What is a linked claim?
A linked order is a combination of two orders, one of which is aimed at fixing profits, and the other at limiting losses.. If one is executed, the second one is canceled automatically. And vice versa.
Linked orders help crypto traders save time tracking price information. You can simply buy an asset, place an order and go about your business. If the price reaches your levels below or above, the transaction will be completed automatically.
Related applications are not implemented everywhere. In connection with this, in some cases you will have to create an order artificially: setting a stop limit and take profit at the same time.
How does it all work?
How a linked order works
We will explain the mechanism for implementing a linked application using an example.. To do this, let’s take the situation that was observed for the Avalanche cryptocurrency from February 22 to February 26, 2024.
The first thing you need to do is select a timeframe. For example, consider the hourly chart. It clearly shows that in a given period of time Avalanche was trading in the range of $35.2-$37.6. For clarity, these levels are indicated by purple lines:
Source: tradingview.com
The second step is to determine when to enter a trade. Initially, it is clear that from February 22 to 23 the price falls, and there is no point in buying. But at 19:00 on February 23, the fall stops near the $35.2 mark. After some hesitation, you hesitate to buy because Avalanche has already risen in price.
However, on the morning of February 24, fate gives you a second chance. Avalanche drops to $35.2 again and this time you enter the trade at $35.5 per coin. Someone will have a question: why not buy it at $35.2? We are considering a more plausible option. A situation where you buy at the minimum price to get the maximum profit is unlikely.
Source: tradingview.com
The third stage is directly submitting a related application. This is done after purchase. We previously identified Avalanche's trading range from $35.2 to $37.6. We place the related order in such a way that the stop limit price is slightly below the lower limit: $35. And the take profit price is slightly higher than the upper limit – $37.8.
Fourth stage – the application was triggered on Friday, February 26th at a price of $37.8. Thus, we managed to earn 6.48% (in reality the figure will be slightly less, since you will have to pay commissions for transactions). Once Avalanche is sold at $37.8, the order automatically disappears. This applies to both the part that is executed and the part that remains untouched – in our example, the stop limit is $35.
Source: tradingview.com
When and why is it most appropriate to use linked applications?
Why are linked requests needed?
The first thing they are needed for is trading on daily charts or intraday. Once you place an order, you don’t need to worry about what will happen to the price of the cryptocurrency. You know exactly what can await you in the worst case and what in the best.
Second – risk management. A linked order consists of two orders, one of which limits losses. Thus, by using this tool, you eliminate the emotional factor, which often leads to loss of money.
Third, the ability to trade on a channel breakout. If we return to our example with Avalanche, then we could not buy at $35.5, but wait for the breakdown of the upper or lower border. The meaning was exactly the same. Only in this case, you would not exit the transaction with an order, but, on the contrary, enter it.
Fourth – trading on news. Cryptocurrency remains a fairly young market. It is no longer as volatile as it was ten years ago, but it still outperforms other instruments: stocks, bonds, and so on. You can either earn or lose a lot in a short period of time. And in this regard, linked applications can be of enormous help.
Do they have any disadvantages?
Disadvantages of Linked Claims
Yes, linked applications are not ideal. The first thing to note is that by placing a linked order, you can lose quite a large profit. Let's go back to the Avalanche example. We exited by selling the cryptocurrency at $37.8. However, it did not stop growing and after just two days it reached $41. Thus, an additional 8.66% was lost – more than was previously earned.
Source: tradingview.com
The second disadvantage is that placing any stop orders requires skill and knowledge. You can either place them very close, which will constantly cause losses, or, conversely, too far away. In any case, skill will only come with practice.
The third drawback is that not all platforms offer such functionality.. And some will give access to it only for an additional fee.
Conclusion
Related orders are a useful tool that can be useful to any trader. However, its use requires certain skills. Also, it's not perfect.. Before you apply, you should make sure you fully understand what the associated claims are for and when they apply.
This material and the information contained herein do not constitute individual or other investment advice.. The editors' opinions may not coincide with the opinions of the author, analytical portals and experts.