Losses in Trading. They are Impossible to Avoid, but can be Minimized
By Coinmatics on The Capital
To minimize trading losses, one should use just three free publicly available tools, which are the following: Binance calculator, stop-loss/take-profit orders, and an optimal time frame.
The article is analyzing the features of each and providing readers with some practical guidance on how to use them.
First, the bad news, losses are inevitable. They can manifest themselves in the form of both true losses and missed out deals. This is attributed to the volatility of the market and the lack of predictability of too many factors.
The good news is, it is possible to minimize the losses, and you must do it.
Moreover, there are at least three efficient instruments. It is better to apply them in conjunction with one another — all at once. The tools are free and publicly available. To use them, one needs just basic trading experience.
Binance calculator
Binance, one of the most popular cryptocurrency exchanges on the planet, offers customers a convenient calculator enabling them to calculate profit and loss. To evoke the instrument, one needs to click on the easily recognizable icon.
The interface of the calculator is ergonomic; the functionality was designed in accordance with the principle that reads “nothing more than you need”. To calculate financial risks, one needs to choose a currency pair and the PNL parameter, which stands for “profit and loss”.
The next step is to choose the leverage level, select “Long” or “Short”. Then enter the entry price, exit price, and quantity of your order. After a click on the Calculate button, the calculator will provide the result for initial margin, ROE, and PnL.
Psychologically, it is extremely useful to have a look at the precise amount of possible loss and decide whether you are ready for it or not.
Stop-loss and take-profit
The tools are allowed by most brokers, and these are the type of orders that should be mastered as early as possible. They represent pending orders, which execute automatically once the price of the asset in question falls to a specified stop price.
Traders open take-profits orders in the hope that an asset’s price will increase. Once the chosen price is reached, the trade executes. Stop-loss orders perform similar functions but in relation to a decrease: once the price falls to a level that is considered as being “unacceptable” by the trader, the deal closes automatically.
It is recommended that one should open stop-loss orders at a level that guarantees to break even (if it is possible). While choosing a level for a take-profit, objective perspectives of the price based on technical analysis should be taken into consideration.
The orders limit experienced traders, but the beginners and middle-level traders can benefit from them a lot. It is easier to maintain the behavior within a rational framework with the help of them. Moreover, thanks to the tools, one doesn’t need to stay on guard by a trading terminal 24/7 and can do something else.
Right choice of time frames
According to the statistics, the majority of traders make money on М15, М30, Н1, and Н4 time frames (15 minutes, 30 minutes, 1 hour, and 4 hours respectively). The volatility is sufficient to benefit from it even in such short frames.
But it is better not to choose a time frame shorter than M15. Those scales can provide a higher volatility level than one of H1, but it is easy to make a wrong move while trading at such a speed. Moreover, every deal is subject to a fee.
The shorter the time frame, the bigger the number of deals. Hence, the more impressive the size of the fees paid. It is only exceptionally experienced traders who can address all the nuances providently to take advantage of such time frames. Scalping is their slang term for trading on short time frames.
As for the time frames from H24 and more, they are convenient for beginning market players to test their skills. A weakly interval enables a trader to apply the whole spectrum of technical analysis, identify support and resistance lines, get rid of the noise.
It is easy to create artificial pumps and dumps or confuse beginners, using the time frames that are shorter than W1. A strong player or a cartel can easily present an image of altcoin’s growing popularity, especially if the coin’s trading volumes are low.
Using time frames exceeding W1, it is much harder to manipulate the market, which means that the risk is lower. Trading within long time frames is appropriate to be called investing.
However, there is no definition. Some people believe that the least time frame for an investor is 1 month; others think that it should be at least 1 year.
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