Take Profit

A take-profit order is an act of selling cryptocurrency to secure profits. It is usually executed at a predetermined price when the trade is in profit.


What Is Take Profit in Crypto?

A take-profit order is an act of selling cryptocurrency to secure profits. It is usually executed at a predetermined price when the trade is in profit. Taking profits requires fairly active participation in the markets and is different from the HODL strategy which requires the trader to keep passively investing in their assets.
For example, the trader may enter a swing trade and buy a cryptocurrency at a low price. The cryptocurrency appreciates as anticipated, and the trader sells it for a profit. However, they may also have a predetermined level, where they want to take profit. So, for instance, if a trader buys a coin at $1, they may set a take-profit order at $1.4 for a 40% profit. A take-profit order is often combined with a stop-loss, where the trader caps their downside by setting an order at a price where they want to exit the trade for a loss. 

In our example, they may set a stop-loss order at $0.8. That would give the trader a 1:2 risk-reward ratio. In other words, they would have to close this trade profitably more often than one in three times to make a profit.

Pros and Cons of Take-profit Orders

Since cryptocurrencies can be quite volatile, many traders use take-profit and stop-loss orders to manage their trading strategies. Since even small percentage gains or losses can be amplified by the use of leverage, there are certain benefits to using take-profit orders.

Benefits of Take-profit in Crypto

The biggest benefit is probably locking in profits, which allows traders to multiply their earnings quite quickly. Since cryptocurrencies can swing in their valuation, it is not uncommon for traders to get a trade right and not take profits in the hope of the price further appreciating. Unfortunately, all too often, the price reverses, and the trader does not make the anticipated profit because of their own greed. Take-profit orders take the decision away from traders and help them stay the course.

Another benefit is climbing up the learning curve by using advanced orders like taking profit. Traders that learn to manage their trades according to predetermined profit targets are generally already quite advanced and understand the concept of managing risk. Thus, taking profit helps traders improve their skills. 

Finally, taking profits helps traders stay flexible and make gains in the markets even if prices are falling. For instance, by taking profits, traders can also profit in a bear market and do not rely on constantly appreciating prices. 

Cons of Taking Profits

First and foremost, taking profits is difficult. Traders need a good understanding of market conditions to set a realistic price target. This is an advanced skill that beginner traders do not have. Taking profits has to be learned, and the experience to set good price targets that result in a profitable trading strategy is not developed overnight. 

Second, taking profits can be emotionally challenging if a trade has gone well. All too often, traders are tempted to let a trade run to squeeze out more profits. Also, taking profits can cap a trader’s upside and deprive them of even bigger gains if the token appreciates more than expected. That is why experienced traders set several take-profit targets. That way they can benefit from an unexpected token run.

When and How to Take Profits

There are a couple of factors traders have to be aware of when it comes to the execution of take-profit orders.

First, they need to be able to identify different chart patterns. Depending on the trading strategy used, different patterns can be applied to a trade. A trader that is well-versed in technical analysis will more easily set good price targets for take-profit and stop-loss orders.

Next, traders need to stay on top of the news cycle to realize when fundamentals are changing. For instance, a token may release a piece of crucial information, such as a change in the team. This information has to be incorporated into the trading analysis and the order may have to be changed accordingly.

Traders also need to be aware of macroeconomic conditions that can influence their trades. Especially news not related to the cryptocurrency markets can have ripple effects and influence token prices.

When setting take-profit orders, traders need to set profit targets based on technical and fundamental analysis like the news, macroeconomic conditions and token-specific information. They should also aim for good risk-reward ratios that give them favorable odds to remain in profit in the long run. Finally, using technical analysis can help traders identify the correct price targets when they set take-profit orders.