Stop-Loss Orders Keep Crypto Traders Alive, Take-Profit Orders Make Them Richer?

Have you ever pondered over what the biggest stumbling block is on the way to getting rich via whatever sort of investment instrument?

My answer would be the weakness of human nature.

In retrospect of our investment track records, I’m sure we’ve all experienced such moments when we got greedy as the price of an asset went up, and expected the profits to further increase with blind optimism.

On the other hand, while the price dropped, also with blind optimism, we expected the downward trend to stop soon. But guess what? The plunge never ended!

Most of the time, these cases turn out to be just self-deception, which causes actual loss or loss in prospect interest.

Fortunately, such self-deception is not a kind of incurable illness in the financial world, or even in the cryptocurrency area, thanks to these two trading tools — the take-profit (T/P) order and the stop-loss (S/L) order.

I’d like to reiterate a point I made in an article posted previously, that human-beings may not be able to execute an order so precisely that it would look coldblooded, but a computer can. What we great homo-sapiens need to do is to give orders as rationally as possible.

As the name suggests, a T/P order allows us to take the profit while we still can. Placing the order, in brief, involves setting a price at which to close the position for profit. There are three straightforward ways to calculate the T/P price, amongst others.

a) POINT. Setting it at a specific point is the most straightforward one. The price of BTC at the time of writing this article is $3855.55, which I expect to hit $3905.0 before the end of the day, so I set the latter as my T/P price.

b) RATIO. Another way is to set the price based on the expected return rate. Let’s say I believe the BTC price will go up by 5% over the next 24 hours. I would set the T/P price at $4050. The math is also quite simple.

c) LINE. The third method is a bit more complicated, as it involves some analysis. If we are opening position for short-swing trading, a widely-used price reference is a 5-day to 10-day average. If it’s a long run, we might have to take the history back for years, or for months in the case of the crypto world, and draw a trendline to make a rough prediction about the price in the coming months.

The above keywords represent the three means most applied, but the logic behind each are way more complicated.

For instance, some stock traders got very cautious and decisively made an order to take profit when alerted by an abnormally fast gain that flew high above the 60-day average. Well, this might not work exactly the same way in the crypto trading cases, but the basic concept is definitely worth noticing.

Another alarming scenario in the traditional stock market, which is educational for anyone trading crypto, is when the market sees continuous gain and a sudden outrageously enormous amount of unit-time trading volume. Does that sound familiar? It does no harm to be cautious and to never rule out the possibility of a pump and dump.

These might just be a few bricks of a trading skill tower, the most detectable anomalies that may trigger a T/P order, but don’t be scared. Stop-loss orders work very similarly, just in the opposite way.

So, are you now interested in learning something that helps you die slower — sorry, I mean live longer — in the crypto market, and possibly even bring you a higher return rate? Let’s get moving!