I have been in the crypto world for ten years. Eight years ago, I quit my job to trade cryptocurrencies. From being in debt to being wealthy, what truly changed me was a night six years ago. Words from an elder made me realize my position and understand the eight periods that every crypto investor must go through. Always compare and reflect on them, and finally retrieve all that I lost!

Perhaps in some people's eyes, retail investors are always the lambs waiting to be slaughtered!

If you are preparing to enter the crypto world, I sincerely hope this article can help you. As someone with decent summarizing skills and expression, I believe some of my ideas may be helpful to you. Alright, no more nonsense, let's get straight to the point~

When it's hard to make a selling decision in trading, ask yourself: if your analysis is correct, why is the market moving in the opposite direction? The only reason is that you are wrong, because the market does not make mistakes!

Share the four common stop loss methods I use, the last one is the most effective!

Decide to enter before considering the stop loss

Financial giant Soros said:

Judging right or wrong is not important; what matters is how much profit you made when you were correct, and how much you lost when you were wrong.

This is the importance of stop loss.

Hello everyone, I am Yan An

Today let's discuss how to set stop losses

Before we officially start

It needs to be emphasized:

Setting a stop loss is generally the last step in the three-step trading process

You must ensure that your previous two steps of judging the trend and finding the target take profit level are correct

The current trend and market background allow you to enter trading

And you have already seen the signal to enter

This signal can be a few candlesticks

It can also be a certain pattern

It can also be some indicators, etc.

Otherwise, don't consider how to set the stop loss yet

Because when the win rate cannot be guaranteed

No matter whether you set a narrow or wide stop loss

It is undoubtedly giving money to the market

The common stop loss methods we see mainly include the following 5 types

They are:

  1. Moving average stop loss

  2. Key level stop loss

  3. Indicator stop loss

  4. Pattern (structure) stop loss

  5. Candlestick stop loss

Among them, the last candlestick stop loss is the one I use the most

This is also something we often talk about in our system course

This will be explained in detail later

1. Moving average stop loss

Let's first look at the first type:

Moving average stop loss

For instance, let's take a look at this recent downward trend

First, on the background of a larger time frame, it is a wide trading range

Currently, the price is near the upper boundary of the trading range, and after the appearance of SOW (the dealer's mindset part), it has fallen all the way

We decide to follow this trend in the current 1H period, looking for shorting opportunities

And we have also found the two closest support levels, level 1 and level 2

When we open the EMA20 moving average

Discover that this wave of decline is in a narrow channel

And the EMA20 has a very obvious pushing effect

Every time when the candlestick touches EMA20, it’s like hitting a high voltage line, and it continues to drop

More critically

The current price is exactly at the first key level

And the two bullish forces just failed to surge up

A slight breakdown (failed breakout) situation has occurred

When we see the latest candlestick that breaks the low

We believe the downtrend will continue

The price will start from the first key level

Heading to the next target, the second support level

Thus

We decide to enter the market and short

Take profit slightly above the second support level

Stop loss choice using moving average stop loss

This is the EMA20 stop loss

It has been mentioned before

This wave of downward trend is mainly driven by the EMA20 moving average and is effective

And just experienced two failed breakouts of the moving average, with a candlestick breaking the low appearing

So we believe that if the trend starts to decline

the price must not touch the EMA20 moving average at this key level again

So we put the stop loss just above the EMA20

We can see a profit-loss ratio of nearly 1:5

Both the win rate and the profit-loss ratio are present

So this is a trade with excellent mathematical advantage, very worth entering

Then we look at the subsequent market and find that it quickly hits the take profit

Of course, that said

Here, we are discussing the case in hindsight

Mainly to learn something

If at that time in the market

We cannot know for sure that this downward movement will definitely break the first support level

It is very likely that a new trading range will emerge here

If that is the case

Personally, I would choose to exit and look for better entry opportunities

It is worth emphasizing

I am just using the EMA20 moving average as an example here

Which moving average or several moving averages to use in actual operations

Depends on your own trading system

Do not treat EMA20 as the standard answer

2. Key level stop loss,

Next, let's learn the second type of stop loss method:

