Unlike a stop loss for individual trading pairs, a portfolio stop loss will track the value changes of the entire portfolio. When the stop loss threshold is passed, the entire portfolio will be sold for a single stable asset.
There are two primary cases where a stop loss becomes valuable. The first is to capture profits and the other is to prevent losses.
After a winning streak, an investor may wish to capture profits if the portfolio begins to drop in value.
Capturing profits will look like the example above. In this illustration, we have set a stop loss threshold of +5%.
As the performance of your portfolio increases, the stop loss will not be triggered. Since the performance progressed from under the threshold to above the threshold, this suggests the performance may continue to climb. It would be ideal to let the performance to continue climbing before we trigger the stop loss.
Once the performance begins to decline, we can see the stop loss threshold is crossed from above the black line to below the line. This indicates the stop loss should be triggered and all funds should be sold to a stable currency.
Notice how the stop loss is not triggered on the way up, it is only triggered on the way down. The reason we only trigger on the way down is because triggering on the way up will cap the value you can capture from a run without allowing the winning streak to continue.
To prevent a portfolio from going down with the market in a sudden crash, an investor may wish to prevent losses by placing a strategic stop loss to pull out of the market.
Loss prevention allows you to prevent your portfolio from continuing to fall as the market drops. This is exceptionally useful for flash crashes and other times when the market may decline in value a significant amount.
A recent example of a drastic crash in the market was on March 12th, 2020, when the entire market dropped by nearly 50%. A strategic stop loss placed at -5% would have limited the portfolio losses to only -5% rather than -50%.
On March 12, 2020, the market crashed almost 50% over the course of a single day. This is an instance where implementing a stop loss for your portfolio could minimize the impact of this event.
Similar to capturing profits, the stop loss for loss prevention is triggered on the way down. As the portfolio performance declines, as soon as the threshold has been crossed from above the black line to below the line, a stop loss will be executed.
Setting Up a Stop Loss
On the “Automation” page in Shrimpy, we can set up our stop loss to automatically trigger when a threshold is met.
The time period defines the length of time that is evaluated for the stop loss. A time period of one day would mean Shrimpy will evaluate the last one day of portfolio performance to determine if the stop loss should trigger.
The threshold is the percent at which the stop loss is triggered. This threshold is applied over the time period that is specified in the previous box. A threshold of -5% with a time period of one day would mean the stop loss will trigger when the value of the portfolio decreases by 5% in one day.
The currency is the asset which will be purchased when the stop loss is triggered. Every asset in the portfolio will be sold to buy this asset during a stop loss. The selection of currencies is limited to only stablecoins and fiat currencies.
Clearing a Stop Loss
In Shrimpy, the stop loss does not reset automatically. It must be manually reset to indicate that you are ready to move your funds back into the market. As long as the stop loss is triggered, Shrimpy will keep the assets in your designated stable currency.
As soon as the stop loss is reset, your automation strategy will immediately resume. However, a rebalance won’t be triggered by default unless there is a threshold rebalance set. Use the “Rebalance Now” button to allocate the desired portfolio. If you would like to change your portfolio, it’s still possible to select to “Start Automation” on any strategy and begin automating the portfolio with a triggered stop loss. This will immediately clear the stop loss and begin automating the new strategy.
Stop Loss On-Demand
In Shrimpy, stop losses don’t only need to be automated. If you’re ever concerned about the market and want to quickly remove your portfolio from your allocations into a stable currency, you can select to “Stop Loss Now” on the Shrimpy dashboard.
This will immediately execute a stop loss for your portfolio and pull all of the funds out of the market into the selected stable currency.
Note: You must have a stop loss currency selected in your automation in order to use the on-demand stop loss feature. You are not required to set a stop loss percentage threshold if you only wish to use the on-demand stop loss feature.
The crypto market is unpredictable. When a stop loss triggers for your portfolio, it’s important for you to know.
This update comes with an email notification whenever a portfolio stop loss is triggered on your account. That way you can keep up to date on the state of your portfolio and immediately check your portfolio when a stop loss is triggered.
Things to Know
- The stop loss is evaluated every 1-minute. That means on a 1-minute interval, Shrimpy will check to see if your threshold has been crossed to trigger the portfolio stop loss.
- The performance calculation for determining when the threshold is crossed is based on the USD performance of the portfolio. It is not based on the BTC performance.
