How You Can Set Your Stop Loss Order Based On Price Volatility In Crypto Trading

Volatility in the crypto market means the characteristic of cryptocurrencies changing often in price unpredictably. In a nutshell, volatility means the amount at which a market can potentially move up or down over a given period. It is hard to predict the crypto market and even with your analysis, the market can still go against your analysis.

Having a deep understanding of how crypto pairs move can be of help to you as you will be able to set your stop loss order and take profit order correctly and avoid the possibility of losing your capital since you will not be taking random prices before placing your trade.

Let's say, for example, you have analyzed the market and found out that STEEM/USDT has moved around 100 pips a day over the week or month depending on your analysis. With this type of movement, if you enter the market and set your stop loss to 20 pips there is a tendency for you to be locked out of the market early if you're trading with a high leverage and small capital.

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With the little, example shared above, in which you have come to know the average volatility of the market, it can help you to set your stop loss order, make your trade stay long in the market, and put you in the right position of winning the market.

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Method For Setting a Stop-Loss

Let's take a look at the methods that you can apply if you want to set stop-loss

Use Average True Range (ATR)

The average true range indicator is best used for finding the average volatility of the price of cryptocurrency which you can take advantage of. It is very common and easy to analyze on most of the available trading platforms such as; Tradingview, LiteFinance, and others.

When you are using an average true range in analyzing the market, all you have to do is input the period, or the number of candlesticks, bars, or time it looks back so you can calculate the ATR.

Example:

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From the above screenshot which is a daily chart of STEEM/USDT. Let's assume that you input 20 pips into the settings, then the Average True Range indicator will automatically help you calculate the average range of STEEM/USDT for the past 20 days.

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In a situation where you are making use of an hourly timeframe and you input 50 pips into the settings, the Average True Range indicator will help you calculate the average movement of the currency pairs for the past 50 hours, in which you can then place your stop loss.

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Use Bollinger Bands

This is another good indicator that millions of traders are using to measure market volatility which you can take advantage of. By using the Bollinger Bands indicator, you will have an idea of when the market will be volatile and the current volatility level of the market.

Example:

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Let's say you are performing some range trading, via the screenshot shared above, what you are to do is to set your stop loss order beyond the band's. By doing this, if the price of the asset hits the point you have set, it means volatility will begin and you may likely see a breakout.

Disclaimer: _{This is not investment advice but purely written as educational content that is meant to expose you to how you can set stop loss order and manage your risk in a volatile market.}