Trading Cryptocurrency Using Limit and Stop Orders

This is the last of a five-part series to help new investors and traders start and grow a cryptocurrency account. In all five articles I’ve been using Bitcoin (BTC) in my examples for buying, selling, and converting BTC and alt coins.

Previous articles covered:

This article explains a little bit about two types of orders that are a little more advanced from a “standard” order like you’ll see on Coinbase.

Placing a buy or sell order on Coinbase is called a “market” order, meaning it will execute at the current market price.

Many crypto apps, such as Abra and Voyager, are very easy to use but you can only buy or sell at the current market price. But if you want to specify a specific price at which to buy or sell, that’s called a “limit” order.

For more advanced limit orders, you have to use Coinbase Pro instead of Coinbase. You also can use one of the many larger crypto exchanges, such as Bittrex, Binance or Kraken.

In my Crypto Wealth Protocol newsletter I often use technical analysis to suggest expected prices (which I glean from market gyrations) below current market prices for buy-limit orders.

Sticking with BTC for my example, let’s assume BTC is currently trading at $10,000 and you’re looking for a pullback to $9,200 to buy it at a discount.

You could enter a buy-limit order for $9,200 and the order will sit on the exchange. If and when BTC drops to that price, the order will be automatically executed.

A sell-limit order works the same way but in this case you’d enter a price above the current price. If BTC is currently trading at $10,000 and you’d like to sell some at $12,000, you enter a sell-limit order for $12,000.

If and when BTC rallies up to $12,000, your order would trigger automatically.

The next order type to consider is a “stop” order. You can use a buy-stop order (mostly used by traders who “short” the market), but most people will use a sell-stop order to protect a “long” position, i.e., crypto that you own in your account.

My recommendation for crypto investors is to own for the long term, but if you want to protect yourself against a large price decline you can use a stop-loss order. As an example, if you bought BTC at $10,000 and wanted to protect yourself from anything more than a 20% decline ($2,000), you would enter a sell-stop order for $8,000.

In this example, if BTC drops to $8,000 the sell order would automatically trigger. It would be a market order and execute immediately at the current price.

You could use a stop-limit order, which is the opposite of a buy-limit order. Continuing with the BTC example, the sell order would trigger at $8,000 but it would only execute if BTC is currently trading at $8,000.

If price drops fast through $8,000, your order would trigger at $8,000 but it would not execute if it doesn’t bounce back up to $8,000. For this reason many people prefer a stop (market) versus a stop-limit order.

Both limit and stop orders give you a little more control over your position and the prices at which you’d like to buy or sell. If you’re new to this, start with small orders and see how it works for you.

As with everything, the more you use these advanced orders, the more comfortable you will become with them.

If you’d like to learn much more about cryptocurrencies, crypto exchanges and the state of the crypto market, sign up for a free trial of my weekly Crypto Wealth Protocol newsletter.

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