- In the “currency” drop-down for the stop loss, the “Recommended” currency is the stablecoin with the highest liquidity. Be cautious of selecting a stablecoin with low liquidity. High volume trades on some trading pairs can result in high spreads and slippage.
- The maximum time period you can select is 30 days. We do not support evaluation periods that are longer than 30 days.
- Users can input positive or negative thresholds. In both cases, the stop loss will only trigger when the threshold is crossed from above the threshold to below the threshold.
- A stop loss will always use taker trades. Even if you have “Fee Optimization with Maker Trades” enabled. The reason we only use taker trades is because a stop loss needs to execute as quickly as possible. Maker trades execute too slowly for a stop loss.
- A portfolio that has a triggered stop loss will not execute rebalances until the stop loss has been cleared.
- Depositing (or transferring) funds into a portfolio that has a triggered stop loss will not trigger dollar-cost averaging. DCA will still operate normally when the stop loss has not been triggered.
- When a social leader sets a stop loss, all followers will execute a stop loss at the same time as the leader. The performance calculation to determine when to trigger is not based on the portfolios of each follower, but only the portfolio of the leader.
- If a social leader clears a triggered stop loss, it will clear for all followers at the same time. Followers cannot clear a stop loss that was triggered by a leader. Only the leader can clear the stop loss.
- Users who have selected to exclude USDT from their index can still use USDT as the stop loss currency. The stop loss will execute as expected.
- Be cautions of the difference between a positive threshold and a negative threshold. A +10% threshold means your portfolio must first increase over 10% performance within the time period selected before it can cross on the way back down. A -10% threshold would mean if your portfolio falls by 10% in the time period, then it will trigger. Basically, you can think of it similar to the performance percent you see on the dashboard. If your dashboard goes from 0% performance to -10%, you want to trigger when it gets to -10%.
Example Settings & Scenarios
The following example scenarios will provide an overview of how the stop loss feature will function under different settings and scenarios.
- Time Period: 1 days
- Threshold: -5%
- Currency: USD
We will start our examples with the easiest example. If you have a 1-day time period set for your stop loss, we can use the performance calculated on the Shrimpy dashboard as a guide.
A threshold of -5% means that as soon as your portfolio loses 5% of its value in 24 hours, Shrimpy will execute a stop loss. To better understand how this performance is calculated, we can go to our dashboard and select the option for “Day” performance.
On the right side of your dashboard graph, you can see the percent performance “Since Yesterday”. This value is calculated the same way we calculate the stop loss. If this value says -5%, that means the stop loss will trigger, since your portfolio has dropped by 5% of its value in 24 hours.
Notice how we calculate this value by taking the current value of the portfolio and comparing it to the value of your portfolio 24 hours ago. We don’t evaluate the movements of the market between these two data points. However, Shrimpy will use the time-weighted rate of return to remove the impact of deposits and withdrawals.
Once the stop loss is triggered, the entire portfolio will be sold to USD in this example.
- Time Period: 1 hour
- Threshold: -10%
- Currency: USDT
To trigger a stop loss with a 1-hour time period and -10% threshold, the value of your portfolio will need to drop by 10% in one hour. That means if your portfolio falls by 5% for every hour for 24 hours, the stop loss will not be triggered.
The performance is calculated by taking the value of the portfolio one hour ago and comparing it to the current value of the portfolio. Shrimpy will use the time-weighted rate of return to remove the impact of deposits and withdrawals.
As soon as the portfolio drops by 10% in one hour or less, Shrimpy will sell 100% of the portfolio into USDT using taker limit orders.
- Time Period: 4 days
- Threshold: 15%
- Currency: EUR
To trigger a stop loss with these settings, your Shrimpy portfolio will first need to rise in value by more than 15% in 4 days before it can trigger the threshold on the way back down.
As an example, let’s say we have a portfolio of $100. If the value of this portfolio rose to $120, Shrimpy will not trigger on the way up. Shrimpy will allow the portfolio to continue gaining in value. However, once the value starts going down, it will trigger a stop loss once we reach $115 in portfolio value. This is equivalent to our 15% threshold.
The 15% increase in portfolio value needs to happen in 4 days, otherwise the threshold won’t be crossed when it starts to decline again. That means if our portfolio increases in value by 6% each day for 3 days in a row, we would have a portfolio performance of more than 15% over those 3 days. Then, if our portfolio experienced a 6% drop in value on the 4th day, Shrimpy would stop the value from dropping below the 15% performance gain threshold.
Once the stop loss is triggered, the entire portfolio will be sold to EUR.