Step 13 – Risk Management, Stop Loss and Take Profit

In this step, we want to learn when to sell the cryptocurrencies we have bought so we can take profit from the market (Take Profit). Buying Bitcoin at a low price and later selling it at a higher price is great and ideal—but sometimes the market does not move in our favor. Contrary to our analysis, the price of Bitcoin can drop below the price we bought at, and our capital becomes exposed to risk. In that case, we must use money management and risk management to learn when to sell Bitcoin at a loss—and stop bigger losses.

So, before talking about “making profit,” it’s important to look at the other side of trading and investing: “preventing loss” or stopping loss (Stop Loss).

Let’s begin with investing rules from a Wall Street giant:

Rule 1: Never lose money. Rule 2: Never forget rule 1. — Warren Buffett

We can say with confidence that preventing loss and risk management is the most important skill and knowledge an investor or trader must learn and master. If you enter the market with real money, you will face many unexpected situations that cannot be fully predicted or compiled in any website, source, or book.

Because of uncertainty in financial markets—and because of the physical, emotional, and psychological reactions a person naturally shows to environmental stimuli—we are obligated to measure the risk of a trade before any purchase or investment. This knowledge and skill helps us, by understanding the risks ahead, make a better decision about which crypto to choose, when to buy, and how much to buy—so that if the market moves against our analysis and pushes us into loss, we have already identified it and planned for it. In that case, we accept the loss with open arms, and move to the next trade—without feeling shocked or surprised.

One of the hidden damages that can hurt us even more than financial loss is the mental and emotional stress that comes after a loss. For this too, we should prepare long in advance—based on knowing ourselves—through exercise, meditation, study, and maybe psychological sessions, and more, to gain greater control over our personality and mental state. In my view:

Physical, emotional, and mental health is the most expensive and valuable asset in our portfolio. Let’s not put it at risk. — Mahdi Baikmohammadlou

Why do we perform poorly in risk management?

Trading and investing is not easy. If it were, everyone would be rich. Here are a few old reasons that show why traders lose money when they ignore risk management rules. I’ve also included tips to help you get back to the basics:

Lack of knowledge and awareness

Many traders enter the market without fully understanding how it works and what is required for success. As a result, they make costly mistakes and quickly lose their money.

Poor risk management

Risk is an inherent part of every profession, and managing it effectively is essential for protecting capital and maximizing your chance of success. However, many traders don’t have a clear risk management strategy, and as a result, they are more vulnerable to large losses.

Emotional decision-making

It’s easy to feel strong emotions while trading. But making decisions based on emotion instead of logical analysis can be a recipe for disaster. Many traders make poor decisions when they feel overconfident, greedy, or fearful—and that can lead to significant losses.

Lack of discipline

Successful trading and investing requires discipline, but many traders struggle to stick to a plan in all conditions. This becomes especially challenging when the market is volatile or when the trader is operating in a bear market. Build a system that anticipates adaptation to different market conditions.

Overtrading

Many traders make the mistake of “overtrading,” meaning they place too many trades and don’t allow their trades to play out properly. This increases risk, increases exchange fees, and increases the probability of loss. Clearly writing the strategy you like can help separate good opportunities from worthless ones.

Lack of a trading strategy

A trading strategy provides a clear set of rules and guidelines to follow when placing trades. Without a plan, traders may make impulsive, reactive decisions—which can be dangerous and often leads to loss.

Not keeping up with important data and information

Markets and their common data constantly change. Traders must stay up to date by learning and recognizing the latest developments so they can make informed decisions.

Not cutting losses quickly

No trader can avoid losses completely, but the key is minimizing their impact on your portfolio value. One of the best ways is cutting losses quickly when the market moves against your analysis. However, many traders stay in losing trades too long, hoping for a reversal—and that can lead to losses bigger than expected.

Not maximizing winning trades

Just as cutting losses quickly is important, maximizing winning trades is also important. Many traders fail because they don’t have a plan that tells them when and how to exit with profit. As a result, they may abandon a trade, miss potential profit, and after a reversal, return to break-even—or even loss.

Lack of adaptability

Adapting to changing market conditions is crucial for long-term success. Equations change, profits disappear and reappear, and the foundation of everything is always in turbulence. One day a strategy produces consistent profit, the next day it doesn’t. To earn money in the long run, traders must adapt—or they risk being gradually pushed out of the market.

