How to set stop loss and take profit on binance spot

Main Takeaway:

  • Risk management techniques such as setting up take-profit and stop-loss orders can help protect your trading account from outsized losses.

  • Binance Futures enables users to set TP/SL orders simultaneously to help them better assess their risk-to-reward ratio.

  • Some of the most successful traders believe that stop-loss orders can be considered a free insurance policy.

Cryptocurrencies offer unique opportunities for traders to profit because of their high volatility. But without proper risk management, any winning trade can turn into a losing trade really fast. This is why you should have a solid trading plan to avoid making emotional decisions. 

Binance Futures encourages users to protect their capital by trading responsibly in the volatile cryptocurrency markets. Self-discipline is one of the most critical traits traders need to develop to avoid compulsive trading or gambling. If you ever find yourself in a losing streak, you can enable the Cooling-Off Period function on Binance Futures, which disables trading for an extended period. 

But what would help you the most to prevent such unfortunate events is learning how to identify when is the right time to enter and exit a trade and when to abandon a losing trade. By cutting your losses short, you can protect your trading account from outsized losses. 

You can mitigate risks and keep your emotions in check by simply setting up take-profit (TP) and stop-loss (SL) orders. This way, you are more likely to lower the stress throughout your trading journey and insulate your decision-making from emotional influences. 

Take-Profit and Stop-Loss Orders

Take-profit and stop-loss orders can be considered part of your exit strategy for each trade you make. These orders are executed once prices reach a predetermined level, closing your long or short position for a gain or a loss. 

Your trading preferences play a significant role in determining where your take-profit and stop-loss orders are placed. Whether you prefer to trade candlestick patterns, chart patterns, trendlines, or technical indicators, with TP/SL orders, you won’t have to worry about exiting a trade or second-guessing your decisions.

For instance, a trader who enters a long position based on an ascending triangle can quickly determine where to place the take-profit and stop-loss orders. The height of the triangle’s Y-axis can yield a potential target, while the pattern’s hypotenuse suggests an invalidation point.  

Be aware that each trade you enter requires an exit point because no one knows what will happen in the cryptocurrency markets on any given day. Therefore, take-profit and stop-loss orders help protect you from the unknown and better understand what to expect from each position you open. 

Benefits of Take-Profit and Stop-Loss Orders

Although take-profit and stop-loss orders are used to close a position, they are entirely opposite of each other. Take-profit orders are executed to close your position for expected gains. Meanwhile, stop-loss orders are executed to close your position for expected losses. 

Remember that you should calculate the risk-to-reward ratio of each trade setup you identify to evaluate whether it’s worth entering a position. Ideally, you want to determine how much risk you are taking for potentially how much reward. 

For instance, a trade setup with a profit target of 15% and an invalidation point of 5% has a risk-to-reward ratio of 1:3 or 0.33. This means that for each unit of risk, there is three times the potential reward. 

Binance Futures makes these calculations easier with its Advanced TP/SL function. It allows traders to set the take-profit and stop-loss orders by entering the percentage gain or loss expected. Advanced TP/SL also helps set up take-profit and stop-loss orders based on the last price or mark price and displays the estimated profit and loss for take-profit and stop-loss orders.

Take-profit and stop-loss orders represent one of the best ways to mitigate risk. A take-profit order helps you lock profits when you have accurately anticipated a market movement. On the other hand, stop-loss orders help you cut losses when the market moves against your positions. Consequently, acting as a free insurance policy for your trading account. 

You can also have the flexibility to engage in other activities while having an open position because the take-profit and stop-loss orders will be automatically executed when the time is right. 

How to Place Take-Profit and Stop-Loss Orders

Before you set up take-profit and stop-loss orders, you should first identify a trade setup, assess the triggers, and determine your position size. 

Some traders may prefer to trade based on candlestick patterns, chart patterns, trendlines, or technical indicators. Regardless, you should have a technical reason why you want to enter a trade and a trigger that will tell you when is the best time to enter the trade. With this information, you can then determine what percentage of your available capital you’re willing to risk on a single trade. 

On the Binance App, it’s very easy to set up take-profit and stop-loss orders while entering a position. Go to [Futures] and check the box next to [TP/SL], which will enable you to input the [Take Profit] price and the [Stop Loss] price. You can also click [Advanced] to have more precise control over the execution price. 

