When it comes to mastering cryptocurrency trading, you have your work cut out for you. With a plethora of trading options, it can also become difficult for you to zero down on strategies and order types that hold the most benefits for your style of trading.
Crypto Trailing Take Profit (TTP) is one such order type, which aims to provide you with a highly advantageous way to buy and sell your cryptocurrency.
To help you learn more about it here’s what is Trailing Take Profit in crypto automated trading.
How Trailing Take Profit Works in Bot Trading?
Trailing Take Profit works by combining two different types of orders into one. This includes Take Profit and Trailing Stop orders.
In Take Profit, you set a limit specifying the exact price at which you want to close your position. In Trailing Stop, you set a Stop Loss limit with a percentage value range or deviation that is adjusted when the asset’s price moves upwards; if your asset price drops to the Stop Loss limit, you close your position to minimize losses.
By definition, TTP is a Take Profit order that changes into a Trailing Stop order after the asset price reaches the Take Profit price. However, your position is not closed despite reaching the Take Profit price.
Instead, your potential profit keeps growing as long as the price is moving upward. But if the price drops to the value defined by your Trailing Stop order, you close your position and cut or prevent your losses.
This means that even though you set a Take Profit limit, you don’t close your position when the asset has reached a profitable price according to your estimates. In place of selling your asset, you keep moving forward with the potential to gain more profits. You only close your position if the asset price drops to a value that may be leading to a loss.
This defines what is Trailing Take Profit in crypto. But if you want to learn it in a more in-depth manner, you can look into an example of crypto Trailing Take Profit at work.
Example of Trailing Take Profit
In order to help you clarify the concept of Trailing Take Profit, here is a quick example of a trade that is completed through Trailing Take Profit.
However, keep in mind that using a 10 percent value of Take Profit with a 5 percent deviation can be risky. Therefore, you should only take the following example as a demo trade rather than trading advice.
You buy an asset at $1,000. This can be any cryptocurrency or token of your choice that you want to continue trading with. This asset could very well be resting within your account for months on end. But for this example, we would assume that it was bought for $1,000.
You set your Take Profit value at $1,100. This signifies the price at which you deem your trade to start becoming profitable for you. This can be any value that is more than your original purchase amount.
You set your Trailing Take Profit deviation at 5 percent. This outlines the range of value that starts from your asset’s current price and goes on to define your Stop Loss value. For instance, if your asset’s highest price is $1,100, its 5 percent deviation will stand at $1,045.
The asset price moves to $1,050. Neither Take Profit or Stop Loss order in their singularity as well as the Trailing Take Profit order in its entirety get triggered. Since you set your Take Profit value at $1,100, there will be no action taken until that price is reached.
The asset price moves upwards to $1,100. Your asset finally touches the Take Profit value but it is still not sold. Instead, the Trailing Stop kicks in and moves the Stop Loss value to $1,045 in order to comply with the 5 percent TTP range.
The asset price moves upwards to $1,200. Your asset is still not sold. But the Stop Loss value is increased to $1,140 to stay in line with the 5 percent TTP range.
The asset price drops to $1,100. The Stop Loss value stays at $1,140. When your asset crosses it on the way back to $1,100, your asset is sold and your position is closed.
This lets you realize a profit of 14 percent on a trade that could have only given you 10 percent from your original Take Profit value. By not going with a simple Take Profit order and choosing Trailing Take Profit, you were able to maximize your profits while still steering clear of losses.
Where Can You Use Trailing Take Profit?
In automated trading, you can use TTP through select exchanges as well as trading bots. While not many exchanges offer TTP, several trading bots make it a part of their value proposition. This allows you to make use of this trading strategy according to your liking, depending upon the platform that you end up choosing.
After understanding what is Trailing Take Profit in crypto, you can easily choose between these platforms to start using this strategy for your trades. With that being said, it is also crucial that you learn more about the nuances of crypto Trailing Take Profit to make the most out of this order. This helps you obtain higher profits from your trades.
Pros and Cons of Trailing Take Profit
Similar to any other order strategy, Trailing Take Profit has its own benefits and disadvantages. It is imperative that you know about them to stay away from avoidable losses and lead your trades towards profitable outcomes.
Pros of Trailing Take Profit
Keep Your Position Open For Longer
When you choose a singular order type such as Take Profit to perform your trades, your position closes as soon as the asset reaches the price that you define as your maximum profit. This keeps you from obtaining higher profits from assets that are on an upward price trend.
But when you choose Trailing Take Profit, you are able to define your Take Profit value without committing to selling your asset at the first price hike. This lets you monitor your asset’s upwards price movements for longer. If the asset keeps climbing in value, you don’t have to sell it during its positive trend.
In turn, you are able to maintain your open position for longer than other order types such as Take Profit. This gives you the flexibility to choose whether you want to sell an asset that has been on an upwards trend for days.
Maximize Your Overall Profits
When you are not selling your asset at the first sign of an upwards pricing trend, you are able to witness and benefit from the ongoing increase in its value. Even when you are cutting your losses through a Stop Loss order, Trailing Take Profit lets you do so with a chance to make a profitable trade.
It is because, unlike a traditional Stop Loss order that operates with a stagnant value, Trailing Take Profit adjusts your Stop Loss value according to the highest price of your asset. This Trailing Stop order helps you steer clear of possible losses while still carving out an opportunity to obtain noticeable profit.
This holds true for multiple types of assets including those that are facing a sudden hike in price as well as those that are fluctuating according to their usual price movement pattern. By using Trailing Take Profit with such assets, you can drive up your profits.