In general, most traders lose because they are not prepared for the market’s challenges. By educating yourself, creating a strong trading strategy, and planning decisions in advance, you can increase your chance of success and avoid common traps.

On the other hand, bull markets are times of optimism and growth and can be a great opportunity for significant gains. However, as I explained in Step 9, it’s important to remember that trends—including bull markets—do not last forever. You must approach them with enough caution while keeping your long-term goals in mind.

Here are some points to remember when dealing with bull markets:

Don’t get caught in the mania

Stay logical and calm, and avoid impulsive decisions for short-term gains. Take time to fully review any trade you are considering. It’s always good to focus on options with strong fundamentals and strong technicals.

Watch valuations

In a bull market, rising prices are common, but sometimes they reach levels that may not be justified by fundamental analysis of that asset. For investors, paying attention to valuation and making sure the price is reasonable can be very important.

Be ready for reversals

Like all good things, a bull market eventually ends. Therefore, being prepared for drawdowns (risk management) is essential. It’s always good to manage risk using techniques like portfolio diversification and hedging.

Control your risk

It’s natural to want to hold a trade that is performing well as long as possible, but remember bull markets eventually end. If you have made meaningful profit, take some before conditions change quickly. Following the trend (Trailing) can be a good option to lock in profit, which I will teach later in this step.

Keep a long-term perspective

Trading is like a marathon, not a sprint. Bull markets can be a great opportunity, but keep your long-term vision. If you missed a big move, don’t get angry and make bad decisions. There will be newer opportunities ahead to earn profit and apply risk management and everything you’ve learned.

Bull markets can present excellent opportunities, but they must be approached with caution and with personal, pre-defined goals. Calculate and consider the risk-to-reward ratio in every trade or investment. Watch valuations, and always be prepared for recession.

How to successfully implement risk management

While trading and investing offer opportunities for profit, there is always a chance of loss. Experienced traders understand this better than anyone. But what separates a professional trader from a beginner—and allows them to be profitable overall—is overcoming fear and greed, defining take-profit and stop-loss levels, and sticking to them. In today’s post, we share several tested tips to help new traders and investors better understand financial risk and plan intelligently.

Design a trading plan

Many traders enter the market without fully understanding how it works and what it takes to succeed. Before any trade, you must have a detailed trading plan. A plan helps you stay calm under stress and ensures you trade within your risk tolerance.

Assess your risk tolerance

Risk is subjective. Different traders have different personalities and systems, so their risk tolerance differs. There is no one-size-fits-all approach. Match the plan to your needs based on account size, age, long-term plan, and other key variables unique to your situation—and then execute accordingly.

Stick to your trading system

A trading system or strategy establishes a set of rules that helps a trader avoid impulsive decisions. A system is essential because it forces you to think deeply about your approach before risking real money. Traders should test and analyze their system in different market conditions. Ask yourself: How do you perform in a bear market? Have you tried paper trading to see if it works? Have you discussed your system with others and asked for feedback? Some traders abandon a strategy after a series of losses—this usually leads to more losses and is unproductive long-term. If your system meets a minimum acceptable standard, sticking to it helps you build consistent returns over time and helps you stay aligned with your long-term plan.

Use a stop-loss (Stop-Loss)

A stop-loss order is placed at a pre-defined price level and can help limit your loss if the trade moves against you. It also helps ensure you stick to your plan or system. In general, this level is the price at which your open trade is invalidated with a small loss.

Manage position size

It’s important to consider optimal position size so that you are not taking too much risk in any single trade. Trading is a probability game. Therefore, a trader should never put all eggs in one basket—and if they do, they must be fully aware of it.

Don’t overtrade or revenge trade

Even if it’s tempting, it’s never a good idea to try to recover losses by taking bigger risks. Strong emotions are normal while trading, but emotional decisions instead of logical analysis can lead to disaster. If you fear this is happening, step away from your computer for a while.

Create a trading journal

• A trading journal can help you identify weaknesses in your trades.
• Reviewing the journal at set intervals helps you evaluate yourself and improve.

Tips for managing losing trades

Losing trades happen. They are part of your journey in the trading world. There is no trader or investor who always wins. Every famous investor or trader you know has lost many times in their career. It’s completely normal. Did you know that Ray Dalio, the famous hedge fund manager, lost everything at age 30? He was wiped out and had to start from zero.

