Take Profit vs Stop Loss: How to Use Both to Protect Your Crypto Portfolio

Two sides of the same coin that separate disciplined traders from gamblers

Every crypto trader eventually learns a painful lesson: it is not enough to know when to take profit if you do not also know when to cut your losses. Take profit and stop loss orders are the two foundational risk management tools in any trader's toolkit, yet most retail investors either use one without the other or skip both entirely. The result is portfolios that bleed value during corrections and give back gains during reversals because there was no plan for either scenario.

A take profit order locks in your gains at a predetermined price above your entry. A stop loss order limits your downside by automatically selling if the price falls to a predetermined level below your entry. Used together, these two order types create a complete trade bracket that defines your maximum gain target and maximum acceptable loss before you ever enter a position. This guide explains exactly how each order works, when to use one versus the other, and how to pair them into a unified strategy that protects your crypto portfolio from both sides of the risk equation.

What You'll Need

• A verified account on a crypto exchange that supports limit orders and stop orders such as Binance, Kraken, or Coinbase Advanced
• An understanding of basic order types including market orders, limit orders, and stop-limit orders
• At least one open crypto position or a planned trade you want to protect with proper risk management
• A TradingView account (free tier is fine) for identifying support and resistance levels on charts

Step-by-Step Guide

Step 1

Understand What Take Profit and Stop Loss Orders Actually Do

A take profit order is a pending sell order placed above the current market price. It tells your exchange to automatically sell your asset when the price rises to your target. If you bought Bitcoin at 80,000 and set a take profit at 100,000, your exchange will execute the sell when Bitcoin hits 100,000, locking in a 25% gain without requiring you to watch the screen. The order sits passively in the order book until your target is reached.

A stop loss order is a pending sell order placed below the current market price. It tells your exchange to automatically sell if the price drops to your specified level, limiting how much you can lose on the trade. Using the same example, if you bought Bitcoin at 80,000 and set a stop loss at 72,000, your position is automatically sold if the price falls 10%, capping your maximum loss at 8,000 dollars per Bitcoin rather than allowing an unchecked drawdown.

The critical distinction is intent. A take profit order defines your upside target and answers the question: at what price am I satisfied with my gains? A stop loss order defines your risk tolerance and answers the question: at what price do I admit this trade is not working? Professional traders never enter a position without answering both questions first. The combination of both orders transforms a speculative bet into a managed trade with a clearly defined risk-to-reward ratio.

Step 2

Learn the Key Differences That Affect Your Strategy

While both take profit and stop loss are exit orders, they behave differently in practice and serve different psychological functions. Take profit orders use limit orders, meaning they fill at your specified price or better. Stop loss orders typically use stop-market or stop-limit orders, and they can experience slippage during volatile moves. This means your take profit will almost always fill at the exact price you set, while your stop loss might execute at a slightly worse price than intended during a flash crash.

Psychologically, take profit orders fight greed. Without one, you will always be tempted to hold for just a little more gain, which often leads to giving back profits when the market reverses. Stop loss orders fight hope. Without one, you will hold a losing position hoping it recovers, watching a small loss become a devastating one. Both emotions, greed and hope, are the primary reasons retail traders underperform. The mechanical nature of these orders removes both emotions from the equation.

From a risk-reward perspective, the placement of these two orders determines your trade's risk-to-reward ratio before you even enter. If your take profit is 20% above your entry and your stop loss is 10% below, you have a 2:1 risk-to-reward ratio. This means you only need to be right on 34% of your trades to break even. Professional traders typically aim for a minimum 2:1 ratio, and many will not enter a trade unless they can achieve 3:1 or better. Calculating this ratio before every trade is one of the simplest and most impactful habits you can develop.

Step 3

Set Your Stop Loss First Based on Technical Levels

Counterintuitively, you should determine your stop loss level before your take profit level. The reason is that your stop loss defines your risk per trade, which should be a fixed percentage of your portfolio, typically 1% to 3% for any single position. Once you know where your stop loss will be and how much you are risking, you can calculate the correct position size and then evaluate whether the potential take profit level offers an acceptable reward for that risk.

Place your stop loss below a meaningful technical support level, not at an arbitrary percentage. On TradingView, identify the nearest strong support level below your entry price using horizontal support zones, the 50-day or 200-day moving average, or the lower boundary of a trend channel. Place your stop loss 2% to 5% below this support level, not directly on it. Placing your stop exactly on support is a common mistake because market makers and large traders often push prices slightly below support to trigger stop losses before the price bounces back.

For example, if you are buying Ethereum at 3,500 and the nearest strong support level is at 3,200, place your stop loss at approximately 3,130 (about 2% below support). This gives the trade enough room to absorb normal volatility and temporary dips below support without prematurely stopping you out. Your risk per ETH is 370 dollars, or about 10.6% of your entry price. With this information, you can now calculate the position size that keeps your total risk within your portfolio risk limit.

