How to set up stop-loss and take-profit orders

Key takeaways

Bitcoin and crypto traders can rely on automated orders on their trading platform to limit losses and secure gains.
Stop-loss orders in Bitcoin trading started as manual risk management in the early 2010s. Now, they have become advanced, automated tools on today’s exchanges.

In the algorithm era and bot pestering, proper trading tools like stop-loss and take-profit orders will help you protect your trades.
Setting up advanced BTC trading strategies doesn’t guarantee a successful risk management plan. Monitoring the market regularly helps you understand current conditions. This way, you can avoid strategic mistakes.

Stop-loss and take-profit orders in trading were used long before Bitcoin. In traditional financial markets, they were already used as a risk management and profit-securing tool.

They help reduce losses and boost revenue by automatically buying or selling an asset when its price reaches a set level.

With Bitcoin’s emergence in 2009 and its subsequent trading on exchanges, these advanced trading strategy tools became crucial for dealing with its well-known price volatility.

As Bitcoin (BTC) gained traction, traders began to use stop-loss and take-profit strategies from forex and stock markets. At first, price monitoring was manual. Then, automated features on crypto platforms changed everything.

What are stop-loss and take-profit orders?

Stop-loss and take-profit orders are trading strategies that help investors manage risk and secure gains automatically. They’re instructions you set on a trading platform to close a position when certain price levels are reached.

They help limit losses in case of significant price drops or lock in profits when a price target is reached. They can be set up to boost gains and cut losses. This helps keep emotions out of trading, which can prevent regrettable mistakes. They also help if you can’t monitor the market constantly.

There must be specific conditions for the orders to trigger. Bitcoin trading is very volatile. Its fast price changes and possible system delays can cause orders to trigger at a different price or not trigger at all. This type of trading strategy gives peace of mind to risk-averse investors.

Bitcoin stop-loss orders

If you don’t want to take risks and preserve your capital, you can use a stop-loss order designed to limit your losses. You can use it for a buy order, setting up a price level below your entry point, or right above it for a sell trade.

In case of a price drop, the order is executed automatically at your designated price, preventing further losses.

For example, if you buy BTC at $90,000 and set a stop loss at $85,000, your position sells if the price drops to $85,000, capping your loss at $5,000.

Bitcoin take-profit orders

To lock in some gains, you can use a take-profit order. Set a price level above your entry point, and when the market reaches that level, the trade is executed, giving you the expected gains.

For example, if you buy BTC at $90,000 and set a take profit at $95,000, if the price hits $95,000, it sells, securing a $5,000 profit per BTC.

Importance of stop loss and take profit for Bitcoin trading

Bitcoin’s wild price changes make stop-loss and take-profit orders important. These tools help lower the risk of losses and boost the chance of gains.

Remember, setting up these orders doesn’t guarantee they will be executed. Their execution relies on various factors, like market volumes.

Why set up a stop loss for Bitcoin

Bitcoin’s volatility has gone down over time. Still, it can have big price swings. Without proper Bitcoin trading risk management, traders may face heavy losses.

Here are some of the most important reasons why it would be useful to adopt stop-loss orders in your Bitcoin trading strategy.

Bitcoin volatility: BTC can still drop 10% in a very short time due to factors such as news, whale moves or market sentiment. On Dec. 5, 2024, for example, BTC suffered a flash crash from $103,853 down to $92,251 before recovering. A stop loss caps your downside trend when a flash crash hits. Without it, you’re gambling on timing the recovery manually.

Emotions: An emotional state can be a huge game-changer in trading. Emotional investors may panic-sell or panic-buy, triggering significant losses. A stop loss will reduce the risk of making costly emotional mistakes before fear kicks in.

Why set up a take-profit order for Bitcoin

A Bitcoin trading strategy may include defining price targets and a percentage of gains. Setting up a take profit order for BTC may be necessary as part of an overall trading risk management plan and will help reach the following targets.

Locking gains: BTC’s volatility, in both bull and bear markets, can lead to quick spikes and can reverse just as quickly. A take profit ensures you cash out before pullbacks.
Greed control: Without a take profit order, traders may be tempted to chase higher highs, which may not occur over the short term.
Non-stop market: You can’t just sit and watch the market 24/7. A take-profit order ensures profits in case of a sudden pump while you’re asleep.