In this post, I will tell you what losing trades really mean and how to deal with them.

Before we begin, let’s make some points clear:

• Be careful of people who claim they never lose.
• Stay away from people who brag about impossible win rates.
• Losing trades happen to everyone. You are not alone.

Now let’s talk about what “bad trades” really mean, and 5 tips for managing them:

#1: A losing trade is different from a bad trade

The most experienced traders understand their risk well before placing a trade. A losing trade is a small part of a bigger process tied to a system, plan, or strategy that has been thoroughly tested and studied. For experienced traders, a losing trade is a pre-calculated event. They define risk, position size, stop-loss, and profit target in advance.

A bad trade is very different. It means someone risked hard-earned money with no plan or process. A bad trade is reckless. This often happens to new traders and investors who still don’t understand the time, study, and research needed to build an acceptable trading plan. Make sure you understand the difference between a pre-calculated losing trade and a planless bad trade.

There are many ways to build a plan, strategy, system, or process: paper trading, backtesting, and/or working with skilled traders who can provide valuable feedback are all ways to start. Don’t risk your money without doing initial research.

#2: Every losing trade provides data to improve

As we’ve said several times, losing trades happen to everyone. But remember: losing trades are also filled with informative data. You can learn a lot by analyzing losing trades.

At the end of each day, week, or month, experienced traders analyze their losing trades in detail:

• What patterns appear?
• What do they have in common?
• Why did they happen?
• …and more

With this information, a trader or investor can adjust their strategy based on what they discovered.

#3: Don’t let losing trades affect your health

Your mental and physical health matters as much as your financial health. Don’t let losing trades affect either of them.

If your system isn’t working well or several losing trades start affecting your emotions, step away from your computer or phone. Turn everything off and go. Markets have been open for hundreds of years and won’t disappear. When you’re ready to return, markets will still be there.

Get up, get some fresh air, and return when you’re ready.

#4: Share your experiences with others

Traders and investors worldwide want to learn from your stories and losing trades. These are valuable experiences we all share. Social networks allow you to talk, share, and meet people who experience similar situations. We can all learn from each other.

Of course, it’s tempting to only share winning trades or act like the greatest trader ever—but clearly, we learn together, and we improve when we learn from losses. This is where the deepest insights are found, and together we can grow as a trading community that aims to outperform the market.

Share your experiences and ask for constructive feedback.

#5: Keep going

Markets are a game of learning, relearning, and moving forward. New topics, trends, and narratives appear and disappear every day. The trading journey is long and never stops. When executing your trading plan or investment plan, it’s important to do it with a long-term view. One or two losing trades in a day or week is a small part of what lies ahead in the months and years to come.

Keep building and refining your strategy. Revisit the data from your previous trades.

I hope you enjoyed this post and learned something new or useful.

Please write any comments below. I will read them.

With this relatively long introduction, it’s now time to answer the main question of this step:

When should we sell Bitcoin or cryptocurrencies?

As an investor in a bull market, after buying a cryptocurrency at a specific price, we hope its price rises. But let’s think realistically and logically: despite all the exhausting analysis, the crypto price can go lower and put us into loss. So based on the introduction above, it’s better to first manage the stop loss level (Stop Level – Stop Loss – SL).

Stop loss by percentage

Some traders and investors, to manage risk, are only willing to accept a certain percentage loss. So right after buying, they immediately place a sell order at a price equal to a percentage below the entry price (for example, 10% lower). For instance, if a trader buys 1 Bitcoin at $20,000, they immediately place a sell order for 1 Bitcoin at $18,000 on the exchange. (This order type—called a stop order—is placed so that if Bitcoin’s price gets close to $18,000, the sell is executed. I will teach order types in Step 20.)

In this example, if Bitcoin reaches $18,000, the exchange executes the sell order and sells 1 Bitcoin at $18,000, and $18,000 appears in the trader’s account. In that case, the trader has lost $2,000. This loss equals 10% of the $20,000 the trader spent to buy 1 Bitcoin. (To simplify, I did not include exchange fees in these calculations.)

The 10% loss number is not random; it comes from a series of mathematical calculations. If you have $20,000 in your portfolio and lose 10%, your portfolio becomes $18,000. Now how much do you need to gain to recover that $2,000 and return to break-even? Let’s calculate it in percentages:

You currently have $18,000 and need $2,000 profit to return to break-even. What percentage is $2,000 relative to $18,000?

