A Stop-Limit is a pending order that will only execute a trade once the market price hits the desired trigger price you have entered in the trade.
This will be useful to you as a trader because it allows you to open several orders in the market without exposing your capital in a single trade and you can manage your risk more effectively by protecting yourself from sudden price changes in the market.
Additionally, other people will not see the orders since they are only activated after the price is reached.
There are two types of stop-limit orders which you could use:
- Sell Stop-Limit Orders
- Buy Stop-Limit Orders
What is a Sell Stop-Limit Order?
A Sell Stop-Limit order is a pending order that will execute a Sell Limit order once your desired trigger price has been reached.
A sell stop-limit order can be placed when the trigger price set is lower or equal to the last traded price. For instance, a user can use a sell stop limit order to stop additional losses if the price of the coin falls below their desired trigger price by adding a limit order into the book.
How do I place a Sell Stop-Limit Order?
For example, if you have identified a support level at around $10000 for the price of Bitcoin as shown above, there is a chance that if the price falls below this support line it could potentially lead to a sudden downturn in the Bitcoin price which in turn, will put you at risk of incurring serious losses on your trades.
A Sell Stop-Limit can be placed to protect you from this, you would set the stop price at around $10000 so a sell limit order for $9950 will be executed once the market value hits the stop price (Example of Trade shown above).
This is an effective tactic that can be used to manage your risk and more specifically to minimise your losses while trading on our platform.
What is a Buy Stop-Limit Order?
A Buy Stop-Limit order is a pending order that will execute a Buy Limit order once your desired stop or trigger price has been reached.
A buy stop limit order can be placed when the trigger price set is higher or equal to the last traded price. A user can for instance use a buy stop limit order by setting the trigger price on an identified resistance with a limit order being placed slightly higher.
If the trigger price is reached, the user believes the price will continue to increase, hence the reason they choose to buy.
How do I place a Buy Stop-Limit Order?
For example, if you have identified a potential resistance level at around $9900 for the price of Bitcoin there is a slight chance that if the market price breaks through this resistance level, there will be a sudden upturn in price which means if you don’t react quick enough, you may lose out on the opportunity to make a profit on your trade.
A Buy Stop-Limit can be used to capitalize on this price movement, you would set the stop price at around $9850 so a buy limit order for $9900 will be executed once the market value hits the stop price (Example of Trade shown Above). This is a good way to gain a good entry point at the start of a new price wave in the market although there is a chance your trade will be executed during a false breakout, which means you would have to set the limit order high enough to minimize the risk of this happening.
Please Note: One thing to keep in mind with a stop limit order is that, once it turns into a limit order, you are not guaranteed an execution. Shortly after breaching your trigger price, the market could move quickly, leaving your limit order open but not executed.
Disclaimer: Please note Blockchain.com does not provide investment advice or recommendations. The information made available to you is for your general use and is not based on any evaluation of your personal circumstances. If you are unsure of any investment decision, you should seek independent financial advice.