Use key level stop loss

For example, let's take this shorting case as an example

There's no need to mention the previous market background. Currently, it allows us to short

And when I see this candlestick, I believe it is highly likely to continue to fall

The price must start from the previous key level to reach the next key level

So we still choose to enter the market at market price

Place the stop loss just slightly above the upper boundary of this key level

Take profit should be just slightly above the next key level's upper boundary

We see that the profit-loss ratio is actually similar to the previous one

But it should be particularly noted here

If there are 1-2 extreme points nearby when you decide to set the stop loss

It is best to place the stop loss directly at the nearby extreme point

This is what we often say about placing stop losses at previous extreme high or low points

In essence, still refer to the key level for stop loss

For example, in this case

We will ensure the profit-loss ratio is maintained

Widen the stop loss

Move to the highest point of this engulfing candlestick

Although this results in a loss of some profit-loss ratio

But it will make our win rate more assured

You will feel more secure

To some extent,

The purpose of setting stop losses is to prevent it from hitting the stop loss

Sometimes your profit-loss ratio is indeed very high

But that is just because you set the stop loss too narrowly

Although the amount lost each time is not much

But the probability of success is low

Will lead to severe wear and tear of the principal, which is also very detrimental to the mindset

The importance of maintaining a stable mindset in daily trading

I believe I don't need to go on about this

3. Use indicator stop loss,

Next, we will look at the third type:

Use indicators to set stop losses

Here, the indicator actually refers to ATR (Average True Range), the average true volatility

When we open the ATR indicator settings, we find:

The default length filled by the system is 14

Here the 14 refers to the 14 recently completed candlesticks

If the amplitude of these 14 candlesticks is large

Then the ATR value will be very high

It also means that the recent market fluctuations are severe

Next, it is very likely to continue forming larger candlesticks

If we want to set a stop loss using ATR

The stop loss points in this situation

should not be too close to the entry position

Conversely

If the recent 14 candlesticks are very small

Then the ATR value will also be very small

This means the market has only fluctuated slightly recently

Enter at this time

The probability of a big candlestick appearing is relatively low

The stop loss can be relatively close to the entry point

For example, let's take the previous shorting example

When we decide to enter when we see this bearish candlestick

Then this bearish candlestick is our entry candlestick

We can find the ATR value of this candlestick

Then add 1.5-2 ATR units upwards to serve as our stop loss point

Here we see that its ATR value is 184.76

1.5 times is 184.76 * 1.5 = 277.14

Multiplying by 2 gives 369.52

Our stop loss can be pulled up by about 369 points

Of course, it can also be simpler

No need to manually calculate, it seems very tedious

We can use the left price range tool

First, draw out one ATR unit size

Then copy this box

Which is 2 ATR units

We overlay and accumulate it

This is the stop loss we need to set

This is how to use ATR to set a simple stop loss

Always remember

Based on the closing price of the entry candlestick

Accumulate 1.5 times or 2 times the ATR value of the entry candlestick in the opposite direction

In fact, we choose to use ATR stop loss more often to prevent stop loss hunting

For example, still within this trend

So we decide to enter the market and short

If it weren’t for this spinning top

We believe that this converging pattern will most likely choose to break down

But recently, the amplitudes of these few candlesticks are very small

If I decide to enter when I see this bearish candlestick

But I am very worried that my stop loss will be hit first before continuing downward (the subsequent spinning top pattern indeed occurred)

At this time, I can use ATR to calculate that 1.5 times ATR is roughly at this position

Of course, we can also combine the ATR stop loss method with the key level stop loss method

Prevent stop loss hunting to avoid unnecessary losses

Even combined with moving averages, it is also acceptable

In short

As long as you feel unsafe inside and there are no previous extreme points for reference

