How to set up your stop loss for crypto trading

Setup stop-loss for crypto

Before we start, if you are here to get the FREE stop-loss indicator, you can go straight to: https://www.tradingview.com/script/FEHRN9u7-Trend-Surfers-Fix-Stoploss-Picker/

If you want to learn a bit, continue reading 🙂

What is a stop loss?

The stop loss is a predetermined price or coin value at which your position will be closed. For example, if you buy Ethereum at 1000 USDT and set a stop loss at 900 USDT, once the price reach 900 USDT, your position for Ethereum will be close with a 10% loss.

The stop loss is there to protect your equity if the market doesn’t go in the direction of your position.

You should always set a stop loss value before you enter any position. If you don’t, you are looking for trouble, especially in volatile markets like cryptocurrency.

How to set up a stop loss?

Most crypto exchanges will have an input setting for you to enter your stop-loss price. If they don’t, you can use a smart trading platform like Zignaly to manage your positions instead of trading directly on the exchange.

When entering a new position, simply fill the stop-loss input with your pre-determined value.

This is an example of stop-loss input field for the Zignaly smart trading terminal:

Example of Zignaly Stop loss input field

How to choose the right stop-loss?

There is no strict rules as to where to put your stop-loss. it should be mostly based on how your strategy is design and what kind of movement would invalidate your position. But there is certainly some basic stop-loss settings that could lead you in the good path.

Many traders will use the ATR (average true range), Highs & lows, or pivot points in order to determine their stop-loss price value.

ATR for your crypto Stop-Loss

The ATR or Average True Range is a volatility indicator that tells you how much a crypto moved in average for a preset time-frame.

For example, if bitcoin is currently at 30K USDT and the ATR is at 2k USDT. I could do 30,000 – 2,000 = 28,000 USDT and use 28, 000 USDT for my stop-loss.

If the price gets lower than the entry price minus an ATR, it could mean that the market has started to move against your position.

The ATR indicator would probably work best as a trailing-stop-loss but it will certainly not hurt to use it as a fix stop-loss.

Here’s what the ATR +/- the current price looks like on a chart:

ATR Stop-Loss example for Bitcoin on 4H chart

When used as a fix stop-loss, enter the value of (Current price – ATR) for a Long position or (Current price + ATR) for a short position. Always use the preceding closed candle to determine your ATR stop-loss value as the current candle will not have a fix ATR value.

Highs & Lows as a stop-loss

Another popular stop-loss is to use the highest high or the lowest low of a predefined time frame. For example, you could use the Highest high of 30 days for a short or the lowest low of 30 days for a long to find out your stop-loss value.

The timeframe would vary depending on what definition you are trading. I wouldn’t use a 30 days stop-loss while trading on a 15 minutes chart, you would instead might want to use a 4 hours or 1 day high or low.

Here is what the High-Low stop-loss would look like on a chart:

High & Low stop loss on Bitcoin chart

As you would use this as a fixed stop-loss, it is important to use the value provided on the current candle. Unlike the ATR, the High and Low stop-loss value will not change during the current candle unless you look at the high-low of that candle to determine your stop-loss, but that would be stupid 😉

*If the current candle if outside of the High-Low range, you can use the previous high or low as a stop-loss.

Pivot points as a stop-loss

The pivot points are very similar to the high & low stop-loss, but will defer from time to time. Some will prefer that as it can often get closer to the current trading price, making your stop-loss tighter.

A pivot point is created by look at X bars on the left side and X bars on the right side. So let’s say 10 bar on each side to simplify things.

If we look at a Pivot high, once the high of a candle is higher than the 10 last candle on the left and their is now 10 new candle on the right side that are lower, a new pivot point will be created.

The pivot point will indicate you the Highest or lowest point where the market as turned. Using this to set your stop-loss would be beneficial as pivot break is generally meaning that thecrypto market is heading in the opposite direction.

Use the Pivot High as a Short stop-loss and the Pivot low as a Long stop-loss.

Here’s an example of Pivot point on a bitcoin chart:

Pivot point stop-loss for Bitcoin 4H

*If the current candle if outside of the Pivot high or pivot low range, you can use the previous pivot as a stop-loss.

Free Stop-loss indicator for crypto

If you would like to use our free indicator for Tradingview, that will let you know what your stop-loss should be for ATR, High-Low and Pivot, please go to https://www.tradingview.com/script/FEHRN9u7-Trend-Surfers-Fix-Stoploss-Picker/

From there, you will be able to add the script to your Favorites and use it for your crypto trading.

Here’s what the script look like on a chart:

Crypto stop-loss script for tradingview

Please let me know in the comment if you would like to see other stop-loss indicators inside the script!

Risk management for your crypto trades

Now that you know where to place your stop-loss, you can easily calculate your position size and respect strict risk management while trading the highly volatile crypto markets.

To learn more about position sizing, check out our position size calculator tool. The calculator is super easy to use and will give you position size for Long and Short trades as well as all the formulas used to determine it.

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