The built-in stop-loss allows the bot to automatically close losing positions once a specified level is reached, thereby protecting the trader’s capital.
A fixed stop-loss is set at a specific level, such as 5% of the entry price. A dynamic (trailing) stop-loss moves in tandem with price increases, safeguarding profits. A percentage stop-loss is defined as a percentage of the deposit or trade volume. An adaptive stop-loss adjusts based on market volatility (for example, using the ATR indicator).
A stop-loss is a protective order that automatically closes a position once a certain loss level is hit. It is used to limit losses and protect capital during price downturns.
If the market moves against your position, the stop-loss automatically closes the trade, preventing further losses. You don’t need to constantly monitor the chart. Even if you’re away from your computer, the trade will close automatically.
Without a stop-loss, traders often hold onto losing positions in the hope of a turnaround, which can lead to even greater losses. By limiting a few unsuccessful trades, the deposit remains intact for future opportunities.
Setting a stop-loss too tightly can lead to frequent exits due to minor price fluctuations. Conversely, setting it too wide can result in larger losses during a market pullback. Ideally, the stop-loss should account for volatility and be based on support and resistance levels.
In volatile markets (like cryptocurrencies), it’s better to set a wider stop-loss to avoid accidental liquidation. In calmer markets, tighter intervals can be applied to minimize losses.
Additionally, it can be utilized in various ways, depending on your trading strategy:
- By Support and Resistance Levels – Placing orders at key price levels where a bounce is likely.
- Using the ATR Indicator (Average True Range) – Taking volatility into account, setting it a few points away from current prices.
- Based on Chart Patterns – For instance, just below the lower boundary of a flag or the head in a “head and shoulders” pattern.
Markets change, and fixed stop-loss settings may become ineffective. Thus, it’s important to:
- Reassess levels based on new data.
- Analyze past trades and adjust to fluctuations.
- Test various approaches in demo mode before using real capital.
Employing a stop-loss is essential for risk management. Properly configuring a stop-loss helps avoid substantial losses, preserve capital, and maintain steady trading. For greater effectiveness, it’s crucial to combine it wisely with other capital management tools.