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Lesson 9
3 min

What is the difference between Trailing Stop Orders and Take Profit?

Discover the differences between Trailing Stop Orders and Take Profit Orders, and how they can shape your trading decisions.

Key Points:

  • A Take Profit Order (TPO) is a feature that allows you to automatically exit the trade once it reaches a predetermined price percentage.
  • Take Profit is designed for traders who have specific profit targets in mind and wish to ensure they capture gains at optimal moments without needing to constantly watch the market.
  • A Trailing Stop Order (TSO) is a dynamic tool that adjusts automatically to the highest price achieved after you make a purchase.
  • Trailing Stop Order, is more suitable for those who prefer to let their profits run and are looking for a tool that adjusts with the market.

What are Take Profit Orders?

A Take Profit Order (TPO) is a feature that allows, following a cryptocurrency trade, for you to automatically exit a trade once it reaches a predetermined price percentage. This automates profit taking, reducing the need for market monitoring and manual trade execution, and allowing you to take a “set it and forget it” while we (Uphold) handle the trade execution for you.

Take Profit allows users to capitalize on favorable market movements while mitigating the risk of subsequent market downturns. In this sense, it can be a tool to implement trading strategies and manage risk given the degree of volatility in the crypto market, adding a layer of automation and discipline to purchasing decisions.

How does it work?

  1. Select the “Take Profit” option when purchasing an asset.
  2. Choose a price increase percentage from three preset options or set your own specific target.
  3. Once you’ve selected your desired percentage, Uphold handles the rest, executing your trade when your target is reached.

Benefits:

  • Lock in Price Target: Ensures that your order will be executed at the price you set, barring unforeseen market conditions.
  • Strategy Automation: Allows for the creation of predefined trading strategies, saving time and reducing the impact of emotional decisions.
  • Simplicity and Efficiency: Streamlines the trading process, making it ideal for those who prefer a set-and-forget approach.

Disadvantages:

  • Limited Upside: Upside is limited to the established profit taking price. An asset may continue to appreciate past the set target, meaning that profits weren’t maximized and resulting in investor regret. 
  • Increased Risk during Volatility: Trailing stop orders can lead to heightened risk exposure during volatile market conditions, potentially resulting in unexpected losses.
  • Over-reliance on Automation: Relying solely on automated trailing stop orders can diminish a trader's ability to exercise discretion and adapt to changing market dynamics effectively.
  • Potential for Slippage: In fast-moving markets, trailing stop orders may experience slippage, where the execution price differs from the intended stop level, potentially impacting overall profitability.

What are Trailing Stop Orders?

A Trailing Stop Order (TSO) is a dynamic tool that adjusts automatically to the highest price an asset achieves after you make a purchase. It can be considered a form of automated risk management, designed to maximize profit exposure while limiting downside risk. However, it is worth noting that this doesn’t remove the risks associated with the trade, and simply serves as a tool to minimize potential losses if the market fluctuates or showcases extreme volatility.

Unlike a conventional stop loss order, which remains fixed at a predetermined price point, TSO dynamically adjusts its selling price in response to market movements. For example, when a trader initiates a TSO transaction they establish a percentage or a dollar amount below the peak price at which the asset was bought. As the market price of the cryptocurrency rises, the TSO trails behind, maintaining the specified distance. However, if the market price reverses and starts to decline, the trailing stop loss order remains unchanged, protecting the profits.

The key advantage of TSO lies in its ability to capture potential gains while limiting potential losses. It can allow traders to ride the upward momentum of a cryptocurrency's price movement, while also providing a safety net in case of a sudden downturn. This feature is particularly valuable in the highly volatile cryptocurrency markets, where prices can fluctuate dramatically within short periods. By implementing trailing stop loss orders, traders can effectively manage their risk exposure and make informed decisions, even in the face of rapid market changes.

How It Works:

  1. Set the trailing stop criteria based on your percentage tolerance below the market price - how much can the price drop before you want to exit.
  2. As the asset’s price climbs, the stop price adjusts upward, maintaining the set distance below the new high.
  3. If the price falls to your defined percentage, the order triggers automatically, locking in your gains.

Benefits:

  • Dynamic Protection: Adjusts in real-time to lock in profits while safeguarding against downturns.
  • Enhanced Control: Gives traders more flexibility to manage their positions and capitalize on market upswings.
  • Market Adaptability: Ideal for dealing with volatile markets where prices can change rapidly.

Disadvantages:

  • Premature Exit: An asset’s price may fall below the percentage tolerance, triggering the Trailing Stop Order, before continuing to rise in price, resulting in the user not benefitting from the asset’s full price upswing. A situation where this may take place is a “flash crash,” where the market, or a specific asset, experiences a sharp dip before recovering.

How to choose the right trading tool?

Take Profit is designed for traders who have specific profit targets in mind and wish to ensure they capture gains at optimal moments without needing to constantly watch the market.

Try Take Profit

Trailing Stop Order, on the other hand, is more suitable for those who prefer to let their profits run and are looking for a tool that adjusts with the market.

Try Trailing Stop Order

Both tools are integral parts of the Uphold Trading Toolkit and offer unique advantages depending on your trading style and objectives. By understanding the functionalities and benefits of each, you can effectively implement these tools where they fit best, enhancing both your potential returns and your trading experience.

Lesson 19: A roundup

  • A Take Profit Order (TPO) is a feature in which when you’re making a cryptocurrency trade you can automatically exit the trade once it reaches a predetermined price percentage.
  • A Trailing Stop Order (TSO) is a dynamic tool that adjusts automatically to the highest price achieved after you make a purchase.
  • TPO benefits can include; ability to lock in a price target, strategy automation and increased trading efficiency.
  • Benefits of TPO can include; Dynamic Protection, enhanced control and market adaptability.
  • Take Profit is designed for traders who have specific profit targets in mind and wish to ensure they capture gains at optimal moments without needing to constantly watch the market.
  • Trailing Stop Order, is more suitable for those who prefer to let their profits run and are looking for a tool that adjusts with the market.
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