What’s the Best Strategy for Profit-Taking When Day Trading Crypto?

If you want to be a successful crypto day trader, profit-taking is a crucial skill to master. It is the practice of exiting a trade when it achieves a certain profit amount rather than closing it at a predetermined stop loss, which is determined by the maximum number of losses you are ready to accept.

Some traders use the stop loss orders to control their risk and rely on technical analysis to determine the major direction of a coin’s price. Other traders, on the other hand, who are more centered on fundamental analysis, may utilize take profit orders to set target profits. Although having a specified exit strategy can cause anxiety at times, it also means you can trade with confidence and avoid staring at the screen, wondering what could have been if you had a set of clear rules- either predetermined stop loss or take profit levels!

In the previous blog, I already explained what stop loss is and other risk management strategies. Today, I’ll show you how to take profit orders to limit your risk while still making a nice profit.

Here’s a quick video where I explain my rules in Profit Taking:

How do Profit-Taking Strategies Work?

‘When is the perfect time to take my profits?’ is one of the most common questions we all ask ourselves as traders. ’. When you have a significant profit on your hands and are unsure when to withdraw your winnings, this might be a difficult question to answer. Worse, because you panicked and sold too soon, you may end up abandoning a transaction for a lot lesser profit rather than sticking onto it for a higher profit.

When a trader believes their trader will begin to move in the opposite direction, a take-profit order can be placed at any time. They can be utilized in a variety of positions, both long and short. Traders who place short-term trades in the market to profit from volatility and variations in the value of a stock or cryptocurrency are particularly fond of the orders. With so much ‘noise’ in the market, it can be difficult for some traders to discern when to take profits. They’ll have missed the optimal escape point before long, and their profits will be lost.

Many beginner traders struggle to pull the trigger and take what appears to be “easy money” when it is right in front of them. They wait for the price to rise higher and higher, only to see it go back down before they can exit. By separating emotion from the decision-making process, a take-profit order prevents this from happening. It tells the market, “I want out of this transaction at X price,” so the trader doesn’t have to. The market makes the decision for them.

How to Get Started on Profit-Taking

If I am going to profit-taking at a certain target percentage gain, it’s going to be with a limit order.

Usually, if you set a take profit, you don’t get the return that you expect because your profit-taking is executing at the market price, but you’re not actually getting filled at that market price.

I already posted a previous blog post outlining how I stopped out and how I take profit in the case where I’m going for 2%. I’m not always going for 2% however. Sometimes I will leave the trade open-ended and allow for more profit. So in this video, I’m going to outline how I choose between a 2% profit target and an open-ended profit target and how exactly I managed the situation where I’m going for more than 2%.

For the most part, I do go for 2% on my trades. If you’re curious about how I manage to present trade, please see my article on a summary of trade management.

So first, we have to figure out in what circumstances would you want to leave the trade open-ended. I go for more than 2% and leave the trade open-ended in a trailing stop loss kind of situation when the coin that I’m trading is extremely volatile. I trade reversals, so for me, if I’m going long I want to see a very sharp quick drop and vice versa.

So, the bigger the drop, or the sharper/bigger the spike, the more I feel like I can get on that reversal. If I feel that the reversal is going to give me more than 6% that is the situation where I use an open-ended trade as opposed to capping my profit at 2%.

Here are my two methods of Profit-Taking when day trading crypto:

  • Method 1 (expectation of less than 6% profit): Set Limit Order to Take Profit at more than 2&
  • Method 2 (expectation of more than 6% profit): Mental Trailing Stop Loss

When is the Right Time to do Profit-Taking?

You’ll need 3 steps to do this:

Step 1: Are you in a profit or loss?

Step one is the same you enter the trade and then you first figure out if you’re in a profit or a loss. If you’re at a loss, you calculate your stop loss price. If you’re in profit, you calculate your first profit target. If the trade goes against you, you get ready to stop out. If the trade goes in your favor then you wait for that first profit target.

Step 2: Move Stop Loss into Profit

Once that profit target is hit, then you move your stop loss to profit. So again, just above your entry point if you are in a long, and just below your entry point if you’re in a short.

Here’s how you can move you’re Stop Loss into Profit using Phemex:

Step 3: REPEAT when you Hit Each Next ODD Unrealized PNL Target

This is where things get a little bit different. If the trade goes against you then just like before you would stop out around breakeven. If the trade, however, goes in your favor, then you no longer take profit at 2%. Instead, you set your next profit target, which for me, I like to use 3%. Once the trade hits 3%, then I move my stop loss up to 2%.

  • Each time the trade hits an odd unrealized PNL (i.e 3%, 5%, 7%), move Stop Loss to the closest even number (i.e 2%, 4%, 6%)

So my personal mental trailing stop loss strategy is to move my stop loss to the next closest even number every single time the current unrealized P&L hits an odd number. The reason I do it like this is that I like to give the trail water breathing room on the upside, but not on the downside because as you guys know, I like to first and foremost protect the capital that I have.

How Much Time Does It Take to Hit a Profit Target?

The amount of time it’s going to take a trader to hit their daily goal is going to vary widely. As you probably already know, I trade with a 6% profit target. I find on average, it takes me less than an hour and a half to hit that goal. But the extremes can vary quite a bit. So some days it can take me less than 20 minutes, I would consider that a very good day. other days that I would consider very bad days could take me around 4 hours.

I have had training days where I’ve traded for more than 4 hours straight. Thankfully, they’re few and far between. Now that being said, I have been a trader for a really long time. So if you’re just getting started, it’s likely going to take you longer to hit a lower percentage profit target on average.

It all depends a lot on the volatility of the market. Some days are really, really slow and it’s going to take longer, Some days are super, super volatile. and so you can do it really quick. I would say if you’re aiming for anything under 6%, you should allow yourself between one and three hours per day.

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