With Bitcoin crashing below US$5000 for the first time in over a year, experts say if you still want to make money trading cryptocurrencies it might be time to let go of the ‘HODL at all costs’ mentality.
The simple trading and investing strategy often overlooked by ‘HODLers’ is setting a crypto stop loss order.
Speaking to Micky, leading Australian technical analyst Craig Cobb, is unequivocal when asked about the importance of stop losses when trading or investing in Bitcoin or other cryptocurrencies.
“Only if you want to have long-term success,” he replies.
According to Cobb, every trading strategy he implements and teaches has a precise stop loss.
“A stop loss is a risk management tool and since risk management is the single most important element, it is the most important aspect to my trading.
Setting stop losses is a key subject on Craig Cobb’s educational platform.
While many ‘HODLers’ believe in the long term fundamentals of Bitcoin and other cryptocurrencies, the truth is, had they implemented a stop loss strategy over the past 12 months they would’ve had more capital to invest in cryptocurrencies at the current lower prices.
“A trader is typically not looking for a move to last so long and therefore HODLing is not a smart option,” says Cobb.
“For the investor it may not be such an issue, as always though you need to be aware of the changing environment, so be nimble.”
Crypto stop loss functionality
One of the biggest challenges for many crypto traders and investors is finding a platform which allows you to easily set a stop loss.
Unlike traditional stock market trading platforms, there are few cryptocurrency exchanges which give non-professional traders the option to set automatic stops.
Australian crypto exchange Independent Reserve, is one offering stop loss functionality to all clients.
Independent Reserve CEO Adrian Przelozny tells Micky the exchange opted to include the feature when it launched four years ago.
“Our platform caters to sophisticated investors as well as casual traders and thus we have always felt the need to deliver a full suite of functionality that our customers need,” says Przelozny.
“Stop Loss orders can play an important role in various trading strategies.
“We always recommend that our customers take the time to educate themselves about the different order types available on our platform on how they can be used in conjunction to form a cohesive strategy.
Perhaps not surprisingly, Przelozny says Independent Reserve has witnesses a trend towards more sophisticated traders using the functionality.
“We generally find that it is the more experienced traders, who have come into crypto from traditional markets like equities and FX who tend to make use of our more advanced order types.”
GFC victims didn’t use stops
One of Australia’s pioneers in stock market technical analysis is Lousie Bedford.
“GFC Victims didn’t use stops” is the headline at the start of the chapter about stop loss orders in her highly acclaimed book ‘Trading Secrets’.
Bedford says the goal of a stop loss is to protect your initial equity and to protect any profits.
“Thousands of people halved their superannuation accounts during the GFC,” writes Bedford.
“I guarantee that 99 per cent of them didn’t use stops.”
The most affordable way to purchase Trading Secrets by Louise Bedford is on Amazon. Click here to check it out.
Check out Independent Reserve’s stop loss functionality here.
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