Step 4

Set Your Take Profit at Logical Resistance Levels

With your stop loss placed, now identify your take profit level using technical resistance analysis. Open TradingView and locate the nearest significant resistance zones above your entry price. Look for previous price peaks that caused reversals, Fibonacci extension levels at 1.618 and 2.618, high-volume price nodes from the volume profile, and psychological round numbers like 100,000 for Bitcoin or 5,000 for Ethereum.

Your take profit should be placed slightly below identified resistance, just as your stop loss was placed slightly below support. If strong resistance sits at 4,200 for Ethereum, set your take profit at approximately 4,150 to ensure your order fills before the inevitable selling pressure at the resistance level. Heavy sell walls at exact round numbers and historical resistance levels can prevent the price from reaching your exact target, so building in a small buffer increases your fill rate significantly.

Now calculate your risk-to-reward ratio. Using the Ethereum example: entry at 3,500, stop loss at 3,130 (risk of 370), take profit at 4,150 (reward of 650). Your ratio is 650 divided by 370, which equals approximately 1.76:1. Most professionals want at least 2:1, so you might either tighten the stop loss slightly if there is a closer support level, or look for a higher resistance target for your take profit. If neither adjustment produces at least a 2:1 ratio, consider skipping the trade entirely. This discipline is what separates consistently profitable traders from chronic losers.

Step 5

Pair Both Orders Using OCO and Bracket Orders

The ideal execution method is to place your take profit and stop loss simultaneously using an OCO (One-Cancels-the-Other) order or bracket order. An OCO order pairs two conditional orders together: when one fills, the other is automatically cancelled. This means if your take profit hits, the stop loss is removed, and if your stop loss triggers, the take profit is cancelled. You never have to manually manage both orders, which eliminates the risk of forgetting to cancel one side.

On Binance, select the OCO order type from the spot trading interface. Enter your take profit price in the Limit Price field, your stop loss trigger price in the Stop field, and the stop execution price in the Stop Limit field. Confirm the order and both sides are now active simultaneously. On Kraken, use the Conditional Close feature when placing your entry order, which lets you attach a take profit limit order that activates automatically when your entry fills. Then place a separate stop loss order for the same position.

On Coinbase Advanced, native OCO orders are not available for spot trading as of early 2025. The workaround is to place your take profit as a GTC limit sell order and manage your stop loss using TradingView alerts or a third-party tool like 3Commas that integrates with the Coinbase API. When your stop loss alert triggers, manually cancel the limit sell and execute a market sell. While less convenient than a true OCO, this approach still gives you both levels of protection when combined with disciplined alert monitoring.

Step 6

Adjust the Ratio for Different Market Conditions

Your take profit and stop loss placement should not be static. Different market conditions warrant different ratios and distances. In a strong bull market with clear upward momentum, you can afford to set wider take profit targets and tighter stop losses because the probability of upward continuation is higher. A 3:1 or 4:1 risk-to-reward setup becomes realistic when the trend is strongly in your favor.

In a ranging or choppy market where price oscillates between support and resistance without a clear trend, tighten both your take profit and stop loss. The goal in a range-bound market is to buy near support and sell near resistance with relatively small targets. A 1.5:1 or 2:1 ratio with tighter absolute distances works better here because the price is unlikely to make large directional moves. Using wide targets in a ranging market leads to frequent stop-outs as the price reverses before reaching distant take profit levels.

In a bear market or during high uncertainty, widen your stop loss to account for increased volatility and reduce your position size to keep your dollar risk constant. Bear market rallies are sharp and short-lived, so your take profit should be more aggressive and closer to your entry. Consider using a 2:1 ratio with a tighter take profit and a wider stop loss. Most importantly, in a bear market, reduce your overall exposure rather than trying to trade your way through it. The best trade in a bear market is often no trade at all.

Step 7

Avoid the Most Common Mistakes with Both Orders

The number one mistake traders make with stop losses is placing them too tight. If your stop loss is only 3% below your entry on a volatile asset like Bitcoin that routinely swings 5% to 8% intraday, you will be stopped out constantly by normal noise. This creates a pattern of small losses that add up to devastating capital erosion. Your stop loss must be beyond the range of normal volatility, which for most crypto assets means at least 8% to 15% below your entry, placed below a genuine technical support level.

The number one mistake with take profit orders is moving them higher as the price approaches. When Bitcoin is at 98,000 and your take profit is at 100,000, it is extraordinarily tempting to cancel the order and move it to 110,000 because the momentum feels unstoppable. This is greed overriding your plan and it is the exact behavior that take profit orders are designed to prevent. If you want to capture additional upside, use a laddered approach with partial take profits at multiple levels rather than moving a single target.

