Importance of having a Stop Loss

You must have an exit strategy in mind whenever you open a position on your favourite exchange (e.g. BitMEX, Binance, OANDA, etc…). Your “exit” is when you are going to capitalize on the investment itself. Perpetual ownership never allows you to realize the benefits of investment – you’ll only get to reap your rewards when exiting your position.

At the same time, you need to make sure that you have eliminated as much risk as possible on every position you take. A stop-loss order allows you to do precisely that, guaranteeing an automatic selloff should your position pass a threshold that you deem to be unacceptable.

A stop-loss guarantees that you exit positions before they have an opportunity to bury you. If a security without a stop loss dropped by 50%, for example, you’d need a 100% return to get back to breakeven. It could take a long time to do that climb back up again when you could have otherwise exited the positions with a minimal loss and moved on to something with better prospects.