How Take Profit and Trailing Take Profit Work: Which is a Better Way to Increase Profits?

Are you considering investing in cryptocurrency? Or you are a beginner, and already starting crypto trading?

Crypto trading is time-consuming, and a profitable business at the same time. Beginners usually spend 10–12 hours at the monitor watching the charts. Working in this way may lead to a nervous breakdown. Meanwhile, traders can use a set of advanced trading tools such as Take Profit, stop-loss, Trailing Take Profit to reduce risks and increase their chances of profit.

Yes! The best way to manage your open positions in crypto trading is to activate take profit orders as part of your exit strategy. Traders usually place take profit orders to trade safely without having to monitor the market 24 x 7.

So, you want to know more about how Take Profit order works? Let’s understand what a take profit order is first!

Take Profit orders- A precise explanation

A Take Profit (T/P) is actually a type of limit order that specifies the exact price at which to close out an open position in a trade for a profit. If the price of a crypto asset doesn’t reach the limit price set, the take profit order doesn’t get fulfilled.

T/P order allows the trader to set a target profit price that ensures that he will make a profit on this trade. It is a kind of standing order put in place by the traders to maximize their profits. It specifies a certain price which is chosen by the trader above the buying price. If the price of any crypto asset reaches to the limit, it will automatically trigger a sell order. It is a kind of limit order where the trader can buy the crypto assets at low price or sell them at a higher price.

Let’s understand it with an example:

Let’s say a trader bought 1 BTC at $10,000, and put take profit +10% which means, you created an order to sell Bitcoin at a price of $11,000. For a while, BTC traded within $1000, and then continued to grow. Upon reaching $11,000 and above, your pending order with take profit +10% will be filled, and the system will close the trade with a sell order.

Here your total profit comes out as $1000.

Often Take Profit orders are used in combination with stop-loss order so as to limit loss and maximize profits on specific coins. Actually, a take profit order is just opposite of the stop-loss order. And, the investors consider developing this strategy to protect their investments.

A stop-loss order is activated if the asset price drops beneath the stop price set by the trader. In this case, the market order would get executed, selling at the next available price below the stop-loss level.

And, the take profit order is triggered when the asset price rises to the take profit level.

The benefit of using Take Profit order is that the trader doesn’t need to worry about executing a trade manually. On the other side, these orders are executed at the best possible price regardless of underlying crypto asset’s market trends. The asset may start to breakout higher, but the take profit order might execute at the very beginning, resulting in the higher profits.

These orders are the best used by short-term traders interesting in managing their risks. This is because they can exit the trade as soon as their preset profit target is reached. Traders with long-term strategy do not favor such orders as it may cut out their profits.

T/P orders are often placed at levels that are defined by other forms of technical analysis like support and resistance levels, chart pattern, and other money management techniques.

Let’s understand T/P order with another example:

Say, a trader spots an ascending triangle chart pattern and he opens a long position. If the crypto asset has a breakout, the trader expects that it may rise to 15% from its current positions.

If the asset doesn’t breakout, the trader wants to exit the position quickly and move on to the next opportunity. Here, the trader might create a take profit order so as to sell the asset automatically when it reaches to that level. At the same time, he may place a stop-loss order which is 5% below the current market price.

Here the combination of take profit and stop loss order creates a 5:15 risk to reward ratio, which is quite favorable assuming that the odds of each outcome are equal.

By placing T/P order, the trader doesn’t have to worry about tracking the asset throughout the day. TrailingCrypto is one of the best crypto trading platform that allow its traders to place take profit orders on different exchanges.

How Take profit order works?

To use T/P order, you have to establish a price at which you want to sell a crypto coin. This price is the one above the price at which coin was bought to ensure that traders will make a profit. Once it reaches to the take profit level, the order is triggered and the sale goes through at the current market value.

And, if that point is not met, the sale is not executed, and trader holds on to the coin. This order type allows its traders to limit their risk or exposure to the market by exiting the trade as soon as it reaches to a favorable price.

Some of the popular strategies for calculating the appropriate T/P order include:

· Chart pattern analysis

· Support and resistance levels

This order type is very easy to understand and short-term traders can get benefit from it.

For example:

If any coin, say X is trading at $20, and you believe that it will rise to $30, you can place a buy order.

This means, you will earn profit when the price moves above $20. You can set take profit at $30, meaning that trade will close the order automatically if it reaches to that level.

And, for the same trade, you can add a stop-loss at $15.

In addition to capturing profits, the day traders can also use T/P order in other ways.

Yes, there are some traders who use these orders to initiate other limit orders. If any crypto coin is trading at $100, you can place a take profit order at $110. This will automatically close the position when it reaches this level. At the same time, you can place other limit orders close to this position.

For example, if you expect the asset’s price to drop sharply after reaching $110, you can place a sell-limit order at $105. The idea is that if the price for the crypto coin drops, the bearish pattern will be confirmed if it reaches $105.

At the same time, you can also place a buy stop order at $115. The idea is that if the price fails to stop at $110, bulls will then start targeting $120. And this order will be confirmed if it reaches $115.

These order types are used by all types of traders.

One of the best approaches to set T/P order is to use risk to reward ratio. For example:

If you risk only5% of your money, you can set take profit 5% above the current price.

In the above case if the crypto asset is trading at $100, you could place it at $105.

This might be a smaller level, but keep in mind that it is a 5% return on your trade.

How to place a T/P order on TrailingCrypto?

· First, the traders have to create an account on TrailingCrypto, and login.

· On setting page, the trader have to enter their API key and secret key.

· Now select exchange and select Take Profit/Take Profit Limit order.

