How to Effectively Use Stop-Loss OrderKehinde LAWAL
I created this video tutorial as a result of the different request I was getting from our visitors, concerning how to effectively use stop-loss order. And to the newbies, stop-loss order is simply an order to buy or sell a stock/cryptocurrency at a particular price.
It’s basically used to prevent investors/traders from losing huge amount of their capital. And In fact, it’s one of the easiest method of risk management. It’s a very essential tool in the tool box of every successful trader.
Knowing the exact price to place the stop-loss order is very cogent, and it’s determined by two major factors:
- The position you’re entering
- Your risk reward ratio
You can either enter a long position or a short position. A long position is when you buy a cryptocurrency and expect the price to go up while short position is when you sell all your cryptocurrency and buy back more quantity when the price is down.
Risk Reward Ratio
According to Trading with Rayna, the risk-reward ratio measures how much your potential reward is, for every dollar you risk. For example: If you have a risk-reward ratio of 1:3, it means you’re risking $1 to potentially make $3. Many professional traders are of the opinion that your risk should not be lower that 1:3.
Watch the video for the detailed explanation of how to use stop-loss order .
NOTE: If the market price keeps catching your stop-loss order, the best thing to do will be to get completely out of the market.