2000 / 18000 = 0.11
0.11 * 100 = 11%

So if you lose 10% on one trade, you must make 11% on future trade(s) to return to your original level. Surprised?

Now imagine you had the same $20,000 and this time lost 50%. That means half the money is gone. Your capital drops from $20,000 to $10,000. Again, let’s calculate how much you must gain to return to break-even:

You currently have $10,000 and need $10,000 profit to return to break-even. What percentage is $10,000 relative to $10,000?

10000 / 10000 = 1
1 * 100 = 100%

So if you lose 50% in a trade, you must make 100% afterward to return to your starting point. Even more surprising?

As you can see, the bigger the loss, the harder it is to recover. So, in general—even if we have no special loss-management strategy—we should never allow a loss greater than 10%. Of course, people with lower risk tolerance may choose a maximum loss of 5%.

In the table below, you can see how much gain is needed to recover each loss amount and only return to the starting station:

Taking profit by moving the stop loss (Stop Trailing)

So far, we learned that if we buy 1 Bitcoin at $20,000, we can immediately place a stop-loss order at $18,000. Now suppose Bitcoin rises to $24,000. Do you think we still need a sell order at $18,000 on the exchange?

Yes—you answered correctly. We no longer need a loss sell order at $18,000 because the market has moved in our favor. Now that Bitcoin is $24,000, we can cancel the $18,000 sell order and place a new stop-loss at $20,000 (break-even) or even higher, like $21,000 (with a small profit). So if, for any reason, Bitcoin drops from $24,000, we already have a sell order at $20,000 or $21,000.

In trade risk management, this moving of the stop loss and “following” the trend is called Stop Trailing. As you can see, after moving the stop, our buy trade is no longer exposed to loss risk—because even if Bitcoin falls from $24,000, we sell at $20,000 or $21,000. In other words, by doing this (stop trailing), we have made the trade risk-free.

When exactly to trail the stop, and where to place it, needs specialized training. But one strategy in the example above is placing the stop 10% below the current price. If the current price is $24,000, then the stop can be at $21,600:

24000 – 10% = 21600

Another strategy is that after each positive price reaction to support, you move the stop up by one swing. In the image below, suppose we bought Bitcoin at the close of the green candle at point 3 at around $20,200, and immediately placed the stop-loss (SL) 10% lower at $18,180 on the exchange.

Then after the positive reaction to support at point 4, we can move the stop up to slightly below that swing 4—around $20,400—and from this point, make the trade risk-free. Then after the positive reaction at point 5, we can move the stop up below swing 5—around $22,400—and continue similarly. In the image below, when support breaks at point 6, even if price drops further, we already have a stop order at $22,400 on the exchange. Assuming price drops and we sell our bought Bitcoins at $22,400, how much profit did we make? Send me the answer.

Important warning

I emphasize that the examples, numbers, and percentages you see in the steps and content of this website may not produce the same outcome for every market condition and for every person. Each person must design a trading strategy suitable for themselves.

Taking profit by percentage

After talking so much about losses, it’s time for profits. One time we can exit a buy trade is when the price rises by a pre-planned percentage. For example, if we bought Bitcoin at $20,000 and placed the stop-loss order as in the previous example, now it’s time to place a take-profit (TP) order on the exchange. Suppose we are aiming for 25% profit. So we calculate 25% above the entry price:

20000 + 25% = 25000

So we place a sell order at $25,000 on the exchange and wait to see whether the market takes us to SL or TP. With enough knowledge, experience, persistence in analysis, and consistent effort, in many cases we will reach TP.

Selling for a technical reason

If you remember, in Step 11 we reviewed entry or buy signals at points 3, 4, and 5. As long as prices rise along a support or an uptrend line, it’s desirable for a bullish investor or trader. But once the trendline breaks (BO), there is a possibility the uptrend may not continue. So one condition for selling is a broken support or broken uptrend line—like what happens at point 6 in the figure below. Other technical sell conditions can be designed, but I shared the simplest example here.

