Unlike equities markets, crypto trading works around the clock, which makes it impossible for investors to watch constantly. Using a stop-loss order allows you to buy or sell whenever your desired price is reached—even in your sleep.
To determine their stop-loss prices, seasoned traders use charting (meaning they follow the history of an investment—more on this later). “One can identify a key support level on a chart and place a stop-loss just below the support level, so once the level is lost, your downside is limited,” says Marcus Sotiriou, sales trader at GlobalBlock, a U.K.-based digital asset broker.
Investors set limit orders to buy a crypto asset for less than the current price or sell a crypto asset for more than the current price.
For example, if the price of a litecoin is $156 and you want to buy when it falls to $130, you can place a limit buy order at that price. On the other hand, if you’re in a long position—meaning that you hold the asset—and you think the price will rise, you can place a limit sell order at your desired price.
“When you set a limit order to sell your asset just above the current price, your position is automatically sold as soon as your limit order is hit,” says Sotiriou. “Having this automatically done for you means that emotions are taken out of the trade, and you do not have to constantly manage your position.”
Dollar-cost averaging (DCA) involves investing a fixed amount of money in a certain asset at regular intervals over a long term, with the aim of spreading out the risk. It reduces the stress of frequent price fluctuations, since the position is built up over a period of time, says Devesh Mamtani, chief market strategist at Century Financial, a financial services provider based in Dubai.
For example, an investor could buy $1,000 worth of bitcoin every month over a longer time frame rather than a larger amount in one shot. In doing so, they wouldn’t need to worry if bitcoin’s price drops suddenly, says Mamtani.
You can use dollar-cost averaging as a strategy for both buying and selling. “I don’t like entering or exiting all at once—I generally layer in or peel out,” says Chuh. This, he adds, is more of an art than a science. It takes time to learn when and how much to buy and sell. Splitting your investments up into smaller parts and spreading them across a longer time horizon “is particularly beneficial in a volatile market, when emotions can run high and impair your judgment,” says Sotiriou.