How to Use Stop Losses in Bitcoin Investing

Bitcoin investing

Stop orders, which are orders to buy or sell a security once it reaches a certain price, can help bitcoin investors lock in gains or limit losses.

These orders can make it easier for you to meet your investment objectives by automating trades and can be thought of as insurance to help increase your chances of buying or selling at the exact price you want.

For example, you can use a stop order to buy bitcoin once it rises to a predetermined price. Alternatively, one of these orders can sell the digital currency when its price falls to a certain level.

By setting up automated transactions, stop orders can take emotions out of the equation, a feature that can prove highly beneficial during times of market turmoil or irrational exuberance. Keeping your emotions under control is crucial to succeed as a trader over the long-term.

Bitcoin investment

Kinds of Stop Orders

One major distinction you should know is the difference between stop-market orders and stop-limit orders.

Market Orders

In the case of the first, a market order is entered when a security reaches a specific price.

For example, if bitcoin is trading at $2,000 and you place a buy-stop market order for $2,100, it will automatically execute a market order which will purchase the digital currency at the best possible price, when bitcoin reaches $2,100.

However, if bitcoin is currently valued at $2,000 and you place a sell-stop market order at $1,900, the order will sell the digital currency at the best available price when it falls to this level.

Limit Orders

Limit orders, on the other hand, are designed to set a maximum price for what an investor is willing to pay when buying or a minimum price the investor will accept when selling.

For example, suppose that bitcoin is currently trading at $2,000, and it has been trading close to that level for several sessions. If it breaks out of its current trading range and starts climbing, you want to purchase it to benefit from the rally.

To do so, you could set up a buy limit order that will execute when bitcoin reaches $2,100, but will not pay more than $2,150 for the transaction.

Alternatively, if bitcoin has been trading close to $2,000 for several sessions, and you want to cap your losses should the digital currency fall in value, you could set up a sell limit order that will execute a limit order should bitcoin fall to $1,900, but only sell the asset for $1,800 or more.

Bitcoin investing


One factor that can have a huge impact on the usefulness of both market and limit orders is volatility. During times of volatility, the prices secured by market orders could vary quite a bit. By setting up buy market orders, you could end up purchasing bitcoin at a higher price than you originally desired.

Using a stop-market order to cap losses could produce similar results. By using one of these orders to limit downside, you could end up selling your bitcoin for significantly less than you originally wanted to and therefore incurring a loss that is outside your comfort zone.

While stop-market orders can result in a wide range of purchase and sale prices, stop-limit orders might not execute at all if your price conditions cannot be met during the time frame when the order remains open.

If bitcoin prices are too volatile, or if the difference between the bid and ask is too large, a limit order may fail to fill, preventing you from purchasing bitcoin in your desired price range or exiting a position with a reasonable loss.

Bitcoin investing

Tips and Tricks

If you decide to use stop orders in your bitcoin investing, there are several tips and tricks you can use.

#1. Stick With Market Orders

If you are just getting started using stop orders, you may be better off sticking with market orders, as these are easier to set up and also more likely to get filled.

#2. Set Stops At Major Price Levels

Another helpful tip is to set up your stop levels at major price levels. For example, if bitcoin is trading at $2,250, you could set up a buy stop order at $2,500 or a sell stop order at $2,000.

#3. Monitor Your Stops

Never assume that your stop order has been processed successfully. Instead, be sure to monitor your account until you know that the order you place has gone through.

Building Discipline

Discipline is a key part of being a successful trader. To thrive as a trader requires a plan and the ability to stick to it. Countless articles have spoken to the importance of having the right attitude and staying disciplined.

By using stop orders to cap losses and take profits, you could form one crucial part of a trading strategy. If you stick to this strategy over the long haul, you could build up some consistency over time.

Bitcoin investing

Evaluate Your Performance

As a trader, you can benefit from reviewing your performance from time to time. One particular aspect you could review is the efficacy of your stop orders. Doing so will help you determine how successful you are at using these orders to meet your investment objectives and whether or not you require any change in strategy.

Summing It Up

Stop orders can help you minimize losses or lock in gains. By using these orders, you are basically employing an insurance product that can help you proactively manage risk. Keep in mind that there are different kinds of stop orders, and they come with their own unique costs and benefits.

Since using stop orders effectively can require knowledge of complex information, be sure to do your research before placing them. For additional helpful knowledge on bitcoin investing, subscribe to Bitcoin Market Journal.

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