Simple Technical Analysis in Crypto Trading

Take profit order will automatically close a trade once a certain target is reached. Learn how to use take profit in crypto trading to minimize risk and earn considerable profit.

To be successful in crypto trading, one must acquire the skills of knowing when to enter and exit the market at the right moment. Sometimes, traders would face a certain market condition and must make a difficult decision for the sake of the trade, even if it means accepting the loss or leaving the trade before making a considerable profit.

Not to mention that fear, greed, and impatience often influence the traders' judgments and severely affect their trading decisions. This, in return, can harm long-term profitability. In order to protect profits, traders can utilize some take profit strategies like:

1. Divergence analysis
2. Fibonacci level
3. Pivot point

To learn further about the abovementioned strategies, see the details below.

Take Profit Strategies in Cryptocurrency

Each trader usually has unique preferences when it comes to strategy. Some might prefer to close their entire orders simultaneously, while others think laddering across different prices is better. After all, every trader has a different level of risk tolerance, different goals, and different timelines to work within the strategy.

To determine where they should place the take-profit order, traders commonly use technical analysis. The following are some of the top strategies worth considering.

Using Divergence Analysis

The term "divergence" essentially refers to the disagreement between a certain indicator and the price. In other words, a divergence occurs when the indicator shows different signals than the price action on the chart, resulting in the two lines moving in different directions.

In an uptrend, a divergence occurs when the price skyrockets, but the indicator does not. In comparison, in a downtrend market, the price falls, but the indicator goes up instead. The Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI) are the most helpful trading indicators for spot divergences.

Identifying a divergence is particularly important to determine your entry and exit levels and to know where to place your stop loss and take profit.

When a divergence occurs, it tells you that there will be a potential change in the price action. Therefore, you must decide whether you wish to tighten the stop loss or take profit. This will help you react appropriately and protect your trade from losing.

Additionally, it's important to know that a reliable divergence typically occurs after a substantial price swing. There's a higher chance to find these momentums in active trend markets. On the contrary, the price swings in ranging markets are usually variable and limited.

Using Fibonacci Levels

As a trader, we must understand that Bitcoin and other crypto markets are somewhat influenced by automated trading bots and algorithms. As a result, this market tends to push prices to Fibonacci levels. By paying close attention to Fibonacci levels, you will be able to take advantage of the market, particularly during price retracements.

Most of the time, different Fibonacci levels produce different price reactions. This can provide a temporary liquidity pool that can be used to close a position and take profit. Traders usually use Fibonacci levels as potential support and resistance areas.

The most highly used Fibonacci levels are 38.2%, 50.0%, and 61.8%. Usually, when the price moves above the 23.6% level, there's a high probability that it will retrace back and test the 38.2%, making it a great place to place a take profit order.

Since many traders pay attention to these particular levels and place their orders based on them, the support and resistance levels can often become the end of the trend due to the self-fulfilling prophecy.

Using Pivot Points

Lastly, it would help if you also watch for the pivot points, a technical indicator that is particularly useful to confirm support and resistance levels and determine the strength and significance of huge price moves.

Other than that, the indicator can also be used to tell you the overall market trend. If the price breaks upward past the pivot level, then it's considered bullish, and if the price breaks downward, it's considered bearish.

The most common method to calculate pivot points is called the five-point system. This method allows traders to spot an area where the price seems more sensitive and is more likely to cause a change in the market sentiment.

Day traders can use pivot points to decide when to enter or exit a particular trade and where to place take profits and stop losses.

Why Does It Matter?

At first glance, cryptocurrency and stock trading might look similar in practice. But these assets are actually different and require unique strategies. There are several vital matters to think about when it comes to using take profit in the crypto market specifically.

First and foremost, it is vital to note that the crypto market is highly volatile, which can be both positive and negative at the same time. The benefit is quite apparent.

The volatility can make the value of cryptocurrency soars high in only a couple of days or even hours. However, high volatility can also pose a threat for traders because the prices can free fall in a very short time. Combined with easy access to the market, the high volatility in cryptocurrency can be a dangerous trap for inexperienced traders.

Therefore, the best way to enter the crypto market is to approach it highly objectively and free of emotions. Don't be greedy and wait for more gains even after the price hits your profit targets, for instance. You will always find similar traps and temptations, but try not to give in.

It's undoubtedly not easy since we can't eliminate our emotions. But instead, we can be rational and take actions based on logic and data analysis. Make a good trading plan, combine it with a good risk management system, and stick to it no matter what.

How Crypto Take Profit Works

Take profit is a type of trading order that is placed to maximize traders' profits. Simply put, the trader must specify a certain price above the purchase price as their profit target. Once the price hits the limit, it will automatically trigger the take profit order and sell the asset.

If the price doesn't reach that limit, the trigger will not be activated, and the trader will continue holding the asset. The purpose is to allow traders to limit risk or exposure to the market by automatically closing their trade as soon as the market hits a favorable price.

Furthermore, remember that a take-profit order is suitable mainly for short-term trading strategies. It's particularly useful for day traders who wish to take advantage of the small intraday movements and make quick profits from them. Since crypto prices can make many significant movements throughout the day, take profit will help them catch those opportunities easily.

Using a short-term crypto trading strategy with a clear risk-to-reward ratio and take profit is great and can give you immediate potential returns. You might as well let the potential profit slip from your grasp without using a take profit, especially if you don't understand when to exit the trade.

Conclusion

Take profit is a handy tool to help you manage your risk and actually earn money from your trades. It can also help you set the trade if you're too busy to watch the market constantly.

Considering the high volatility of the crypto market, grabbing the profit opportunity might not be easy. You need to be able to move quickly and close the position as soon as the market is showing signs of changing to move against you.

Therefore, if you're new to trading, it's highly recommended that you take your time to learn about how to use take profits and stop losses in your trade properly. Once you become familiar with these orders, there's a high chance that you'll significantly improve your trade and generate more profits.