Stop orders are useful if you do not want to be constantly watching the cryptocurrency markets tick by tick. Stop orders allow users to buy or sell when the price reaches a specified price known as the ‘stop price’. Stop orders can help traders and investors protect their profits, potentially limit losses and initiate new positions.
For example, let’s assume you are long 100 Litecoin / USD (LTC/USD) at $82 and want to sell if it breaks below $80 to limit potential losses. You could enter a sell stop to sell at $80. Here’s how the order would look:
Keep in mind, if LTC/USD reaches $80, your stop order becomes a market order and you would be filled at the next best bid.
You could also use stop orders to get yourself in a position.
For example, let’s assume you notice LTC-USD has resistance at $85 and only want to buy if it breaks above $85. Now, you would enter a buy-stop order to do so.
With this order, the order would go live if LTC / USD reached $85. However, you would not get filled until LTC / USD hit $85.50 (the limit price).
When you use stop-limit orders, you could guarantee the price you get filled at. However, you are not guaranteed execution, especially if the market is moving quickly and no trades occur at your limit price.
Now, you should have a good understanding of various order types. That said, let’s move onto another tool that you could use to signal where you might want to buy and sell your digital assets.