Key Takeaways
- Setting stop-losses and take-profits after entering a trade defines a maximum loss and profit target. Stop-losses limit downside risk, while take-profits lock in gains.
- Determining stop-loss and take-profit levels is based on price percentages, technical indicators (like moving averages), support and resistance levels, and risk-reward ratios.
- Actively manage stop-loss and take-profit orders by adjusting levels throughout the trade’s lifespan. Executing the orders when prices are hit is paramount to the strategy's success.
- Users can set stop-loss and take-profit levels for derivative products in the Crypto.com App and on the Exchange.
The Importance of Stop-Loss and Take-Profit Levels in Crypto Trading
Setting appropriate stop-loss and take-profit levels is an essential component of risk management when trading cryptocurrencies. These risk management tools help traders cut losses short when trades move against them and lock in profits when trades move in their favor. This article generally takes the view of a trader who is ‘long’ (i.e., bought a crypto token), as opposed to ‘short’. Below are the basics of how to effectively set stop-loss and take-profit levels, plus how to set them for Crypto.com Strike and UpDown Options. These options are currently available only to US users.
What Are Stop-Loss Orders?
A stop-loss order is placed with an exchange or trading platform to sell a crypto token when it hits a certain price point. This mechanism is designed to limit the loss on a position. A stop-loss order is usually placed after entering a trade in order to set a maximum loss the trader is willing to tolerate. To set a stop-loss level, a trader identifies a price point where they no longer want to hold the position. This may be a percentage of capital deployed, a specific price point, or a fixed total profit and loss (PnL) amount.
What Are Take-Profit Orders?
While stop-losses mark a trader’s lower limit, take-profit orders mark their upper ceiling. A take-profit order is placed to sell a crypto token once it hits a target price, locking in profits on the trade. Just like a stop-loss, a take-profit target should be set after entering any trade. To set a take-profit level, a trader identifies a price where they want to exit and secure their gains.
Common Stop-Loss and Take-Profit Strategies
- Fixed Price Point: Place a stop-loss or take-profit order at a predetermined price, often based on technical indicators like moving averages or support levels. For instance, buying BTC at $65,000 but placing a stop-loss at $60,000, a proven support level, while setting a take-profit at $70,000, an assumed resistance level.
- Fixed PnL Amount: PnL refers to the daily change in the value of a trader’s total positions. High-frequency traders often set stop-losses at the maximum amount they are willing to lose on a single trade.
- Percent of Capital: Target a fixed percentage of the position the trader is willing to lose. For example, with a $1,000 position and a 10% risk tolerance on an ETH entry of $3,000, the stop-loss would be set at $2,700. Conversely, for a 10% gain goal, the take-profit would be $3,300.
Personal stop-loss levels may vary based on risk tolerance, position size, and other factors. Many traders set tighter stops and targets on larger positions because losses would be more substantial than for smaller ones.
Can Stop-Loss and Take-Profit Orders Be Set with Crypto.com?
Both stop-loss and take-profit orders are supported on the Crypto.com Exchange for market orders and in the Crypto.com App for derivatives products, namely Strike and UpDown Options. Read on for the steps.
Crypto.com App Derivatives
Strike Options
Here is how to set a stop-loss or take-profit order for a Strike Option in the Crypto.com App (currently available only in the US):
- Select a Strike Option contract to trade.
- Click 'Advanced Trading Options'.
- Toggle on 'Take Profit' or 'Stop Loss'.
- Input the target price for your order and press 'Confirm'.
- Review your order on the resulting screen and click 'Place Order'.
To add or amend a take-profit or stop-loss level after a position is created, manage your open position:
- Select an open position.
- Click 'Position Details' at the bottom of the screen.
- Click 'Take Profit/Stop Loss' to add or amend.
- Update your setup.
- Click 'Confirm'.
UpDown Options
You can set stop-loss or take-profit orders for an UpDown Option in the Crypto.com App in a similar way (currently available only in the US):
- Select an UpDown Options contract to trade.
- Click 'Advanced Trading Options'.
- Toggle on 'Take Profit' or 'Stop Loss'.
- Input the target price for your order and press 'Confirm'.
- Review your order and click 'Place Order'.
To add or amend a level after creating a position:
- Select an open position.
- Click 'Position Details' at the bottom of the screen.
- Click 'Take Profit/Stop Loss' to add or amend.
- Update your setup.
- Click 'Confirm'.
On the Crypto.com Exchange
Stop-Loss Orders
Stop-loss orders are available on the Exchange. Users can select between a Stop-Limit or Stop-Market order. For a long position, a 'Sell Stop-Loss Limit Order' becomes a sell-limit order when the mark price drops to the trigger price. The limit order executes if the mark price hits the limit price, allowing you to close at your limit price or better. A 'Sell Stop-Loss Market Order' executes a sell-market order immediately at the next available price when the mark price drops to the trigger price. For a short position, a 'Buy Stop-Loss Limit Order' becomes a buy-limit order when the mark price rises to the trigger price, while a 'Buy Stop-Loss Market Order' executes a buy-market order at the next available price.
How to set stop-loss orders:
- When placing the order, tap the drop-down and select Stop-Loss Limit or Market.
- Input the trigger price (the price at which your stop-loss order will be activated).
- Input the limit order price to place when triggered. This does not apply to Stop-Loss Market orders.
- Input the quantity to buy or sell.
- Confirm your selection with Buy/Sell. The position will be automatically closed when the trigger or limit price is reached.
Take-Profit Orders
Take-profit orders are also available on the Exchange as Conditional Limit or Market orders. For a long position, a 'Sell Take-Profit Limit Order' becomes a sell-limit order when the mark price rises to the trigger price. The limit order executes if the mark price hits the limit price, securing your position at the limit price or better. A 'Sell Take-Profit Market Order' executes a sell-market order immediately when the mark price rises to the trigger price. For a short position, a 'Buy Take-Profit Limit Order' becomes a buy-limit order when the market price falls to the trigger price, while a 'Buy Take-Profit Market Order' executes a buy-market order at the next available price.
How to set take-profit orders:
- When placing the order, tap the drop-down menu and select Take-Profit Limit/Market.
- Input the trigger price at which your take-profit order will be triggered to lock in profits.
- Input the limit order price to place when triggered, unless placing a Take-Profit Market order.
- Input the quantity to buy or sell.
- Confirm your selection with Buy/Sell. The position will be automatically closed when the trigger or limit price is reached.
Managing Stop-Loss and Take-Profit Orders
It is important to actively manage both stop-loss and take-profit orders throughout a trade's lifespan. As the market environment changes and crypto tokens make large moves, factors to consider include managing the orders to maintain a favorable risk/reward ratio, adjusting to new support and resistance levels, reacting to key events, limiting losses during volatile periods, and taking gains if momentum slows. By setting appropriate, but flexible, levels and managing them actively, traders can potentially improve their risk-adjusted returns over time. The discipline to adhere to stop-loss and take-profit levels is paramount, as these tools are ineffective if not used.
The Importance of Stop-Loss and Take-Profit Orders
Setting appropriate stop-loss and take-profit levels is essential for risk management in trading. Stop losses cut losses short, while take profits lock in gains. Traders identify stop-loss levels based on price percentages or fixed prices informed by technical indicators. The active management of these orders and the discipline to stick to them are key considerations. Crypto.com users can easily set these levels for positions on the Crypto.com Exchange and for Strike and UpDown Options, providing the opportunity to automate and protect their trades.