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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.
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 Drawdown Based Stop-Loss
What is drawdown?
Drawdown refers to how much a portfolio is down from its peak value.
How does a drawdown-based stop-loss work?
When you start an automation that uses a drawdown-based stop-loss, Shrimpy Pro continuously records the peak value of your portfolio since the active automation was started. When your total portfolio balance falls below a threshold, measured from the peak value of your portfolio, Shrimpy Pro will sell all assets included in your portfolio and purchase your stop-loss currency. Finally, Shrimpy Pro will remove the active automation from your portfolio.
The threshold is the percent below peak portfolio value at which the stop loss is triggered. A threshold of 10% would mean the stop loss will trigger when the value of the portfolio decreases by 10% from the peak value since the automation was started.
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, fiat currencies, and Bitcoin.
In Shrimpy Pro, 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 Pro dashboard. You must have a portfolio selected on your Dashboard to trigger a manual stop loss.
You will be prompted to select a stop loss currency, and then this will immediately execute a stop loss for your portfolio and pull all of the funds out of the market into the selected stop loss currency.
Note: You are not required to use a stop loss as part of your automation to execute a manual stop loss. You can do this at any time on any portfolio regardless of automation.
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
Your stop loss will begin evaluating performance starting from when you start the automation. Performance from before the automation was started is not evaluated.
The stop loss is evaluated every 5-minutes. That means on a 5-minute interval, Shrimpy Pro 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 exclusively. It is not based on the asset you have selected as your dashboard currency.
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.
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 any longer until you "Start Automation" once again.
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.
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.
No matter what currency you select as the stop-loss currency, the performance that is used to trigger the stop-loss will always be calculated in terms of USD. That means even if you select BTC as a stop-loss currency, we do not perform any calculations based on BTC to determine when to execute the stop-loss.
Have questions, comments or concerns? Feel free to reach out to us via the blue "Support" button found in the bottom left corner of your Dashboard, or send an email to Support@Shrimpy.io.