits run."
