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Have you ever felt sore after a loss while day trading cryptocurrencies? Why did it happen and should I really feel this down after getting stopped out?
In this article I will cover some basics on how to position yourself and one simple technique on how to use the proper stop loss to help you improve cryptocurrency day trading results.
The two main objectives are:
- The 10/10 Rule
- Noise Cancelling Stop Losses
Before we dive into the meat I just want to explain the problem to why most new traders fail at this very simple endeavor.
Crypto day trading is fun but also risky, sometimes the risk is also part of the fun, that’s where the danger steps in.
When new traders start out they quickly learn from others how to use position sizing and how stop losses work.
Usually, these lessons don't come from an experienced trader, it’s more common to hear it from a friend, or from Twitter.
Despite all tips, more than 80% of new cryptocurrency traders struggle with stop losses and position sizing which kills their capital.
Let’s start by sorting out how to position yourself for a better chance in the world of crypto day trading.
The 10/10 Rule
The first problem we are going to solve is the issue of positioning in the markets.
Most traders enter the market with way too large positions that shake them out in minutes or sometimes seconds after hitting the buy-button.
This is very frustrating to a trader who just started out and the only reason he keeps doing it is the fact that he made the math before and knows that once he hits a winner, it will be a big one.
The problem with this is that you need to have god-like timing to be able to hit a good move that lasts for the day or for the weak without getting stopped out.
Now, the 10/10 rule is dead simple, all you need to do is take your full day trading capital and divide it by 10.
Then you take this part and divide it by 10 again, that’s it!
You will end up with 1% of your trading capital as your new position size.
You might not like this new smaller size, but once you get going you will soon realize the comfort and stability of trading a smaller lot.
Most traders are more focused on hitting it big sometimes instead of the longevity of the account.
However, if you apply this rule, you will be able to increase your stop loss and you will probably never be frustrated over a stopped out position.
That’s because your losses will be 90% smaller than before.
The interesting part is that you might end up making more money than before thanks to the lack of emotions from the new position size.
Also, if you keep your position size at 1% you will free up a lot of capital for other coins.
Noise Cancelling Stop Losses
Let me tell you something that I know from personal experience.
When you start out as a cryptocurrency trader you are bound to make some mistakes before you get things right.
Stop losses were my biggest mistake for many years.
The biggest problem wasn’t that I took big hits or lost too much every time, the problem was in the quantity of trades getting stopped out.
I could not stay in the market for more than 2-3 minutes without getting stopped out.
This cost me a lot of capital because I had to pay commission for every trade, plus the loss of capital.
I tried many things before finally came to an understanding on how to make it work.
I started putting my stop loss far out of reach for the market.
In order to do this, I had to use the 10/10 positioning rule and reduce my size significantly first.
I put my stop loss far away, sometimes with a 3-8% wiggle room from the current market fluctuations to stay safe.
And guess what, I stayed safe!
This is why it’s called the Noise Cancelling Stop Loss because you stay outside of the market noise.
This has been one of my best improvements for my cryptocurrency day trading and I recommend that you give it a try.
So, what you need to do is very simple, take a look at the chart and see where the market is currently trading.
There is probably a trading range of some sort.
Put your stop loss at a safe distance from the market, around 3-8% depending on what cryptocurrency you are day trading.
If you are still getting hurt, you need to widen your stop further.
Try it out and remember to hold on to the winners.
If you want to learn more about cryptocurrency day trading and find some of the best crypto trading platforms, click here.
Author Bio:
Owner of website Tradingbrowser.com, a cryptocurrency and bitcoin guide for traders globally. Currently an active crypto trader and equity investor with a background from international CFD-brokers. Turned crypto trader back in 2015 and traded through the ups and downs of the bitcoin boom. Enjoys helping up and coming traders with his own personal trading experience and reviews of quality trading platforms.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.