What is TP? A Detailed Guide to Take Profit and Stop Loss in Trading

Have you ever wondered how to protect your profits during market volatility? Or how to limit losses when the trend doesn’t go as expected? Take profit (TP) is a tool that automatically locks in gains when the price reaches your target. Additionally, stop-loss (SL) helps you halt losses at a specific price level. These two risk management tools are fundamental skills that every trader needs to master in order to trade more disciplined and safely.

Why Are Take Profit and Stop-Loss Important?

In cryptocurrency trading, the market can change suddenly and unpredictably. Without an exit plan, you could lose your profits or face significant losses. Take profit allows you to set a predetermined price level at which your system will automatically sell the asset, ensuring you lock in gains even if you cannot monitor the market constantly. Similarly, stop-loss operates on the opposite principle—it automatically sells the asset when the price drops below your acceptable loss level. This approach helps traders avoid emotional decisions and maintain a consistent trading strategy.

How Do Take Profit and Stop-Loss Differ from OCO and Conditional Orders?

When using TP/SL orders on platforms like Gate.io, it’s important to understand that these order types function differently:

TP/SL Orders: When you place this order, your funds are immediately reserved (locked), even if the order isn’t triggered yet. This means you cannot use those assets for other trades until the order is executed or canceled.

OCO (One Cancels the Other) Orders: This type operates on the “one cancels the other” principle. When you set an OCO, only one side of the order is used, saving assets. When one order executes, the other is automatically canceled.

Conditional Orders: Unlike TP/SL, your assets are not locked when placing a conditional order. It only becomes active after the underlying asset’s price reaches your specified trigger level. This is the main difference in capital management among these three order types.

How Does a TP/SL Order Work in Practice

Placing a Take Profit/Stop-Loss Order Directly from the Order Interface

On Gate.io, you can set up TP/SL orders completely independently. The process is straightforward:

1. Determine the trigger price—this is the level that “wakes up” your order.
2. Choose the order type: Market Order (sell immediately) or Limit Order (wait for a specific price).
3. Enter the amount of the asset you want to trade.

The asset will be reserved immediately upon placing the order. When the market price hits the trigger level, your order will activate:

• If you choose a Market Order: The asset will be sold at the best available market price at that moment. Market orders follow the IOC (Immediate or Cancel) rule, meaning any unfilled portion due to lack of liquidity will be automatically canceled.

• If you choose a Limit Order: The order will be placed into the order book and will wait to be filled at your specified price. If the current bid/ask is better than your limit price, the order may fill immediately at a better price. However, this is not guaranteed and depends on market volatility and liquidity.

Real-Life Examples of Take Profit and Stop-Loss

Suppose BTC is currently priced at 20,000 USDT. Here are different scenarios:

Scenario 1 - Market Sell When Taking Profit:

• Trigger Price: 19,000 USDT
• When BTC drops to 19,000 USDT, the sell order is triggered, and the asset is sold at the best available market price.

Scenario 2 - Limit Buy When Taking Profit:

• Trigger Price: 21,000 USDT
• Limit Price: 20,000 USDT
• When BTC rises to 21,000 USDT, a buy limit order at 20,000 USDT is placed. If the price reaches 20,000 USDT, the trade executes.

Scenario 3 - Limit Sell When Price Recovers:

• Trigger Price: 21,000 USDT
• Limit Price: 21,000 USDT
• When BTC reaches 21,000 USDT, if the best bid is 21,050 USDT, the order executes at 21,050 USDT (better than the limit). If the price falls below 21,000 USDT, the order remains in the order book.

Combining TP/SL Orders with Limit Orders

An advanced approach is to place a main Limit Order and attach take profit or stop-loss orders. When the main limit order is filled, the TP/SL orders are automatically set based on your parameters.

This method follows the OCO logic, where only one side of the order is active:

• You can set both TP (take profit) and SL (stop-loss) simultaneously, either as Market or Limit orders.
• When one of these orders executes, the other is automatically canceled.

Example:

Trader A buys BTC at 40,000 USDT with:

• Take Profit order: trigger at 50,000 USDT, sell at 50,500 USDT
• Stop-Loss order: trigger at 30,000 USDT (market sell)

When the buy order fills:

If the price rises to 50,000 USDT: The take profit order triggers, and the stop-loss is canceled. You sell at 50,500 USDT (or wait in the order book if the market doesn’t reach that price).

If the price drops to 30,000 USDT: The stop-loss triggers, selling immediately at market price. The take profit order is canceled.

Common Mistakes When Using TP/SL Orders

To avoid undesired situations, keep these principles in mind:

• Check trigger prices: When placing a TP/SL sell order with a limit buy order, the trigger price for take profit should be higher than the limit price, and the trigger for stop-loss should be lower.

• Contract price limits: The order price must not exceed the contract’s maximum allowed price. For example, if the limit is 3%, the limit order price cannot be more than 103% of the trigger price for take profit.

• Minimum requirements: If your order amount or value doesn’t meet the platform’s minimum order size, the TP/SL order may not be placed upon activation.

• Order size limits: Market orders typically have different size limits compared to limit orders. If you set a large limit order alongside a market TP/SL order, the system might reject it due to exceeding size limits.

• Unfilled limit orders risk: When you activate a TP/SL limit order, the corresponding order (SL or TP) will be canceled even if the limit order hasn’t been filled yet. If the market recovers, your limit order might never be executed, but the protective order (SL) has already been canceled.

Conclusion

TP is an essential tool for risk management in cryptocurrency trading. Along with stop-loss, take profit helps you maintain discipline and protect your capital. By understanding how different order types work and their limitations, you can build a solid trading strategy and minimize unnecessary losses. Start practicing with small amounts to familiarize yourself with these mechanisms before applying them to larger trades.