Prevent Larger Losses for Fluctuating Assets
When learning what is Trailing Take Profit in crypto, one of the largest benefits that makes its presence known is how it prevents losses for traders. This is especially true for assets that are fluctuating on a given day or have a history of doing so.
This is possible via the Stop Loss approach of crypto Trailing Take Profit orders. But given that TTP uses a range through Trailing Stop instead of a precise value to Stop Loss, you can also decrease the amount of losses that you sustain.
For instance, if you purchased an asset for $100 and had its Stop Loss value adjusted at $90, you will incur a 10 percent loss when its value starts to drop below $90. But if the asset first reaches the value of $110 before dropping back to $90, a 5 percent Stop Loss range would help you sell it at $104.5.
Automatically Adjust Trades to Market Movements
Whether you are using Trailing Take Profit via an exchange’s available order types or utilizing it through a trading bot’s added functionality, you can fully automate your trades to take advantage of ongoing market movements. This not only helps you make quick trades but also increases your chances to nab higher profits.
With it, you can also reap the rewards of automated trading including but not limited to not having to stay in front of your screen 24/7; executing continuous trades even when you are away from your computer, and benefiting from swift changes in asset prices.
You can enjoy these benefits for most types of assets, whether they are a cryptocurrency or a utility token. This ensures that you are able to make profitable trades across many cryptocurrencies and tokens that are available at your exchange.
Cut Down on Manual Tweaks
Learning what is Trailing Take Profit in crypto goes a long way towards elevating your possible profits. But that’s not all, since it also provides you with the ability to reduce your input of manual tweaks. Besides delivering the advantages of automated trades mentioned above, this also saves you from human error.
This quality especially shines through in setting an advantageous Stop Loss limit. In a typical Stop Loss order, you have to manually adjust your Stop Loss value according to the upwards movement of your asset. This action is necessary to prevent trades that take a chunk out of your possible profits.
But when you are executing a crypto Trailing Take Profit order, you don’t have to make manual adjustments to your Stop Loss limit. This availability of Trailing Stop enhances the perks of automation and lets you trade your assets with the utmost comfort and convenience.
Cons of Trailing Take Profit
Not Ideal For Highly Fluctuating Assets
Perhaps the biggest drawback of using Trailing Take Profit is utilizing it for assets that fluctuate in a rapid and/or significant manner. When your asset quickly changes values or marks noticeable differences between its highs and lows for the day, it makes it difficult for you to make a profit through your Stop Loss limit.
For instance, if you purchase an asset for $100, set its Take Profit at $110, and mark a 5 percent Trailing Take Profit deviation range, it makes for a decent chance to help you earn some profit. But if that asset does not touch $110 and starts showing a drop in its price, it can lead you into losses before you can trigger Trailing Stop through your Trailing Take Profit order.
This makes Trailing Take Profit a risky approach for highly volatile markets that do not provide you with stable price movements but pose highly fluctuating changes in value.
Difficult to Find a Profitable Take Profit Percentage
On paper, learning what is Trailing Take Profit in crypto and executing the approach seems like a walk in the park. The example of the 5 percent deviation or range makes it look even easier. But when you are dealing with a market as risky and as high value as cryptocurrency, even a couple of percentage points can make or break your prowess at trading.
That is why it is crucial that you pay special attention to setting the percentage range when using crypto Trailing Take Profit orders. This requires you to be vigilant and check the price movements of your asset as well as the patterns that it follows. After you are confident of your knowledge about the market, you can bet more on the asset with a better sense of assurance.
Learning this balance isn’t easy, however. There is some trial and error involved which may also call for you to sustain some losses before you are able to make your profits. This makes TTP a difficult approach to master.
When Should You Use Trailing Take Profit?
Trailing Take Profit is a beneficial yet tricky approach that needs to be used with caution. But if you are aware of exactly when to execute it, it maximizes your chances for profit while minimizing the possibility of losses.
You can move forward with using Trailing Take Profit in the following scenarios that makes it more likely for you to make successful trades.
- The trading pair posts a high trading volume. This increases your chances to capture noticeable increases in the cryptocurrency’s value and catch profitable trades.
- The trading pair has moderate to high liquidity. This allows you to ensure that you wouldn’t have to wait around for closing big orders. In turn, you can elevate your chances to make beneficial trades.
- The goal of your trade is to sell the asset at a range instead of a set price. This makes sure that you understand the TTP approach while also managing your expectations. It helps you be satisfied with the type of gains that you achieve.
When Should You Not Use Trailing Take Profit?
After learning what is Trailing Take Profit in crypto, you should also keep in mind the instances where you should not be making TTP trades. This helps you prevent running into trades that may inflict more losses than profits to your account.
The following examples highlight where you should not use your crypto Trailing Take Profit in order to protect your finances.
- The trading pair has a low trading volume. If your chosen pair has a low daily trading volume as compared to other assets, it can prevent you from attaining possible gains from TTP.
- The trading pair fluctuates its price a lot due to low liquidity. Low liquidity often leads to unpredictable prices and gets in your way of obtaining possible profits.
- You have limited experience with using limit orders. TTP is often touted as the beginner’s risk management tool. But to prevent losses, it is important that you first learn about using limit orders before turning towards this approach.
Conclusion
Trailing Take Profit is a beneficial approach that can help you prevent losses, increase gains, and obtain higher profits than typical limit orders. But it is not an easy order type to master and has a learning curve attached to it.
Keeping this in mind, it is important that you choose Trailing Take Profit only when you are confident in using this order type and the many nuances that it brings to the table.
To make sure that you are able to get the most out of your TTP, practice it with low-value orders at first. Once you are confident with your knowledge and prowess, you can incorporate it into your ongoing trading activities.