Managing Risk: How to Set Stop-Loss for Trading Bots

Introduction

Phemex trading bots help you capture volatility 24/7, but extreme market trends can happen at any moment. Without proper risk management, a profitable strategy can turn into a liquidation nightmare while you sleep.

This guide teaches you exactly why bots get liquidated and how to use the Stop-Loss feature to protect your capital.

Why Do Grid Bots Get Liquidated?

To prevent loss, you must understand the risk mechanism. Grid bots (especially Futures Grid) are programmed to buy as prices drop to lower your average entry price.

In a choppy market, this is a winning strategy. However, during a sharp market drop, it means the bot keeps buying a falling asset. As your position size grows and the value drops, your margin usage spikes.

If your margin runs out, the system triggers Liquidation, potentially wiping out your principal investment.

What is Stop Loss? (Your Automated Safety Net)

Stop Loss is not just a button; it is your automated safety net. It protects your capital by automatically closing the bot when the price hits a specific level, preventing deeper losses.

What happens when triggered? When the market price hits your trigger price, the system executes three steps:

1. Stops Trading: All open orders from the bot are immediately canceled.

2. Closes Positions (Exits Market):

   1. Grid Bot (Long): Sells your crypto (Base Currency) back to USDT/USD (Quote Currency) to stop the loss.

   2. Short/BTD Bot: Buys back the crypto to close the short position.

3. Finished: The bot stops running and moves to your "Bot History" tab.

⚠️ Important Note: Stop Loss executes via a Market Order. In highly volatile markets, the final execution price may differ slightly from your trigger price due to slippage, but the system prioritizes getting you out immediately to preserve your remaining funds.

Why is Stop-Loss Mandatory?

Many users fear "wicks" (being stopped out before the price pumps back up) and avoid setting a Stop-Loss. This is a dangerous mistake.

Compare the risks:

• No Stop-Loss: You risk 100% of your principal (Liquidation).

• With Stop-Loss: You risk 5%-10% of your principal (A controlled loss).

A Stop-Loss ensures you survive the crash to trade another day. It is the cost of insurance, not a failure of strategy.

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Step-by-Step: Where to Set Your Stop-Loss?

In the Phemex Trading Bot interface, you can set this under "Advanced Settings." But what price should you enter?

The Mistake: Do not set the Stop-Loss exactly at the bottom price of your Grid Range. If your range is $60,000 - $68,000, setting SL at $60,000 increases the risk of a premature exit.

The Strategy (The "Support + Buffer" Method):

1. Check the Chart: Identify the major support level (e.g., $59,500).

2. Add a Buffer: Leave 1% - 3% room below that support level to allow for normal volatility.

3. Calculate: Set your SL at roughly $58,800.

This setting tolerates normal market noise but exits immediately if the market structure truly breaks.

Leverage Guide: Best Leverage for 24/7 Trading

The #1 cause of liquidation is high leverage. Since the bot runs while you are sleeping or working, your leverage must be kept low to widen your safety margin.

• Recommendation: Keep leverage at 5x or lower.

• The Math:

  • At 20x Leverage: A move of just 5% against you can trigger liquidation.

  • At 3x Leverage: The market must drop roughly 33% before you are liquidated. Lower leverage dramatically increases your margin of safety.

Conclusion: Risk Management First

To truly enjoy the "24h Advantage" of Phemex Trading Bot, you must ensure safety first. Before clicking "Start" on your next bot, complete this checklist:

4. Confirm your maximum loss tolerance.

5. Set a specific Stop-Loss price using the buffer method.

6. Lower your Leverage to 5x or below.

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