For most of the time, I have been using a Coinbase Pro account just to buy and hold Bitcoin once a week. Just recently I started thinking about trading Bitcoin more frequently - like a couple of times per day using trade signals like Moving Averages with Golden and Death Cross.
The idea is quite simple - Once there is a trade signal indicating a buy - I will manually buy Bitcoin, to protect myself I want to set a stop loss of about 1% under my bought price. In case of trends reverse, I’m protected and don’t blow my account.
As an active stock trader I know pretty well the concept of stop losses, but working on a new platform there is always some learning curve involved in understanding the platform itself, so I was familiarizing myself with the Coinbase Pro platform and was looking how to place a stop-loss order, luckily I found this awesome article to kickstart my learning curve
To place a stop-loss order, you’ll need to have an open position. Change the order type from Buy to Sell and select the Stop tab. You will see three fields, and here’s what they mean:
Stop Price: price at which the order triggers
Amount: amount you want to sell
Limit Price: the price at which you will sell
The most confusing part about a stop-loss order is understanding the difference between the stop price and the limit price. Once you grasp that concept, it will all make sense.
Let’s assume I just bought one Bitcoin, and the current price is EUR 37,600. I want to be protected in case of Bitcoin drops under EUR 37,500 and sell it with minimal loss.
I will set up a stop price at EUR 37,500, in case Bitcoin hits this price, my order will trigger, but as I have set my limit price a bit lower it will sell at EUR 37,450
In an ideal world, my account will be protected against a sharp drop, and from the above example, I will lose just EUR 150 or 0.4% from my initial investment.