We do often hear this sentence of "proper risk management and capital protection in trading".
What does it imply?
Eg-> Alice and Apple both are traders. Alice is a risk taker, apple seems conservative. Both have a capital of $100.
In trade A, Asset trades at $10. Alice and apple both notice that real value of asset A may increase up to $20.
Alice enters into a trade. Bought 10 quantity of asset A. Simple holding long position. She notices that asset A will be volatile before reaching the target $20.
She never wants to place stoploss after taking the position, she felt that it may limit the chance of hitting the target. She risked the entire capital.
On the other hand, Apple also took the same long position with 1% stoploss of her entire capital.
Consider different scenarios:
case 1:When the target hits without volatility:
Alice and Apple both profited from the trade. (+$10).
case 2: When the target hits with huge volatility:
Alice ends up profit, while Apple Stoploss might hit.
Alice: +$10, Apple: -$10.
case 3: When the external factor affecting the entire market negatively. The entire market experienced a sudden fall.
Alice might end up blow of her account. Apple sits with a $10 loss and her remaining $90 is safe.
I'm considering these above scenarios with market trend only. We have different types of risk associated with trading.
So, we can think for hitting every stoploss we may end up with loss of $10. But my point is not everyone is making money in trading. "To make a million dollars in trading, first you start with billion dollars". This is one of my favorite quotes.
I have experienced loss and even blown off my entire account 4 times. The majority of my time I ended up without any capital to take a new position when the momentum occurs.
Once stoploss hits, we can get a chance to think and redesign strategy depending on market condition. We need capital to trade, I hope the majority of the traders in cryptocurrency may not have huge cash flow to invest.
Small capital traders should have proper risk management to stay long in crypto market. I advise stoploss is one of the high-level default strategies to consider in the first place.
"We can have confidence but first we need to see tomorrow."
Have a happy trading.