Table of contents

• 1. Stop loss order

• How to use a stop loss order

• advantage

• 2. Take profit target

• How to set a stop-profit target

• advantage

• 3. Trailing stop loss

• How to use trailing stop loss

• advantage

• 4. Off-transaction average cost method (DCA)

• example

• advantage

• 5. Technical analysis indicators

• Moving Average

• Relative Strength Index (RSI)

• Parabola SAR (stop loss and reversal)

• advantage

• Strategies that combine best results

• Summarize

1. Stop loss order

   A stop loss order is an instruction that automatically closes a position when the asset price reaches a preset level. Its main function is to control potential losses when the market trend is opposite to the position direction. As a core tool in risk management, it helps traders avoid making irrational decisions due to mood swings.

How to use a stop loss order

Percent Stop Loss : Set a fixed percentage as the stop loss point based on the entry price. For example, if you buy Bitcoin for $40,000 and set a 5% stop loss, the system will automatically close the position when the price drops to $38,000.

Technical stop loss : Set stop loss according to the key positions of the technical surface, such as below the support level or below the important moving average. For example, if Bitcoin remains above the 200-day moving average ($37,000), you can set the stop loss slightly lower at this line to prevent a sharp retracement after a breakout.

advantage

• Establish a clear risk control mechanism.
• Achieve automated exit and reduce human emotional interference.

2. Take profit target

   The take-profit order is similar to the stop-loss order mechanism, but has a different purpose - it is used to automatically close positions when the expected profit level is reached, thereby locking in profits. By setting a take-profit, traders can ensure exit at the ideal price without keeping a watch.

How to set a stop-profit target

Risk-reward ratio : Using a ratio of 1:2 means that for every USD of risk assumed, the target profit is USD 2. If the entry price differs from the stop loss price by $1,000, the take-profit should be set at a higher position of $2,000.

Fibonacci extension : Use Fibonacci tools to identify potential resistance areas. For example, the 1.618-fold expansion bit is often regarded as a high probability take-profit range and is suitable for use when the trend continues.

advantage

• Prevent profits from being taken off due to greed.
• It helps to establish a sustainable profit model and improve transaction discipline.

3. Trailing stop loss

   Tracking stop loss is a dynamic stop loss method that can automatically adjust the stop loss position as the price changes favorably, thereby retaining room for continued profit while protecting profits. When the price fluctuates inversely than the set amplitude, the system will close the position.

How to use trailing stop loss

Set a percentage or fixed amount as tracking distance. For example, if BTC rises from $40,000 to $50,000 and the trailing stop is set to 5%, the new stop will move to $47,500 (i.e. 95% of 50,000). If the price rises further to $60,000, the stop loss will be updated to $57,000, continuing to move upwards as the trend continues.

advantage

• Let traders fully participate in strong markets.
• Exit in time in the early stages of trend reversal to reduce the risk of profit retracement.

4. Off-transaction average cost method (DCA)

   Although DCA is often used to build positions in batches, it can also be used in reverse to the exit stage - that is, to gradually sell positions in stages and at prices, rather than clearing them in one go. This approach helps optimize the overall exit price.

example

Suppose you buy 1 bitcoin for $20,000 and the price rises to $50,000 in the bull market. You are not in a hurry to sell all of them, but choose to sell 0.1 BTC at $50,000, and then sell 0.1 BTC at $55,000, and then continue to reduce your holdings at points such as 60,000 and 65,000. This not only locks in part of the profits, but also retains the opportunity to participate in subsequent rises.

advantage

• Relieve the psychological pressure caused by "selling early" or "selling late".
• Smooth the exit process and increase the overall average selling price.

5. Technical analysis indicators

   Many traders rely on technical indicators to judge the timing of exit and replace subjective emotional decisions with objective signals. Common exit reference indicators include moving average, RSI, and parabolic SAR.

Moving Average

Example : When the price of Bitcoin falls below the 50-day moving average, it may indicate a weaker trend. Exiting the long position at this time will help avoid further decline risks.

Relative Strength Index (RSI)

Example : If Bitcoin RSI breaks through 70 and enters the overbought area, it may mean that a short-term pullback is coming. Early exit can lock in profits before the price falls.

Parabola SAR (stop loss and reversal)

Example : This indicator appears on the price chart in dot form. When these points switch from below the price to above, they are usually considered sell signals, indicating that the trend may reverse.

advantage

• Can respond to market changes in real time and enhance decision-making sensitivity.
• Reduce the uncertainty caused by subjective judgment.

Further reading:
Learn K-line from zero foundation: Head and shoulders top escape top K-line form technical analysis teaching (video graphical example)
What is cryptocurrency DCA? Average cost method DCA is suitable for people, coin buying process and investment strategy How to set a stop-profit and stop loss on Binance Exchange APP contract?

Strategies that combine best results

Although a single strategy is effective, combined use can better improve overall performance. For example, stop loss orders and take profit orders can be set at the same time to define a clear risk-return range for the transaction.

Advanced practices include: combining technical indicators and tracking stop loss , locking in profits and losing opportunities in trend markets; or using RSI overbought signals to cooperate with DCA to exit in batches to achieve stable income management.

Specific examples:
Suppose you buy Bitcoin for $44,000:

• Set USD 42,000 as the initial stop loss to control downside risks.
• Set $50,000 as the first target to take profit and obtain phased profits.
• If the price exceeds $50,000, enable trailing stop loss and let profits run.
• When the price reaches more than US$60,000 and the RSI exceeds 70, start reducing positions in batches (DCA-style exit), locking in most profits and reducing exposure.

Summarize

Exit strategy is an indispensable part of the trading system, and its importance is no less than entry decisions. Whether it is to use stop loss, take profit, trailing stop loss, DCA or technical indicators, the key is to formulate clear rules and strictly implement them.

Try a combination of strategies to find the best way to fit your own style and market rhythm. Remember that long-term and stable returns come from rigorous risk management and disciplined execution, rather than fluke prediction.

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