“Never invest more than you can afford to lose” is an old saying repeated if you’ve traded Bitcoin or considered it. This saying is crucial advice since the crypto market is so volatile that prices tend to rocket or crash anytime, making trading tempting and risky.
Fortunately, you can minimize this risk by using stop-loss and take-profit orders. These automated tools help protect your investments and secure gains without constantly monitoring the market.
Using them in this way will help you reduce your risk, engage in less emotional trading, and formulate a disciplined strategy.
What is a Stop-Loss or Take-Profit Order?
Stop-loss orders are tools that enables you to set a limit on the amount you can lose on a trade. That way, if the price falls to a level you set, your Bitcoin will be sold automatically to prevent further losses up to that amount.
Take this example: you buy Bitcoin at $90,000 and want to limit your loss to $5,000; you will set a stop-loss at $85,000. Limiting your loss means your position closes automatically if $85,000 is hit.
On the other hand, a take-profit order will keep you in profit. For example, if you purchased Bitcoin at $90,000 and want to gain $5,000, you can set a take-profit order at $95,000. When the price reaches that target, the trade will be closed automatically, and your profit will be secured.
The two tools are automated triggers that keep you on your plan without having to watch the market 24/7.
Why These Tools Matter for Every Trader
The benefits of these tools are not just a matter of automation. Fear and greed cloud judgment and emotions. Even worse, minor dips could induce a trader to act either by panicking and selling too soon or by over-holding for more profit, only to lose everything.
However, when you set certain exit points, you prevent impulsive or emotional decisions. Simply put, these tools keep you aligned with your trading plan no matter what market noise or sudden mood swings occur.
It is Easier to Set them Up
Stop-loss and take-profit orders are supported on most major crypto exchanges, including Binance, Coinbase Pro, Kraken, and so on, and thankfully, the process is typically straightforward:
- Sign up with your chosen exchange and open a trading account.
- Select a trading pair. For example, BTC/USD.
- Place your buy or sell order.
- At the prompt, enter your stop-loss and take-profit levels.
Once these tools have been set, they handle the rest, thus keeping you from constantly monitoring your trades.
Dealing with Volatility and Slippage
The price of Bitcoin is highly volatile and can change rather quickly based on news, large transactions, or changes in sentiment. In most cases, this results in slippage (when your order doesn’t execute exactly at the price you wanted, especially under volatile circumstances and when market liquidity fluctuates).
You can also protect your funds from volatility and slippage using a trailing stop-loss. The movement of a trailing stop differs from that of a regular stop-loss.
For example, if you purchased Bitcoin at $90,000 and the price fell to $95,000, your trailing stop can be automatically raised from $90,000 to $93,000. Assuming the price falls, your trade closes at $93,000, capturing some of the profit.
Tips to Avoid Common Mistakes
You don’t want to set stop-losses too close to your entry. An early exit could follow normal price swings.
- Avoid round numbers like $90,000 or $95,000.
Trading bots and large investors commonly target these. Instead of using round figures, such as $89,800 or $94,950.
- Adapt to changing market conditions.
Moving your target higher works well, especially if Bitcoin surges past your take-profit point. During periods of high volatility, such as when regulatory news hits, tighten the stop-loss to safeguard profits.
- Factor in trading fees.
Large trades can easily erode your profits. When planning entry and exit points, always consider them.
- Stick to your plan.
After your stop-loss or take-profit has been set, do not cancel it due to fear or greed. Trust the system you’ve built.
Also, use demo accounts and alerts to test strategies before risking real money. Practising in a risk-free environment helps you build confidence and learn how to tackle allocation ideas.
Conclusion
Stop-loss and take-profit orders are a good way to become a disciplined and successful crypto trader. These tools protect your investments and remove emotion from your trading decisions—you can focus on strategy, not stress.
