Most of us started our trading journey thinking it’s all about vbes and timing the perfect entry. Sadly, reality quickly kicks in when the market moves against us. It is common to watch profits disappear because we didn’t lock them in, and then we’re left staring at our screen, asking, What now?
Well, this is where two critical tools come in: stop loss and take profit. These are not just technical features you find on your exchange platform. They are your defensive and offensive strategies to protect your capital and your mental peace.
Whether you’re just getting started or you’ve been in the market for a while but still feel shaky about your risk management, this article is for you. Follow me closely as I walk you through what stop loss and take profit are, how they work, and when and why to use each one.
KEY TAKEAWAYS:
- A stop loss is an order you set to automatically close a trade when the price moves against you beyond a certain point.
- Stop loss protects your capital, removes emotional decisions, and builds discipline.
- A take profit is an order that automatically closes your trade when the price reaches a certain profit target.
- You don’t need to win every trade; you just need to win more than you lose and lose small when you do lose.
What Is a Stop Loss?
A stop loss is an order you set to automatically close a trade when the price moves against you beyond a certain point. That is, it is a way to draw the line on or limit how much money you lose on a bad trade. Imagine you buy Bitcoin at $30,000, expecting it to go up, but the price starts dropping. Also, you’ve decided you don’t want to lose more than $500 on this trade, so you place a stop loss at $29,500. If the price falls to that level, your stop loss will trigger and automatically sell your position, saving you from deeper losses.
Why Stop Loss Matters
When you don’t use a stop loss, you’re basically telling the market to take whatever it wants from your account. This is a dangerous game, especially in volatile markets like crypto, where a 10% drop in minutes isn’t uncommon. That said, using a stop loss does three things for you:
- Protects your capital
- Removes emotional decisions
- Builds discipline
Read Also – Best Stablecoins to Invest in in the Volatile Crypto Market
What Is a Take Profit?
A take profit is an order that automatically closes your trade when the price reaches a certain profit target. So instead of hoping your trade keeps running, you set a specific level where you’re happy to secure gains.
Let’s go back to that Bitcoin example. Assuming you buy at $30,000 and think it might reach $32,000. To avoid staring at the screen all day, you set a take profit at $32,000. If the price hits that, your order executes and locks in your profit before the market turns.
Stop Loss vs Take Profit: What’s the Difference?
Let’s quickly recap the difference between stop loss and take profit.
| S/N | Feature | Stop Loss | Take Profit |
| 1. | Purpose | Limit your losses | Secure your gains |
| 2. | Triggered when | Price goes against your position | Price goes in favor of your position |
| 3. | Emotion it protects you from | Fear and panic | Greed and overconfidence |
| 4. | Trade outcome | Small, controlled loss | Locked-in profit |
| 5. | Strategy role | Risk management | Profit realization |
When to Use Stop Loss
You should use stop loss strategically in these scenarios, not randomly or emotionally:
- When trading volatile coins: If you’re trading low-cap altcoins or anything with crazy volatility, a stop loss is your best friend. This is because these coins can swing 20% in a matter of hours.
- When you’re leveraged: If you’re using margin or leverage, a stop loss is non-negotiable. Without it, your losses can multiply quickly and blow up your account.
- When you can’t monitor the trade: Always place a stop loss if you have to step away from the screen for a few hours because the market moves 24/7.
- When you have a defined risk strategy: Good traders know how much they’re willing to lose on each trade. If you risk 1–2% of your capital per trade, you use stop losses to enforce that.
When to Use Take Profit
Take profit is about being smart with your wins. Here’s when you should consider using it:
- When you’ve hit your price target: If you entered a trade with a goal in mind, and the market hits that target, take your win. Take profit orders ensure you don’t let a good trade turn into a regret.
- When trading against the trend: If you’re making a counter-trend move, you should set a take profit to secure your profits before the market continues its main trend.
- When you’re day trading or scalping: Short-term trading is all about quick in-and-out moves. Thankfully, a take profit order locks in gains without requiring you to stare at charts all day.
Conclusion
Never forget that while you can’t control what the market does, you can control how much damage it can do to your portfolio. With stop loss and take profit, you trade smarter, not harder. So before you place your next trade, take a moment to make a plan and let your strategy, not your emotions, lead the way.
References
- ig.com – What are take-profit and stop-loss orders? How do they work?
- axiory.com – What is Stop Loss (SL) and Take Profit (TP) and how to use it?
- tastyfx.com – What is the difference between a stop-loss and take-profit order?
Recommendations
- The Role of Oracles in Blockchain Technology
- Digital Currencies: Types, Characteristics, Advantages, and Disadvantages
- How Bitcoin’s Price and Dominance Affects The Value Of Altcoins
- What Happens When the Community Disagrees on Blockchain Upgrades?
- Is Dollar-Cost Averaging (DCA) the Best Strategy for Crypto Investors?
