Many people don’t realize that the same investment strategies that they use when investing in more traditional assets like stocks can also easily be applied to trading cryptocurrencies such as Bitcoin. People often tend to look at Bitcoin as a currency only, which limits its scope. In terms of how its value rises and falls, it is much more in line with an asset such as a stock. As such, many of the same rules apply, as do the tactics by which traders earn their living. One of the most popular of these tactics is the trailing stop. When applied to Bitcoin, which is an excessively volatile instrument, it can help you protect your gains while limiting your losses, and that’s the kind of action you want out of your investment properties.
The characteristics of a trailing stop make it ideal for usage with Bitcoin. You can use it to prevent you from taking a major hit when the coin drops in value in a significant manner. But it also won’t stop you from accumulating massive profits. Many people would like to get involved in Bitcoin investment but aren’t sure about how to pull it off; if that’s you, a trading program such as Bitcoin Trader will do the work for you. For those who like to get hands-on, here is how a trailing stop can really work for your Bitcoin investments.
- The Basics
A trailing stop is an order to sell an asset after it falls below a certain percentage level. But that percentage level is adjusted to wherever the price of the asset is. For example, if an asset’s price was at 50 units when bought and you put in a 20 percent stop level, that means that you would sell if the price immediately dropped to 40 units, which would be a 20 percent drop.
- Making the Adjustment
Now, what if that price rose first to 100 units? The percentage would be adjusted. Now the sell order would be placed if it dropped to 80 units. As you can see, this means that the investor will still have made a significant profit from the initial investment of 50 units. But they also will have prevented a precipitous drop in value that could have taken all those profits away.
- Applying It to Bitcoin
The trailing stop really works well with Bitcoin because of it such a volatile asset. Whereas a typical stop order might protect you from catastrophic losses in the value of your coins, it also neglects to keep a sudden reversal from eating away at your profits. And sudden reversals are part and parcel of volatile assets. The trailing stop provides just the right combination of aggression and caution to make the most out of Bitcoin investing.
A trailing stop might be the ultimate tool for the investor who wants to make their decisions based on the mathematics of the situation. With Bitcoin, where the math of rises and falls can get crazy fast, it’s especially crucial.