What is TP/SL and why is it important for every trader?

TP/SL (Take Profit/Stop Loss) - also known as profit-taking and stop-loss - are two essential risk management tools in your trading journey. Simply put, these are automatic orders that help you lock in profits or limit losses at predetermined price levels.

How TP/SL Works

When you set up this strategy, the system will wait until the market price reaches the trigger level you specified. At that point, an order will be automatically placed at the configured TP/SL price to “take profit” or “cut loss.” There are two types of orders: stop orders and trigger orders, where trigger orders will not freeze your margin or position until executed.

Why Use TP/SL in Trading?

TP/SL are powerful tools that help you effectively control risk. When the price moves against your prediction, the stop-loss will activate immediately to prevent further losses. Conversely, when the price moves favorably, taking profit helps you preserve the gains you’ve made. This is an essential method for any trader who wants to maintain discipline and stable psychology in volatile markets.

Things to Know When Setting Up TP/SL

Trigger orders based on conditions: If the market price does not reach your set trigger level, the order will not be executed. Your position and margin will remain intact until the condition is met.

Impact on existing positions: When the order is triggered and executed, your current position will be closed, or a new position may be opened depending on your TP/SL configuration.

Price limit rules: If the conditional order is triggered and the order price you set exceeds the price limit rules, the system will execute the order at the highest or lowest available limit price at that time.

What Situations Can Cause TP/SL to Fail?

Exceeding the maximum amount: If the number of your TP/SL positions exceeds the allowed maximum, the order will not be executed.

High market volatility: In highly volatile conditions, TP/SL orders may not be executed immediately because they depend on market prices to place orders after activation. If you want to close a position quickly, you can choose “Close All” for a specific position.

Conflicting reverse orders: If your order list contains reverse orders (not reduce-only orders), they may open a new position after TP/SL is triggered. This can lead to margin check failures and the cancellation of the TP/SL order.

Understanding the mechanism of TP/SL and its potential pitfalls will help you use this tool effectively, thereby enhancing your risk management capabilities in your trades.

Disclaimer: This article is provided for informational purposes only. The content is not investment, legal, or tax advice, nor an offer to buy, sell, or hold digital assets. Cryptocurrency trading involves high risk and can result in significant losses. Please consult legal, tax, or investment professionals before making trading decisions.