How to set up BTC stop-loss and take-profit orders

Setting up stop-loss and take-profit for Bitcoin trading varies by platform. However, the process is usually similar on most crypto exchanges, like Binance, Coinbase Pro and Kraken.

The following step-by-step guide to setting up your BTC stop-loss and take-profit orders should give you a good overview of the process.

Step 1: Choose a Bitcoin trading platform

This may be the most crucial aspect of your process to set up your advanced BTC trading strategies. Pick a platform that aligns with your needs. Make sure to check the fees, volumes, reputation and security because these features can impact your trading strategy.

Step 2: Open a BTC trading position

Once you’ve set up your trading account, log in to your platform and navigate to the trading section, and look for the order form.
Choose a BTC pair, for example, BTC/USD.
Place your buy order (long) or sell order (short). For example, you can place your order to buy 1 BTC at $90,000.

Step 3: Set your stop loss for BTC

Here’s an example of an order from the Kraken platform.

Click on the stop-loss option from the order menu as shown below to set up the tool.
Set the stop-loss price by first deciding your risk level, or how much you’re willing to lose in case the Bitcoin price drops significantly.

For example, if you bought BTC at $92,500, you can set the stop loss at $87,300, meaning you set your loss at roughly 5.62%.

The loss = 92,500 – 87,300 = 5,200

Now, to find the percentage loss: (5,200 / 92,500) * 100 = 5.62%

Step 4: Set your take profit for BTC

Stay in the same trade interface.
Just as above, after you select your BTC pair and buy the relevant BTC amount, click on the take-profit option.
Set the take-profit price based on your exit strategy. For example, you want to set it 5% above the entry price, which would be $94,500 if you bought BTC for $90,000.
Enter $94,500 as the sell price. When Bitcoin hits this price, it will sell automatically.

Step 5: Confirm and monitor your orders

Confirm and activate after double-checking the amount and price, then submit.
If your notifications are active, you will receive one once the order is triggered.
Nothing stops you from monitoring your order status, and you can cancel or amend it if the market conditions change.

Best practices for BTC stop-loss placement

Traders can limit their potential losses by using stop-loss orders. This helps them protect their capital during volatile market conditions. Therefore, with Bitcoin’s possible daily swings of 5%–10%, it’s safe to base a stop loss on volatility.

Volatility: Platforms like TradingView might offer an option called Average True Range (ATR) over 14 days. This lets you set an average range below your entry point. For instance, you can choose a range of $3,000, so if you bought Bitcoin at $90,000, the order will trigger once it goes down to $87,000.
Align with support levels: Historically, BTC respects price floors. Setting up a stop below a crucial support level gives some peace of mind. For instance, if you bought Bitcoin at $90,000 and $88,000 is your support level, set a stop-loss order at $87,800, just below the zone to bypass stop-hunting bots.
Avoid obvious levels: Whales and bots target batches of stop-loss orders at round numbers ($80,000, $85,000) or chart patterns, triggering orders before price reverses. Moving the stop loss a bit lower, like to $87,800 instead of $88,000, will probably trigger the order more effectively.

BTC trailing stop loss

A trailing stop-loss order automatically adjusts a stop-loss price as the market price moves in a profitable direction to lock in profits and limit losses by following a trade’s price. It’s designed to keep a fixed distance below (for long positions) or above (for short positions) the current market price. A simple stop loss may miss profits, while a trailing stop locks them.

You can set a trailing stop loss at 3%–5% below the peak as the price rises. If you buy BTC at $90,000 and it hits $95,000, the trailing stop loss moves to $93,250. You can adjust manually or automatically if the platform allows.

Account for slippage

Slippage refers to the difference between the expected price of a trade and the actual price at which it is executed. This can occur due to market volatility or low liquidity.

In case of low liquidity during BTC crashes, execution can skip your stop loss. For instance, $88,000 may fill at $87,500. Widening the stop loss slightly by 0.5%–1% can solve the problem.

How to adjust stop-loss and take-profit Bitcoin orders

When and how to adjust a stop loss

Stop-loss adjustments should be made carefully. This helps protect capital from unexpected market changes and secures profits when possible. It’s often done by adjusting the order to support or resistance levels. Another common strategy is using trailing stop-loss orders. You can use “modify position” or “edit trade” on your platform to adjust them.

