Cryptocurrency trading has gone beyond the scope of holding a crypto asset until it goes up to a considerable point before selling to make a profit out of the asset, and as such most traders tend to wait for long just to make a profit from trading.
Most traders look for ways to stay profitable; some look for a better trading strategy by adopting chart patterns, take profit strategy, stop loss, and others.
In this article, we will discuss ways to adapt the take-profit strategy and stop loss to remain profitable.
What Is A Take-Profit Order (T/P)
Take profit order is a trading strategy employed by most traders tp maximize their profits and not to give Profit make back to the market. A take-profit order is security triggered above the entry point or purchase price. This trigger point is chosen by the trader himself based on his technical analysis or other factors currently affecting the price of an asset to the upside or downside price movement.
A take-profit order is a trading strategy for the short term. It benefits day traders who want to profit from a quick increase in the price of securities. It is a type of limit order, though it can be used to buy or sell securities at a low price.
Other names associated with take-profit orders are limit orders and sell limit orders, depending on the name an exchange wants to adopt. It is best for a trader to know these terms to trade effortlessly and apply these strategies to other trading techniques.
Once the take profit order or limit order is activated by hitting the trader's sell price after putting these figures on the system, this price is triggered automatically as the current price is triggered for the trader helping the trader to remain in Profit. If a point is not reached, the trade is still active, and the trader remains in the trade unless the trader closes the trade. This strategy is common among day traders and scalp traders who are looking to make quick gains from the market.
Take Profit works best with a short-term strategy: You can exit the market as soon as you reach your profit target without losing your gains in a subsequent downturn. Take Profit can also be beneficial when trading against the trend, as prevailing trends tend to persist over time.
This strategy allows you to adjust the take profit levels whenever you decide to based on some influencing factors or technical analysis of the crypto asset.
How Does A Take-Profit Order Work?
In other, for a trader to establish the take profit order strategy, a trader needs to set the price at which the asset needs to be sold, and this price is usually above the price at which the asset was bought, called the entry price of the asset. When the asset has gained sufficient price for the trader, the take profit order gets activated for the sale of an asset.
For example, a day trader or scalp trader buys Bitcoin at $16,500 per Bitcoin as the entry price; the trader speculates the price of Bitcoin going Higher with the help of technical analysis or other influencing factors that would affect the price of Bitcoin in an upward direction. The trader put in the take profit order at $18,900 after careful analysis, and the sale of Bitcoin will be triggered automatically when the price of Bitcoin hits the target.
A take profit ode allows s trader to reduce risk export and increase rewards for a particular trade by exiting the trade when the take profit target is activated as the market moves in a favorable direction towards the trader's speculation.
Setting a take-profit order necessitates a technical analysis of the asset's value and the market's likely movement. Using strategies such as an average true range, a daily or weekly pivot point, and chart pattern analysis for calculating an appropriate take profit order.
A take-profit order is a profit-loss calculation-based exit strategy rather than an emotional decision to sell or hold.
The Image above shows the take profit order on the Margex exchange, which is set manually during a trade and gets activated instantly when the price of a crypto asset hits the take profit order triggering this strategy to help the trader utilize its risk-to-reward plan.
As a day trader or scalp trader, you may find this take-profit order strategy especially useful as it allows a trader to exit the market as soon as the profit target is triggered.
Short-term traders often use this strategy to take out profit from the market as this will help build consistent profit and not give back profits to the market; without take profit order a trader could lose all gains made back to the market without a good take profit understanding.
Many indicators can help you spot market trends and decide whether a take-profit order is a good idea. The average directional index (ADX), which shows how strong a trend in value is on a scale of zero to 100, is useful for new traders. The more likely a trend is to change, the weaker it is.
Pros And Cons Of Take-Profit Orders (Add Screens From Margex)
All traders are ready and willing to accept a measure of risk; as such, every trader has different goals and plans during a trading period that they want to actualize. Understanding the pros and cons of using the take-profit order strategy give you, as a trader, an edge to a better trading strategy.
The Margex platform allows traders to use the take profit and stop loss strategy using the user-friendly interface for trading. You can also use trading tools such as Average True Range (ATR) to set stop loss.
Also, the Margex exchange allows traders to trade with up to 100X of leverage size and, at the same time, stake their tradable assets with up to 13% APY return on investment with no lockup periods, and all assets can be withdrawn at any time.
Let us discuss some of the pros and cos of take profit order strategy.
- Profit is ensured: A take-profit order strategy is placed to ensure that a day trader or scalper makes some money. If your order is filled, you are guaranteed to profit.
- Minimize risk: A take-profit order allows a trader to profit from a quick rise in the market rather than potentially missing out on the opportunity to sell at a profit.
- No second-guessing: Traders who use take profit orders do not have to decide whether to buy or sell right away. Because of a well-thought-out strategy and a good technical analysis understanding, the trade happens automatically without the risk of second-guessing the decision to speculate on an asset.
- Not good for long-term traders: Take profit orders are a short-term strategy that ensures you make some profit quickly. They are not suitable for long-term traders who trade for months and even a year; they are willing to tolerate more market ups and downs to make a larger profit.
- Can't take advantage of trends: Take-profit orders do not allow traders to profit from longer-term trends. Trend traders who use take profit targets are frequently disappointed when they recognize a good trend and exit too soon.
- Might not be executed: A take-profit order does not guarantee the sale will occur. If the market never rises to your predetermined take-profit level, you may be forced to sell at a loss.
How To Set Take Profit Order On Margex Platform
There are several ways many sets take profit with no written rules or particular order. Let us consider two simple and common strategies employed by most traders.
5% Risk-To-Reward Ratio
One of the best approaches is to set your take profit based on your risk-to-reward ratio. For example, if you only put 5% of your money at risk, you can set your take profit 5% higher than the current price. If the stock currently trades at $20, you could place it at $21. This may seem minor, but keep in mind that it represents a 5% return on your investment. The Image at the top shows how to determine your profit and stop loss before setting it up using the Margex take profit order system.
Use Of Fibonacci Retracement Values
Most traders adopt the Fibonacci retracement ratio to look for entries and take profit levels or points before setting up the take-profit order to be used. If a price is trading at the 23.6% retracement level of $20, you can add a take profit level of $24 at the 38.2% to 50% level. When a price moves above the 23.6% retracement, it is more likely to test the 38.6% level. As a result, you can set your take profit there.
Frequently Asked Questions (FAQ) About Take Profit Order Strategy
How To Make Take Profit Order On Margex? (Add Screens From Margex)
To place a take profit order on the Margex exchange, you need to open a trade either long or short position; you will see an open position; click on the TP/SL to create a take profit or stop loss order.
What Are The Basics Of A Take-Profit Order?
To learn the basics of take profit and using it on an exchange, you need to learn and have good technical analysis knowledge to enable you to decide the level at which you can place the take profit order and avoid second-guessing.
Why Should I Make A Take Profit Orders?
Placing a take profit order helps you as a trader to ensure your profit is intact, helps to manage risk, and avoids second guessing because you already define your take profit levels.