Using ATR to calculate the stop loss is a good approach

4. Pattern (structure) stop loss,

Next, let's understand what

Pattern stop loss, or structure stop loss

Common patterns include head and shoulders, double tops and bottoms, arc tops and bottoms, and other reversal patterns

There are also rectangular, triangular, flag, and other continuation patterns

Whether it is a reversal pattern or a continuation pattern

Wait until it actually reaches the right side of the pattern and is about to break out

This is a good time for breakout entry

For example, let’s take this recent downward trend as an example

If I see this current form as a triple top

This blue area is the neckline of this triple top

When I see this bearish candlestick

I believe this is a true breakout of the neckline

The market is about to start, and a reversal is beginning

The goal is to reach the next support level

This is why I take the breakout of the pattern as my entry reason

So in this context

The price is not allowed to return and break through the neckline again

So I put the stop loss at the neckline level

This is just slightly above the upper boundary of this region

Of course

If we set the stop loss according to the second key level method

It is also near this price level

So we come to the conclusion

There are many ways to set stop losses, and there is no standard answer

If your entry logic is different, the corresponding stop loss method will also be different

For example,

Then the market continues to move down

We have found another converging triangle here

And a false breakout occurred upwards

Then the probability of it breaking downward and forming a continuation will increase

So when we see this bearish candlestick

Decide to enter at market price

The entry logic mainly involves this downward trend in the converging triangle continuation

Then I can place the stop loss at the extreme point of this pattern

Or we can interpret this as a pullback after a breakout

It is also acceptable

What does this mean?

Because everyone may not have the same upper and lower bounds for identifying the neckline

Then can I interpret the high point of this candlestick as:

Downward breakout after a triple top

Then will it pull back to the neckline and continue to fall?

This rebound force is essentially a correction of the downward force

When I see this bearish candlestick, I believe the power of this pullback has ended

The trend is about to continue

So I put the stop loss at the high point of this candlestick

Although it is different from the previous logic

But the outcome is the same

Finally, share a set of iron rules for trading cryptocurrencies:

1. Only use spare money to invest; the first iron rule! Trading cryptocurrencies is risky, and you must not use money needed for living expenses to invest. Only use spare money to invest so that losses do not affect your life. This way, your mindset will remain stable and you won’t lose sleep over fluctuations.

2. Do not blindly chase highs. When you see a coin surge, do not impulsively chase the high! Remember, surges are usually followed by pullbacks. Markets are cyclical, and chasing highs can easily lead to being trapped. Keep a steady mindset and consider buying only after a pullback.

3. Learn to read charts. Learning to trade cryptocurrencies requires mastering candlestick charts and understanding support and resistance levels. Although technical analysis is not omnipotent, it can help you better judge buying and selling opportunities.

4. Control your position. Enter in batches; do not buy all at once! Entering in batches can effectively spread risk and avoid funds being trapped at high points. Adjust your position flexibly according to market conditions to reduce risk.

5. Set a stop loss point. No matter how optimistic you are about a coin, you must set a stop loss point! Controlling risk and timely stop losses is key to protecting your principal. Do not harbor illusions; once the stop loss point is reached, sell decisively.

6. Do more homework. Trading cryptocurrencies is not about following others’ calls to make profits. **Learn more about the project background**, team, and technology; do not blindly follow trends. Only by mastering enough information can you make more rational investment decisions.

7. Be patient. Trading cryptocurrencies is not a game of getting rich overnight. Stay patient, and do not operate frequently. Holding high-quality coins for the long term often yields better returns.

Finally, remember:

The crypto world is a marathon; being steady is far better than quick wins. Winning by luck will ultimately lead to loss due to lack of skill. Only by integrating position management into instinct can one survive in a brutal market.

Remember: as long as you are alive, you have the right to wait for the next round of reversal.

No matter how diligent a fisherman is, he will not go out to sea to fish in the stormy season, but will carefully guard his boat. This season will always pass, and a sunny day will come! Follow me, and I will teach you both fishing and how to fish. The door to the crypto world is always open. Only by following the trend can you have a life in sync with it. Save it and remember it!