How I set Stop Order on DueDEX to minimize risk. The Complete guide to Stop Orders.
As a beginner in trading, a lot of important features might be neglected and Stop Orders is one of them.
A Stop Order is an order placed with a trader to buy or sell once the contract reaches a certain price. It is widely used in traditional stock market to limit an investor’s loss on a security position.
The rookies are too into the excitement of instant buying and selling and lack of enough knowledge and skills to take smart strategy and set up stop-loss order. However, it is extremely important for a qualified trader to learn about Stop Order, especially for a Perpetual Swap Contract trader for the following reasons.
No one stays awake 24X7
24X7 is one of the major differences between stock market and crypto market. The advantage of a Stop Order is you don’t have monitor how the market goes all the time. It effectively prevents you from unexpected losses when you are asleep.
Besides stop-loss purpose, another use of it would be to lock in profits, or so called a “trailing stop”. If you buy a contract and it goes up as you have expected, at this moment, what you own is only an unrealized gain, which means that you have not secured the cash in your pocket. Using trailing stop allows you to guarantee some realized gain.
This is important in all types of trading since people could be too emotional to make rational decision during the process. A value investor always set up clear strategy of their investment and the strategy may work only if you stick to it. Stop Orders here can help traders stay on track, preventing from emotional judgements.
1. There are two types of Stop Order: Stop Market and Stop Limit.
Stop Market Order: When the market reaches the Stop Price, a Market Order will be placed.
Stop Limit Order: When the market reached the Stop Price, a Limit Order will be placed. In other words, the order will enter into the order book.
2. For Stop Limit Orders, for example, you want to sell 100 contracts with the Stop Price at 9000 and Limit Price at 8999, the order will be triggered when BTC is traded at 9000, which means a Limit Order of selling 100 contracts at the price of 8999 is placed in the Order Book. Your order can only be filled when buyers are willing to buy that amount of contracts with that price. This is not immediately done.
3. For Stop Market Orders, after are triggered, they will be executed immediately, but at the best possible price instead of the exact price you are setting. The gap between the two can be huge during extreme market pumps or dumps or when the liquidity is not enough.
4. Stick to your strategy. If you are not 100% confident about your plan, maybe you should not enter a position at this stage. Stick to your original plan, and let the market prove you are wrong and let the Stop Order manage your risk.
5. Don’t place your stop at turning points, range boundaries and other obvious points in the market, since these are the references that all experienced traders are looking at. So please leave some space between your stop and the points mentioned above to prevent knocking out during market pumps and dumps.
6. Stop Orders not only can exit the market for users, but also can enter a position. For example, the current price of BTC contract is 9000 USD and you are holding an upward trend for it, then you can set up a stop limit order above 9000.
DueDEX has integrated and optimized the Stop Orders functions in the latest release. I don’t want to waste your time to say it again, you can check the user guide via the following link:
It contains detailed step by step and some real-case example so you can understand this quickly.
Please do pay attention to some key points of this function as follows:
DueDEX uses Last Traded Price (Last) as default Trigger price, at the same time, offers Index Price (“Index”), or Mark Price (“Mark”) as alternatives.
Reduce-Only option is selected by default when traders would like to place a Stop Order. If a trader would like to use Stop Orders to enter the market at the desired entry point automatically, he/she should untick the Reduce-Only option.
I do suggest you guys to try this function yourself on DueDEX testnet (testnet.DueDEX.com). When you feel you are ready, please use my referral link to join DueDEX. http://bit.ly/DueDEXRef Up to 70 USD will be given to new registered users.
Published at Thu, 14 Nov 2019 08:26:46 +0000