Trading series: Your ultimate tip to success, Stop-loss

Hi, fellow Steemians,

Here is the 3rd part of the Trading serises that I have been writing. You can check out the 1st part and 2nd part here.

But first, let me ask you a question

If someone comes to you and asks you "Hey, I have an absolute trade that will give you a bunch of money in the future."

Sounds great, right? What should you do in that case?

• Accept the offer immediately
• Ask back the stranger "How much money I will have?"
• Ask back the stranger "How much percentage that I can expect from your project?"

What answer have you likely had in your mind?

Let's analyze those answers together.

The first one is to accept the offer immediately. Is it suitable to take that offer without analyzing the project carefully? I would say that it is a very risky answer and solution. Then, the second one, we can see that the return factor has involved. The question implies the motivation to make money and want to know more about the amount of money that you can have.

The last one is stellar. Returns shouldn't be ranked on the benchmark with numbers, but rather in ratio. When it comes to measuring profit, we should always put back to the ratio of total investment.

I have answered those questions, now what?

The ratio of return is great to ask, but not enough. The question that you should ask is:

-What is the percentage of return and what is the rate of chances that I lost this investment?

Let's face it. We are living in the world that is full of uncertainty, and we are trading on very young financial markets. Let's face it again, there is always risks out there, especially to the financial markets and crypto.

Yes, I am talking about the importance of Risk Management

There is no reason that the insurance industry is developing rapidly. Buy an insurance contract is like buying a hedge contract in which you hedge your risk to others and share a minimal risk.

It's the same for Stop-loss

The Stop-loss is a function embedded in an order that lets you stop your loss. Let's think in that way:

• Bitcoin price is around $6000, and you decided to buy 1 Bitcoin, waiting for it to come to $7000 to book your profit.
• Things get salty, and Bitcoin drops to $5400. It's a 10% loss on your initial investment. What should you do? HODL or sell?
• You have decided to HODL and Bitcoin took a significant hit down to $3000. You have divided your capital into half and had no capital left to trade.

Have you been in that scenario? I have been there, many times.

As you can see from the case above, while trying to HODL your coin, you have lost the opportunity to buy back BTC when it reaches $3000. Do not be like me, set your Stop-loss.

How much should I set for the stop-loss?

It pretty much depended on your risk capability. Now I am trading with very tight stop-loss at 10% and take profit at 15%. So that in salty case, I will sell at 10% loss and can buy back later.

Let's take a look at the example below:

• Buy order: 1 BTC at $6700
• Stop-loss: $6300
• Rebuy: $6000

As you can see, the price dropped to $6300, and I had a loss of $400, total capital back: $6300.
But as the price dropped down to $6000, a re-buy order had completed.
So total, I got 1.05 BTC. And in that case, BTC need to rise to $6381, and I had covered back to $6700.

The above is just a sample for Stop-loss order and how to implement with re-buys.

I hope that you have got some point from my post. Please do let me know if you have any comment or want to contribute anything.

Thank you and see you next time.