What is Stoploss? How to Use Effective Take Profit and Stop Loss Strategies

Take Profit and Stop Loss (TP/SL) - Basic Concepts

Take profit and stop loss – also known as TP/SL (Take Profit/Stop Loss) – are essential trading tools that help you automatically manage your positions. The mechanism is quite simple: you set a predetermined activation price and an order placement price. When the market reaches the activation level, the system will automatically place an order to “take profit” or “cut loss” according to your settings.

There are two commonly used types of TP/SL orders: stop (stop order) and trigger (trigger order). The only difference is that trigger orders do not lock in your margin or current position until they are activated.

Why Do Traders Need to Apply TP/SL?

These are powerful tools to protect your trading account. When the market is highly volatile and prices move against your predictions, timely stop loss helps limit losses and prevents continued escalation. Conversely, when prices move favorably, taking profit helps lock in gains before the market reverses.

In other words, stop loss is a top risk management strategy – it allows you to control the maximum loss per trade and ensures discipline during trading.

Important Points When Setting Up TP/SL

Mechanism:

• If the market price has not reached the activation level, the order will not be placed, and your position and margin will remain unchanged.
• If the order is successfully triggered, the current position will be closed or a new position will be opened according to your configuration.
• In case the conditional order is triggered and the order price violates the price limit rules, the system will use the highest or lowest available price at that moment to execute.

Cases where TP/SL may not succeed:

In certain situations, take profit/stop loss orders may not be triggered as expected:

• When the number of TP/SL positions exceeds the maximum allowed limit, the system will refuse to place new orders.
• Excessive market volatility may cause TP/SL orders not to be executed immediately, as they depend on market prices for activation. If you need to close positions quickly, select “Close All” from a specific position.
• If there are opposite orders in the pending list (excluding reduce-only orders), they may open a new position after TP/SL is triggered, leading to margin verification failure and unsuccessful TP/SL orders.

Conclusion

Take profit and stop loss are indispensable tools in every trader’s skill set. Effectively using stop loss and take profit will help you build trading discipline, better risk management, and increase your chances of long-term success in the crypto market.