Tighten the stop loss after a move in your favor. In case BTC’s price rises after entry, you can move the stop loss to reduce risk or lock in profits. If BTC rises after entry, move the stop loss to reduce risk or lock in profit.

For example, if BTC bounces from $88,000 to $93,000, you can tighten the stop loss to $90,500, thereby ensuring no loss if it is reversed.

Trail the stop loss during a trend. As BTC keeps running upward during a bull market, trailing the stop loss captures more on the upside. A percentage- or ATR-based trail can be used. For instance, with a $90,000 entry, if BTC rallies to $100,000, you can trail the stop loss to $97,200 to lock in $7,200 per coin, which is an 8% profit if it then dips.

Widen the stop loss during consolidation, as tight stop losses will get hit in unsettled ranges. For instance, if BTC stalls after the $90,000 entry, you can extend the stop loss from $88,000 to $87,500 to avoid sudden drops below support.
Adjust before major events, like US Federal Reserve rate announcements or ETF approvals. These can cause big swings and increase slippage risks. You can tighten the stop loss to 1%–2% if you decide to remain in the trade, or you can widen it to 10% to ride the upward trend.

When and how to adjust the take-profit order

Take-profit orders can be adjusted to maximize gains, adapting to momentum or resistance. Just like a stop loss, you can modify them on your trading platform by selecting the open trade and choosing the “modify position” or “edit trade” option.

Extend the take profit during strong momentum. This is to avoid missing a peak in a bull run. If you see volume spiking or a breakout clearing resistance, you can push the take profit higher. For instance, you buy at $90,000 and set the take profit at $93,000. If BTC hits $92,500 fast, you can adjust the take profit to $95,000 or $97,000 to maximize profits.
Take partial profits at key levels. Resistance levels like $85,000 or $90,000 often see BTC reversing. Then you can decide to sell some of your position to grab some gains and let the rest ride.
Tighten the take profit near resistance levels. BTC usually stalls at round numbers or past highs. If the price approaches resistance, you can cut the take profit from $90,000 to $88,500, for example.
Reset the take profit after a pullback. If you just missed a take profit trade, do not despair, as BTC usually retraces and then runs up again. If you enter the trade at $90,000 and BTC dips to $85,000, you can reset your take profit order to $87,000 or $88,000 for a moderate win.

Common mistakes to avoid with BTC orders

Bitcoin’s fast-moving market needs a solid trading strategy. Stop-loss and take-profit orders are key tools. However, if they aren’t set up properly, they could do more damage than benefit. Here are some common mistakes traders make with BTC orders and how to get around them.

Setting stops too tightly: Placing a stop loss too close to an entry price means it may get hit by an average drop of 2%–3%. Always keep Bitcoin’s high volatility in mind and use volatility and support level metrics.
Ignoring slippage: Slippage can occur due to high volatility or low liquidity. Ignoring it may lead to costly mistakes. Especially on leveraged orders, slippage may result in heavy losses, which may affect your risk plans. Widening the stop loss slightly during highly volatile times may help reduce the risk of big losses.
Chasing round numbers: Setting a stop loss at a round number is not a good idea. This can attract bots and whales looking to hunt stops or dump orders. Always set it up $100–$500 below or above a round number to avoid being caught in this typical mistake.
Forgetting to adjust: Leaving a stop loss at $88,000 and a take profit at $93,000 after BTC pumps to $95,000 means you may miss profits or risk a reversal. Regularly monitoring the BTC price will ensure you’re ahead of the game and can adjust the orders accordingly. Setting platform alerts is also useful.
Misjudging market context: Use your judgment following market trends. Setting a tight stop loss before a Fed announcement or a wide take profit in a bearish trend may incur heavy losses. Adjust accordingly while following trends and sentiments. Tighten the orders pre-event and widen them post-event. Aligning a take order with resistance is also a good idea.
Not accounting for fees: Large-scale orders may be subject to high fees, which should be accounted for when setting up orders. Always factor fees into targets, as in the long term, it will make a difference.
Panic-canceling orders: Emotions can lead to big losses. So, it’s smart to stick to your initial plan. This is especially true for BTC, which often faces flash crashes but can recover quickly. You can use trailing stops to adjust automatically.

Avoid these mistakes by planning strategically, staying disciplined and adapting to Bitcoin’s volatile nature. Always test strategies on a demo account before trading live.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.