· Select base and now quote coin. E.g. Market: BTC/LTC

· Select the number of coins to be sold.

· Now click on the drop down menu near Take Profit. It will pop up 3 options here as Market, Limit, and Trailing. Select the options which means when market price rises to the stop value, the selected order from drop-down menu will be executed.

Example

If the current bid price of BTC is 0.011184 BTC.

· Stop value can be placed at 0.011210, 1% above the current price.

Suppose market hit 0.011210. This will trigger subsequent order.

Below are the possibilities:

· Market Sell: A Market Sell order will be placed.

· Limit Sell: A Limit Sell order will be placed having limit value mentioned during placing the order.

· Trailing Stop Sell: A trailing Stop sell order will be placed with the mentioned offset during placing the order.

Note: Always make sure the Stop Value is higher than the current Bid Price.

Let’s understand the above 3 cases with a hypothetical example:

Case 1: Take profit with market sell

· Suppose the current bid price of BTC is $100.

· Now someone placed a Take Profit with Market Sell order, for 1 BTC with a stop value $110.

· And, when the BTC market bid price hits to $110, a Market Sell order will be placed at $115.

Case 2: Take profit with limit sell

· Suppose the current bid price of BTC is $100.

· Now someone placed a Take Profit with Limit Sell order, for 1 BTC with a stop value $110 and limit value as $115.

· And, when the BTC market bid price hits to $110, a Limit Sell order will be placed with a limit value $115.

Case 3: Take profit with Trailing stop sell

· Suppose the current bid price of BTC is $100.

· Now someone placed a Take Profit with Trailing order, for 1 BTC with a stop value $110 and Trailing offset at 3%.

· And, when the BTC market bid price hits to $110, a Trailing Sell order will be placed. Let’s say market hit $120, and then it starts correcting. When its bid price reaches to $116.4, a market sell order will be placed.

TrailingCrypto offers the best crypto trading bots to automate the take profit strategy of the traders. Since these bots let traders place orders safely, the traders have to set the percentage of the profit which they need.

The other most popular strategy which traders can use to lock in their profits or increase their gain is Trailing Take Profit. Let’s understand it in deep:

Trailing Take Profit

This is the most common and useful function in crypto trading. Its goal is to increase profits. When the Take profit is reached, but the price moves further into the profit zone, the position will not close.

And, Trailing Take profit will continue to follow the price, and at the slightest movement back, it will close automatically with larger percentage of profit than choosing simple take profit order.

Trailing T/P orders are designed to lock in the profit and limit losses. This order type only moves up once the price has exceeded the previous high and a new high has been established.

If the Trailing Take Profit moves up, it cannot move back down. Thus, it will secure profit and prevent losses.

Let’s discover how trailing take profit orders work by the example with numbers. Imagine that you bought BTC for $10000 and set a take profit order at $11000, trailing take profit for 5%.

If the Ethereum (ETH) price climbed to $10500, the order is not executed as the point at $11000 has not been hit.

• If the Ethereum price climbed to $11000, a stop market order at $10450 would be placed.
• If the Ethereum price dropped to $10500, the stop-limit order is still at $10450
• If the Ethereum price climbed to $12000, the stop order jumps to $11400.
• If the Ethereum price falls to $11000, the stop-loss order at $11400 is executed.

As you can get, without the trailing take profit feature, you would earn less, missing the price at $11400, and your Ethereum would have been sold at $11000.

Another Example:

Say, you bought 1 BTC at $100, set Take Profit +10%, and closing price with a profit of $110.

If the price reaches to this level, your earnings without Trailing Take profit will be just $10.

However, if you enable Trailing in the settings, everything will be completely different.

Let’s understand, how:

How does TTP works?

Trailing Take Profit will not be constant at $110, but it will continue to change based on how the price of BTC moves.

For Trailing Take Profit (TTP) orders, we need to define another parameter, Trailing Limit which means how much is the price allowed to fall from the peak before selling the asset.

Let’s say, you have set the Trail Limit at 2%, and the Trailing Take Profit order will be placed as:

Take Profit vs. Trailing Take Profit when bought 1 BTC at $100.

So, Trailing Take Profit will help you maximize the profit and exit the trade at the right time.

Risks with Trailing Take Profit orders

To take advantage of Trailing Take Profit, you have to remember some rules:

· Don’t use TTP on the orders with a very low liquidity. For e.g. the coins with daily volume less than 100 BTC. As you may end up losing your money due to unpredictable price movements.

· Avoid TTP for the coins with the widespread between buy and sell order. It may not work as expected.

· Set Trailing Take Profit (TTP) reasonably relative to the Take Profit percentage. Establishing the ideal Trailing Take Profit distance is the toughest part. If you set Trailing Take Profit too tight, it will be triggered by the normal movements in the market, and the trade will have a little room to move. This may you may end up losing the gains you could have earned. And, if you have set Trailing Take Profit too wide that you are risking giving up more profit than needed.

If you want to catch the price movement, and expect the price to return to its previous level, using Trailing Take Profit is the best used.

Conclusion

So, if you want to maximize your gains and reduce the possible amount of losses, you cannot avoid using Trailing take profit orders to earn profit. TrailingCrypto provides the best signals to the traders to earn profits.

Whenever you receive the signal, you can set the limit orders to controls the expected gains and losses. Trailing Take Profit limit will not only help you catch the right trend, but help you to earn as much as you can by following the price direction.

Trailing Take Profit and Take profit orders are the best tools to earn profits. Keep in mind the risks associated with them and test different approaches using crypto trading bots to find the best approach to match your trading style.