Use the Best Exit Strategies to Limit Risks and Secure in Profits

While placing any kind of trade, money management is one of the most important aspects that one must consider. Many traders spend hours in fine-tuning their entry strategies, but at last, they blow out their accounts taking the bad exits. 

If fact, most of crypto traders lack an effective exit planning, and are often more likely to take premature profits or run losses. Every investment has an entry and exit plan! You need the right exit plan/strategy to make sure that you stick to the decisions you’ve outlined in your crypto trading plan. Without the right strategy, you are most likely to make decisions based on emotions like greed or fear. 

So, an exit strategy is integral to any crypto trading plan. Basically, a trade plan is designed by a trader to predetermine their exit strategy. There are two ways where one can get out of trade: by taking profits or by making a loss. And, when talking about exit strategies take-profit and stop-loss orders are referred to as the best exits being made. Take profit orders are also termed as limit orders. Traders usually prefer conditional orders like Trailing limit sell, Trailing stops, Trailing stop sell and more.

Common ways to build an essential exit strategy

Having an exit strategy is essential in managing your portfolio as it helps to take your profits and stop losses. Let’s have a look at some ways that are helpful in building a sound exit strategy:

1. Support and resistance

These two terms are the most important measurement pointers of when to buy or sell. Support occurs when the crypto asset bounces off a series of lows in price. Basically, it’s the level at which the demand for any crypto asset is strong enough to stop it from falling any further. Therefore, many traders place stop orders just below the support level to protect themselves.

And, resistance is the exact opposite to support whenever a crypto asset bounces off a series of highs. Here the crypto asset is strong enough to stop it from moving higher further. Whenever an asset struggles to break through resistance, it might be the time to think about taking your profits by exiting a trade. 

2. Set the target profit/loss ratio

You can set your target profit and loss from the asset’s buy price. You may use the percentage terms like 10% profit or 5% loss target or if you want something with a tighter stop, consider 9% profit or 3% loss target. 

3. Set a timeframe

If you are investing for a long-term goal, placing the trailing stops might help you manage the risks. Establish saving goals at regular intervals to ensure you’re moving on the right track. But if you are investing for a short-term goal, consider setting up stop-loss prices.

There’s no one-size-fits all trade plan, but at the very least, consider planning your exit points based on a certain kind of profit target or specific loss. Next after, planning your exit strategy, it’s time to place the orders that would close out the trade based on your plan. 

Using the right orders to set your exit strategy

There are many different methods to exit any trade. Let’s have a look at the most popular ones:

1.Market order

This is the most basic and fastest way to exit any kind of trade. This kind of order execution is guaranteed, but profit is not.

2.Limit orders

Set the minimum price at which you’re willing to sell your asset. This order is not guaranteed to be filled but the price it executes is always guaranteed. For example- you can sell x shares if the price reaches to Y.

3.Stop loss orders

These types of orders allow its traders to place a target price on the downside at which you want to sell your asset. When that price hits, your order will be converted into the market order and you’ll trade at the next available price.

4.Stop limit orders

These order types act like the stop loss orders but it’s different in the way that it sends a limit order rather than the market order to execute the trade. As the limit order sets the lowest price you are willing to sell at, the sudden price drop or gaps become easier to avoid.

Using trailing orders

Trailing orders are also considered as the best exit strategies used by expert traders at the best crypto trading platforms. Trailing stop sell and trailing limit sell are the most popular exit strategies. Let’s understand these one by one:

Trailing limit sell

A sell limit order is executed at the limit price or higher. Overall, this order type will allow you to set a price. A trailing limit order allows a trader to specify a limit on the maximum possible loss, with setting a limit on the maximum possible gain. But, a trailing limit sell order moves with the market price, and continuously recalculates the trigger price at a fixed amount below the market price, based on the user-defined trailing amount. 

The limit order price is calculated based on the limit offset. As the price increases, both limit price and stop price increase by the trail amount and limit offset. But if the price falls down, the stop price will remain unchanged.

Trailing Stop sell

Trailing stop orders are designed to protect the gains of traders by enabling a trade to remain open and continue to earn profits as soon as the price is moving in the favor of a trader. A sell trailing stop order sets the stop price at a fixed amount below the market price with a preset trailing amount. As the price increases, the stop price also increases by the trail amount, but if the price falls, the stop loss price doesn’t change and it will be converted into the market order when the stop price is triggered.

So exit strategies and order types can greatly enhance your trading. Considering the above points in mind will help you to limit your losses and protect the gains. An exit strategy ensures that you stick to the decisions you’ve outlined in your trading plan. 

Are you ready to start trading? Open a trading account at the best crypto trading platform or if you are already a trader, use an exit strategy to earn better!

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Created on Apr 11th 2022 11:02. Viewed 149 times.

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