Really good post, informative as always.
You said "a bearish market is a perfect example on why traders use stop-losses". That is only partially true. Of course, stop-losses seem like a good thing to, well, prevent losses but they are actually the reason behind posts of those heavy short-term crashes.
When the price goes down, stop-losses start to activate and perform market sells, bringing the price down even further. They are like reverse market-depth, they take liquidity away from an order book, before a trade is even executed.
I also don't really understand why traders would use them. No one would advise you to sell on the dips, right? But when it is automated, it is suddenly ok.
If you have a different opinions than me, please correct me, I would love to hear it.
Capital Preservation is the number 1 priority of a trader in practicing good risk management. Traders don't hold positions and add the way investors do. Trading is a high intensity activity with high risk. So when I said a bearish market in the context of the recent draw downs is the reason a trader would use a stop loss is to either have lock in gains if they rode to the top, or if they were buying a dip hoping to make a trade, to prevent going down with the ship.
BTC has gone from nearly $5000 to $4000 -- 20% draw down.
In the nearer term you saw it go from $4600 to $4000 - If a trader is locked into a position how do they continue to trade. If a trader is at profit, they must realize those gains to have progression in their portfolio.
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Good point. But would you agree that a price alarm is a better idea because a trader can make decisions before your crypto gets sold automatically? Maybe even in combination with a stop-loss?
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have both, but always respect stop-loss... not that i dont break my own rules heh
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