Unit 2 · Level 1 · How Exchanges Work
Stop orders: your safety net
A STOP order triggers automatically when the price hits a level you chose. Its most famous job is the stop-loss: 'if my trade goes against me this far, get me out.' It's how traders survive being wrong. And every trader is wrong, often.
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What you get asked
You bought BTC at $100,000. You place a stop-loss at $95,000. What does it do?
It caps your worst case at roughly -5%. Without it, 'I'll sell if it drops' becomes 'I'm now a long-term holder of my mistake.'
A stop-loss protects you by limiting your maximum ___ on a trade.
Pros decide their exit BEFORE entering. Amateurs decide it while panicking.
Order the professional way to enter a trade
Loss first, entry second. This ordering feels backwards and is exactly what separates traders from gamblers.
True or false: a stop-loss guarantees you'll exit at exactly your stop price.
A stop triggers a market order, and you know what market orders do in fast markets. It's a safety net, not a force field. Still, always use one.
Match the tool to the job
Entry, exit-if-right, exit-if-wrong. Plan all three and you have a complete trade.
Formi's friend says: 'Stop-losses are for cowards. I just hold until it comes back.' What's the problem?
And his money is trapped while they don't. Ask anyone who 'held until it came back' on a coin that went to zero. Hope is not a strategy. Formi is proud of you for knowing this. 🐜
The rest of this unit
Order books, order types, stop-losses, and the silent costs of every trade.