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A stop-loss order is a risk management tool used to automatically sell or buy an asset once its price reaches a predetermined level. Its primary purpose is to limit potential losses by exiting a position before adverse price movements escalate. When the stop price is reached, the order converts into a market order and executes at the best available price. While this ensures execution, it does not guarantee price, especially during periods of low liquidity or extreme volatility. In cryptocurrency markets, stop-loss orders are widely used to manage downside risk, protect capital, and enforce trading discipline by removing emotional decision-making. However, traders must be aware of stop-hunting practices, where large players may intentionally push prices toward known stop levels to trigger liquidations. Proper placement of stop-loss orders requires consideration of market structure, support and resistance levels, and volatility metrics to reduce premature exits.

A stop-loss order is a risk management tool used to automatically sell or buy an asset once its price reaches a predetermined level. Its primary purpose is to limit potential losses by exiting a position before adverse price movements escalate.

When the stop price is reached, the order converts into a market order and executes at the best available price. While this ensures execution, it does not guarantee price, especially during periods of low liquidity or extreme volatility.

In cryptocurrency markets, stop-loss orders are widely used to manage downside risk, protect capital, and enforce trading discipline by removing emotional decision-making. However, traders must be aware of stop-hunting practices, where large players may intentionally push prices toward known stop levels to trigger liquidations.

Proper placement of stop-loss orders requires consideration of market structure, support and resistance levels, and volatility metrics to reduce premature exits.

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