Selling for a fundamental reason

The price of a purchased crypto may be rising, but you may hear news about major changes in the project team—especially changes to the whitepaper, roadmap, or tokenomics—so that it no longer matches your fundamental strategy for selecting a stable crypto. As a result, you decide to sell that crypto and consider buying another one. In some projects, reasons such as:

• Change in the project team
• Change in the whitepaper
• Change in the roadmap
• Change in tokenomics
• New competitors entering
• Project team failing to deliver roadmap promises
• Failure to meet financial obligations to customers
• Poor PR, communications, support, and responsiveness
• Poor technical support
• Lack of progress
• Bankruptcy of an investor company in the project (like what happened with Alameda and subsequently Solana and FTT)
• Other fundamental reasons

…can all be considered sell signals. So while focusing on your trades, you should also keep an eye on the news around the crypto assets and blockchain projects you’ve invested in.

Selling for a macro reason

Another fundamental reason can be macroeconomic crises worldwide. As I taught in Step 7, economic crises can cause people to exit high-risk markets like stocks and crypto. In such conditions, people’s priority becomes getting through the crisis, and they are much less willing to invest in high-risk assets like cryptocurrencies—and even stocks. So demand for crypto falls sharply, which leads to falling prices for almost all cryptocurrencies. In such conditions, there is a sell signal for the entire market and for all assets in our investment portfolio. Of course, if we manage crises correctly, we can preserve portfolio performance even during crisis periods.

In Step 13, we answered the last essential question in building a trading and investment strategy: When should we sell a cryptocurrency?

In the next steps, I will help you practically create a crypto wallet and receive and send your first cryptocurrencies—or buy and sell them.

Back to the 21 Steps

Worth Noting

• Stop-loss ≠ guaranteed exit price: In fast markets, your stop can fill with slippage. Plan for volatility and avoid placing stops exactly on obvious levels where liquidity hunts can happen.
• Understand order types before using them: Many exchanges offer OCO (One-Cancels-the-Other), bracket orders, and trailing stops. These can reduce emotional decisions—if you understand how they trigger and what happens during gaps.
• Risk management is more important in leverage: If you trade perpetual futures, liquidation risk, funding rates, and sudden volatility spikes can force exits. Keep leverage low and position sizing strict.
• Watch regulatory headlines: Exchange delistings, restrictions on certain tokens, and changing rules around stablecoins and centralized platforms can affect liquidity and your ability to exit.
• Fundamental “sell signals” can be on-chain too: Token unlock schedules, treasury movements, whale concentration, and sharp changes in exchange inflows/outflows can hint at distribution or panic.
• Macro shocks can override everything: Even strong technical setups can fail during global liquidity events. Tie your sell plan to macro risk themes you learned in Step 7.
• Partial profit-taking can reduce regret: Consider scaling out (sell a portion at TP, trail the rest) to balance “locking profit” with “letting winners run.”
• Security affects your ability to sell: If your account gets compromised, you may “sell” at the worst time involuntarily. Strong 2FA, withdrawal whitelists, and hardware-wallet custody matter.

How AI Can Help Investors

AI can reduce emotional decision-making and improve consistency by turning your sell rules into a checklist, alerts, and repeatable workflows.

Practical AI-powered workflows

• Rule-based sell-plan generator: Use ChatGPT to turn your strategy into clear rules (entry, SL, TP, trailing logic, position sizing) and format it as a one-page plan you can follow.
• News-to-action summaries: Use AI to summarize project news (team changes, whitepaper/roadmap updates, tokenomics changes) and map it to your “fundamental sell reasons” section.
• Macro monitoring assistant: Use AI to track key macro releases (rates, inflation, liquidity signals) and remind you when conditions align with your “sell for macro reasons” framework.
• Trade journal analytics: Export your trade history and let AI cluster losing trades by mistake type (late stops, overtrading, revenge trades) so you know what to fix first.
• Chart-note assistant: After you mark supports/trendlines (like Step 11), AI can help you write a clean “if/then” sell plan: break of support, confirmation, invalidation, and exit method.

Helpful tools and services to explore

• ChatGPT (planning, journaling, scenario building, checklists)
• TradingView (alerts; combine with AI-written rules/checklists)
• CoinMarketCal / crypto event calendars (token unlocks, announcements—use AI to interpret relevance)
• On-chain dashboards (Glassnode, CryptoQuant, Nansen—use AI to summarize signals in plain language)
• Spreadsheet + AI (Google Sheets/Excel + AI prompts to compute R:R, drawdowns, win-rate, expectancy)

AI won’t replace your discipline—but it can make discipline easier to execute by turning your plan into reminders, guardrails, and post-trade learning.

FAQ