For more information on setting up take-profit and stop-loss orders from the web application, please visit What Are Limit TP/SL Orders and Frequently Asked Questions. 

Put Your Knowledge Into Practice!

When trading futures, traders need to manage risks properly to stay consistent in maximizing returns. A robust risk management strategy can also help to reduce potential losses, mainly because the cryptocurrency market is highly volatile.

Binance Futures encourages users to practice trading responsibly by having a proper trading plan. Take-profit and stop-loss orders can lower stress and protect your investment capital.

Feel free to practice trading in real-time with zero risks in Binace Futures’ Mock Trading. This simulation trading platform allows you to use testnet funds to experiment with different risk levels to sharpen your trading skills. Once you clearly understand how to set up take-profit and stop-loss orders, you can switch back to trade live on Binance Futures.  

Read the following helpful articles for more information about Binance Futures:

Risk warning: Cryptocurrency trading is subject to high market risk and price volatility. You should only trade or invest in products that you are familiar with and understand the risks associated with them. You should carefully consider your investment experience, financial situation, investment objective, risk tolerance level and consult your independent financial adviser as to the suitability of your situation prior to making any investment or trades. The material on this site is provided for information purposes only and should not be construed as financial advice. Past performance is not a reliable indicator of future performance. You should note that the value of an investment and any returns can go down as well as up, and you may not get back the amount you had invested. You are solely responsible for the trading or investment decisions that you have made. Binance is not responsible for any trading losses that you may incur. Further details can be found in our terms of use.

TL;DR

A stop-limit order combines a stop trigger and a limit order. Stop-limit orders allow traders to set the minimum amount of profit they’re happy to take or the maximum they’re willing to spend or lose on a trade. Once you set a stop-limit order and the trigger price is reached, a limit order will be placed automatically, even if you are logged out or offline. You can strategically place stop-limit orders by considering resistance and support levels and the asset’s volatility.

In a stop-limit order, the stop price is the trigger price for the exchange to place a limit order. The limit price is the price at which your order will be placed. You can customize the limit price, which is usually set higher than the stop price for a buy order and lower for a sell order. This difference accommodates market price changes between the time the stop price triggers and the limit order is placed.

Introduction

If you want to start actively trading rather than HODL, you’ll likely need to use more than market orders. A stop-limit order provides more control and customizability. The concept can be confusing for beginners, so let’s go through the key differences between limit, stop-loss, and stop-limit orders first.

Limit order vs. stop-loss order vs. stop-limit order

Limit orders, stop-loss orders, and stop-limit orders are some of the most common order types. Limit orders let you set a range of prices you’re happy to trade at, a stop-loss order sets a stop price that triggers a market order, and a stop-limit order combines aspects of the two. Let’s dive in further:

Limit order

When you set a limit order, you choose a maximum purchase price or minimum sale price. Your exchange will automatically attempt to fill the limit order when the market price meets or is better than your limit price. These orders are useful when you have a target entry or exit price and don’t mind waiting for the market to meet your conditions.

Typically, traders place sell limit orders above the current market price and buy limit orders below the current market price. If you place a limit order at the current market price, it will likely be executed in a few seconds (unless it’s a low-liquidity market).

For example, if the market price of Bitcoin is $32,000 (BUSD), you could set a buy limit order at $31,000 to purchase BTC as soon as the price hits $31,000 or lower. You might also place a sell limit order at $33,000, meaning that the exchange will sell your BTC if the price goes to $33,000 or higher.

Stop-limit order

As mentioned, a stop-limit order combines a stop trigger and a limit order.  The stop order adds a trigger price for the exchange to place your limit order. Let’s see how it works.

How does a stop-limit order work?

The best way to understand a stop-limit order is to break it into parts. The stop price acts as a trigger to place a limit order. When the market reaches the stop price, it automatically creates a limit order with a custom price (limit price).

Although the stop and limit prices can be the same, this isn’t a requirement. In fact, it would be safer for you to set the stop price (trigger price) a bit higher than the limit price for sell orders. For buy orders, you can set the stop price a bit lower than the limit price. This increases the chances of your limit order filling after it triggers.

Examples of buy and sell stop-limit orders

Buy stop-limit

Imagine that BNB is currently at $300 (BUSD), and you’d like to buy when it starts to enter a bullish trend. However, you don’t want to pay too much for the BNB if it quickly begins to rise, so you need to limit the price you’ll pay.

