Developing a reasonable stop loss and take profit strategy is essential for cryptocurrency contract trading. Here are some methods:
Stop Loss Strategy
- Based on technical analysis
- Key price method: find the key support levels in the market, such as the previous price lows, moving averages, etc. Once the price falls below these key support levels, the stop loss is triggered. For example, if the Bitcoin price falls below its 50-day moving average, a stop loss can be considered.
- Stop loss based on candlestick patterns: When a bearish candlestick pattern appears, such as the "Evening Star" or "Shooting Star" pattern, and the subsequent price trend confirms that the pattern is valid, stop loss is implemented. This pattern usually indicates that the market may reverse.
- Based on capital loss ratio
- Fixed ratio stop loss: Set a fixed capital loss ratio that you can tolerate, such as 5% - 10% of account funds. Once the loss reaches this ratio, stop loss immediately. For example, if you have $10,000 in contract funds, set a 10% stop loss ratio, and stop loss when the loss reaches $1,000.
- Progressive stop loss: As the price moves in a favorable direction, gradually raise the stop loss level to lock in profits while controlling risk. For example, after the price rises by a certain amount, move the stop loss from below the initial purchase price to near the cost price. If the price continues to rise, further increase the stop loss level appropriately.
- Based on market volatility
- ATR (Average True Range) stop loss: ATR can measure the degree of market volatility. You can set the stop loss distance based on the ATR value, for example, setting the stop loss at the buying price minus 1.5 times ATR. This way, when the market is more volatile, the stop loss distance widens accordingly to avoid being triggered by short-term fluctuations; when volatility is lower, the stop loss distance narrows for timely stop loss.
Take profit strategy
- Based on technical analysis
- Target price method: Use technical analysis to find resistance levels as target prices for take profit. Resistance levels can be previous price highs, Fibonacci retracement levels, etc. For example, when the price of Ethereum rises close to previous highs, consider partial or full take profit.
- Trend line and channel take profit: If the price is rising within an upward channel or along an upward trend line, take profit when the price touches the upper channel or breaks the trend line. This method operates based on the continuation and reversal of market trends.
- Based on fixed ratio and multiple profits
- Fixed ratio take profit: Set a fixed profit ratio, such as 20%, 30% of account funds. When the profit reaches this ratio, execute the take profit operation.
- Multiple take profit: Set a multiple target based on the initial investment amount, such as taking profit at 1.5 times, 2 times the principal, etc. This strategy is suitable for investors with clear profit targets.
- Based on time period
- Short-term take profit: If your trading strategy is short-term, such as day trading, you can set a take profit based on trading time. For example, within a few hours after trading, take profit when the profit reaches a certain level to avoid market fluctuations leading to profit reversal.
- Long-term hold take profit: For cryptocurrencies that you are optimistic about in the long term, you can set a take profit cycle based on quarters or years. When the expected time is reached and the profit meets expectations, take profit.