Stop Loss
By Menno — 13 years in crypto, 3 bear markets survived, zero paid promotions
Last updated: March 2026
A stop loss is an order that automatically sells your position when the price drops to a specified level, limiting your potential losses. It's a risk management tool that removes emotion from selling decisions.
A stop loss is a pre-set order to sell an asset when its price falls to a certain level. It's designed to limit losses on a position by automatically executing a sell order.
How it works: 1. You buy ETH at $3,000 2. You set a stop loss at $2,700 (10% below entry) 3. If ETH drops to $2,700, the stop loss triggers and sells automatically 4. Your maximum loss is capped at 10%
Types of stop losses: - Fixed: sell at a specific price (e.g., $2,700) - Trailing: moves up with the price but never down (e.g., 10% below the highest price reached) - Mental stop: a planned exit point that you execute manually
Stop losses in crypto — important considerations: - Crypto trades 24/7, so prices can move while you sleep - High volatility means tight stops get triggered frequently ("stopped out") - In flash crashes, execution price may be below your stop (slippage) - Some exchanges don't support stop losses for all pairs
Setting appropriate stop loss levels: - Too tight (5%): normal volatility triggers false exits - Too wide (30%): doesn't protect against meaningful losses - Sweet spot in crypto: typically 15-25% depending on the asset's normal volatility
Stop losses are valuable in crypto where 50-80% drawdowns are common. Even a 25% stop loss is far better than riding a position down 80%.
Related Tools on Alpha Factory
Related Terms
Exit Strategy
An exit strategy is a predefined plan for when and how to sell your investments. It includes profit targets, stop losses, and rules for reducing positions — designed to remove emotion from selling decisions.
Volatility
Volatility measures how much an asset's price fluctuates over time. Crypto is significantly more volatile than traditional assets, meaning larger potential gains but also larger potential losses.
Slippage
Slippage is the difference between the expected price of a trade and the actual execution price. It typically occurs in low-liquidity markets or with large orders, and can significantly increase the cost of trading.
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