Suppose that your technical analysis tells you an uptrend might start if the market breaks above $310. You decide to use a buy stop-limit order to open a position, in case the breakout happens. You set your stop price at $310 and your limit price at $315. As soon as BNB reaches $310, a limit order to buy BNB at $315 is placed. Your order might be filled with a price of 315 or lower. Note that $315 is your limit price, so if the market goes up too quickly above it, your order might not be filled completely.

Sell stop-limit

Imagine that you bought BNB at $285 (BUSD) and it’s now at $300. To prevent losses, you decide to use a stop-limit order to sell BNB if the price drops back to your entry. You set up a sell stop-limit order with a stop price of $289 and a limit price of $285 (the price you purchased BNB at). If the price reaches $289, a limit order to sell BNB at $285 will be placed. Your order might be filled with a price of 285 or higher.

How to place a stop-limit order on Binance?

Let’s say you just bought five BTC at $31,820.50 (BUSD) because you believe the price will begin to rise soon.

In this situation, you may want to set a stop-limit sell order to alleviate your losses if your assumption is wrong and the price starts to drop. To do that, log in to your Binance account and go to the BTC/BUSD market. Then click on the [Stop-limit] tab and set the stop and limit price, along with the amount of BTC to be sold.

If you believe that $31,820 is a reliable support level, you may set a stop-limit order just below this price (in case it doesn’t hold). In this example, we will place a stop-limit order for 5 BTC with the stop price at $31,790 and the limit price at $31,700. Let’s go through this step-by-step.

When you click [Sell BTC], a confirmation window will appear. Make sure everything is correct and press [Place Order] to confirm. After placing your stop-limit order, you will see a confirmation message. You can also scroll down to see and manage your open orders.

Note that the stop-limit order will only execute if and when the stop price is reached. This means the limit order will only be filled if the market price reaches your limit price or better. If your limit order is triggered (by the stop price), but the market price doesn’t reach or better than the price you set, the limit order will remain open.

Sometimes you might be in a situation where the price drops too fast, and your stop-limit order is passed over without being filled. In this case, you may need to appeal to market orders to quickly get out of the trade.

Advantages of using a stop-limit order

A stop-limit order lets you customize and plan out your trades. We can’t always be checking prices, especially in the 24/7 crypto market. Another advantage is that a stop-limit order lets you set a suitable amount of profit to take. Without a limit, your order would be filled at whatever the market price is. Some traders prefer to hold than sell at any cost.

Disadvantages of using a stop-limit order

Stop-limit orders share the same disadvantages as limit orders, mainly because there’s no guarantee they will execute. A limit order will only start to fill when it reaches a specified price or better. However, that price may never be met. Even though you can create a gap between your limit and stop prices, the gap may not be enough sometimes. Highly volatile assets can overshoot the spread you place in your order.

Liquidity can also be a problem if there aren’t enough takers to fill your order. If you’re worried about your orders only partially filling, consider using fill or kill. This option specifies that your order should only execute if it can be filled completely. However, note that the more conditions you add to your order, the less likely it will execute at all.

Strategies for placing stop-limit orders

Now we’ve studied stop-limit orders, what’s the best way to use them? Here are some basic trading strategies to increase the effectiveness of your stop-limit orders and avoid some of their disadvantages.  

1. Study the volatility of the asset you’re placing a stop-limit order on. We already recommended setting a small spread between the stop order and limit order to increase the chances of your limit order being filled. However, if the asset you’re trading is volatile, you may need to set your spread a bit larger. 

2. Think about the liquidity of the asset you’re trading. Stop-limit orders are particularly useful when trading assets with a large bid-ask spread or low liquidity (to avoid unwanted prices caused by slippage).

3. Use technical analysis to determine price levels. It’s a good idea to set your stop price at an asset’s support or resistance level. One way to determine these levels is through technical analysis. For example, you could use a buy stop-limit order with a stop price just above an important resistance level to take advantage of a breakout. Or a sell stop-limit order just below a support level to make sure you get out before the market drops further.

If you are not sure what support and resistance levels are, check out The Basics of Support and Resistance Explained.

Closing thoughts

A stop-limit order is a powerful tool that can provide you more trading capability than simple market orders. There is also the added benefit of not needing to be actively trading for the order to complete. By combining multiple stop-limit orders, it’s easy to manage your holdings whether the price falls or rises.

Written by Jane