- One of the mistakes that beginners to the world of crypto trading make is not setting sell points when they enter a trade
- Setting sells and stop limits reduces a trader’s stress levels and is more likely to guarantee profit and reduce loss when crypto trading
- If you don’t set a sell/stop limit then you are likely in the trade for the wrong reasons
One of the beauties of the cryptocurrency space is that anyone and everyone can get involved in crypto trading, regardless of their level of experience. In some cases this turns average people into millionaires, but in a lot more cases it results in heartbreak and a negative bank balance. One of the reasons why new traders get into difficulties is because they don’t practice good crypto trading strategies, primarily because they don’t know any. Key among these is planning a trade.
Why Plan a Trade?
Put simply, if you don’t engage in crypto trading with targets in mind then you won’t know when to sell. This applies in both directions – when your trade is in the green you won’t know when is the right time to take profit, and you won’t know when a negative trade has become a lost cause. Too many new traders sell at the bottom and hold on for more gains when the going is good, the anathema of a good crypto trading strategy.
When crypto trading there are a number of ways in which you can determine profit and loss levels before entering a position, but these involve more technical aspects which we will go through in a different article. As a new trader however you need first to understand the reason why you shouldn’t enter a trade unless you know when you are going to get out.
Setting Sells Reduces Anxiety
When crypto trading, if you enter a trade without having clear sell points set then you will be constantly checking your crypto portfolio, wondering what to do next, continually second guessing yourself. Your decision of when to sell will be purely based on your instinct at the time rather than data or technical analysis, and the more you check the price the more anxious you will become over it. This leads to hasty trades, something that can be fatal when crypto trading.
Let’s take two example crypto trading scenarios.
Trader 1 is buying 100 UNI tokens at $5. His research says that it has a good chance of getting to $7.50, so he sets 50% to sell at $6.95 and the other 50% to sell at $7.48. He also has a stop-limit of $4.25, so his entire allocation will sell if it drops to that level.
Trader 2, who is new to crypto trading, also buys 100 UNI tokens at $5. He read on Twitter that lots of people say it will moon soon, and he wants to make as much money as possible.
Over the next few days, UNI goes up to $5.50, then $6.50, then $6.75. Trader 1 is aware that the price is going up, but is not concerned, going about his day, knowing that his levels are in place whatever happens.
Trader 2 however is checking his crypto portfolio app all the time, watching the price go up, wondering when he should sell. What if it keeps going up? He could miss out. He is worried that it could top out at any moment.
Overnight the price jumps to $7.51 then back to $5.32. Trader 1, who slept soundly, has his sells hit and makes a nice profit. Trader 2, who hasn’t slept well because he has been worried about his trade, wakes up to see that the price jumped and then fell again. He is now angry that he didn’t sell when the price was at $6.75 before he went to bed. He sells at $5.32, only to see the coin rebound and head back towards $6 again.
As you can see, by setting sells the moment he made the trade, Trader 1 was a lot more relaxed while the trade was open and had much more chance of making a decent profit. Had the token made a loss rather than profit, he could also have got out with less of a loss than Trader 2, who did not set any stops.
Planning a Trade is Key to Successful Crypto Trading
Setting sells, whether conservative or ambitious, is essential in crypto trading if you want to avoid sleepless nights, constant anxiety, and positional babysitting. Having no target for your trade, even if it’s a 100x, shows that you have got into it for the wrong reasons and you should not be in it in the first place. Unsurprisingly, it is also recognized as a prime way in which those new to crypto trading lose money.