Another common error is using a 1:1 or worse risk-to-reward ratio. If you are risking 15% to make 10%, you need to be right on more than 60% of your trades just to break even, which is extremely difficult to sustain. Never enter a trade where the potential reward does not justify the risk. If you cannot find a setup with at least a 2:1 ratio, pass on the trade and wait for a better opportunity. Patience and selectivity are edges that cost you nothing and pay enormous dividends over time.

Step 8

Build a Complete Trade Plan Template You Can Reuse

The ultimate goal is to develop a standardized trade plan template that incorporates both take profit and stop loss on every single position. Create a spreadsheet or document that includes the following fields for each trade: asset name, entry price, entry date, stop loss price, stop loss percentage from entry, take profit price (or multiple levels for laddered exits), take profit percentage from entry, risk-to-reward ratio, position size, and maximum dollar risk. Fill in this template before clicking the buy button.

For each completed trade, add columns for the actual exit price, exit date, whether the take profit or stop loss was triggered, the realized profit or loss, and any notes about what you observed during the trade. Over 20 to 50 trades, this data becomes a goldmine of insights. You will see whether your stop losses are consistently being triggered just before the price reverses (meaning they are too tight) or whether your take profits are rarely being reached (meaning they are too ambitious). Data-driven adjustment is the path to consistent improvement.

Review your trade journal at the end of every month. Calculate your win rate, average win size, average loss size, and your overall expectancy (the average dollar amount you make or lose per trade). A positive expectancy combined with consistent risk management is the mathematical formula for long-term profitability. If your numbers are negative, the data will tell you exactly what to fix: tighten your take profits, widen your stop losses, improve your entry timing, or reduce your position sizes. Every professional trader in every market maintains a trade journal. There are no exceptions.

Tips & Best Practices

• Always calculate your risk-to-reward ratio before entering a trade. If it is below 2:1, skip the trade and wait for a better setup. This single habit will dramatically improve your long-term results.
• Use ATR (Average True Range) on TradingView to calibrate your stop loss distance. Setting your stop loss at 1.5x to 2x the 14-period ATR below your entry ensures it is beyond normal volatility while still protecting against abnormal moves.
• For longer-term positions held over weeks or months, consider using a trailing stop loss instead of a fixed stop. This lets your stop loss rise with the price, progressively locking in more profit while still giving the trade room to breathe through normal pullbacks.
• Place your take profit and stop loss orders immediately after your entry order fills. Do not wait until later because the market can move against you in seconds. On exchanges that support bracket orders or conditional closes, attach both exits to your entry so they activate automatically.
• When trading altcoins with lower liquidity, use stop-limit orders instead of stop-market orders for your stop loss to avoid severe slippage. Set the limit price 1% to 2% below the stop trigger price to give the order a realistic chance of filling even in fast-moving conditions.

Important: Stop loss orders do not guarantee execution at your specified price during extreme volatility events such as flash crashes, exchange outages, or black swan events. In these scenarios, the price can gap below your stop level, resulting in a fill price significantly worse than intended. Stop-limit orders carry the additional risk of not filling at all if the price moves through your limit too quickly. For critical risk management, consider using stop-market orders on highly liquid pairs and avoid holding positions that are too large relative to your total portfolio so that even a worst-case slippage event does not cause catastrophic losses.

Frequently Asked Questions

Should I always use both a take profit and a stop loss on every crypto trade?

Yes. Every trade should have both a defined upside target and a defined maximum loss before you enter. Entering a trade with only a take profit means you have no plan for when the trade goes wrong, and entering with only a stop loss means you have no plan for when it goes right. The combination of both creates a complete risk framework. The only exception is very long-term accumulation positions where you are DCA-ing into an asset you plan to hold for years, in which case a stop loss may not be appropriate but a take profit plan still should be.

What is a good risk-to-reward ratio for crypto trading?

A minimum of 2:1 is the widely accepted standard among professional traders, meaning your potential profit should be at least twice your potential loss. A 3:1 ratio is excellent and means you can be wrong on two out of three trades and still break even. The best setups offer 4:1 or 5:1 ratios, though these are rarer and require patience to find. Avoid any trade where the risk-to-reward is below 1.5:1 as you would need an unsustainably high win rate to be profitable.

How do I decide whether to use a fixed stop loss or a trailing stop?

Use a fixed stop loss for short-term trades, swing trades with specific technical invalidation levels, and any trade where you have a clear price target on both sides. Use a trailing stop for trend-following positions where you want to ride a strong move as far as it goes without a predetermined upside target. Many traders use a hybrid approach: a fixed stop loss until the trade moves into profit, then switch to a trailing stop to protect gains while letting the winner run. This gives you the best of both approaches.

CryptoTakeProfit Research Team

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Disclaimer: This article is for informational purposes only and does not constitute financial advice.