Entry, Take Profit, and Stop Loss
Your Entry Point, Take Profit (TP), and Stop Loss (SL) will be used in every trade you make. They are essential to your crypto trading terminology arsenal! To understand these terms it helps to look at the anatomy of a trade. So, let’s go back to our BTC/USD example.
When you decide to enter a trade there are three aspects that you must define.
Firstly, your entry point – this one is self-explanatory. Whenever you choose to enter a trade, the current price will be your entry point. For us, that means $10,000 in our BTC/USD case.
Secondly, you will want to place your Stop Loss (SL).
The SL is your safety net – it is where you cut your losses and accept that your trade has gone against you.
The reason you set a SL is so you don’t lose all of your money. The safety net will catch your trade if it falls too far so you don’t take a huge loss!
Trading is about the long-term and if you lose everything on one trade – well, you won’t be around for very long!
Lastly, your Take Profit (TP) – this is the target you are aiming for, the price at which you want to exit the trade and take your winnings! Quite literally, it is where you take your profit.
These all work together so that if you are going short instead of long, it is the same fundamental process – check out the image!
You will always place a TP and SL when you enter a trade. In the following courses you will learn how to place them. For now, just remember the function each one provides!
Short and Long
These two terms are also used in every single trade you take. They are very simple to understand.
If you are talking about going Short on a cryptocurrency, you are saying that you want to sell it.
In other words, you expect the value of the crypto to decrease. You can make money on this in trading!
If you go Long on a crypto, you are buying it because you expect it to increase in value.
These are the basic mechanics of a trade.
Let’s take BTC/USD as an example. If you expect Bitcoin to decrease in value against the Dollar, you want to go Short.
So, you sell 1 BTC at the current price of $10,000. As you are going Short, you think that value will decrease!
If you think the value is then going to increase, you would look to go Long, with the hope that it pushes to, say, $9,500 from an entry of $8,000
Now, you may be asking “when do I exit a trade?” and other similar questions. That leads us into our next chapter which takes a look at the parameters of a trade.
How exactly do brokers – the business that provides the trading platform – make money from your trading?
The answer: Spread
Taking a look at the structure of prices will help us out here. When you go onto a trading platform and look at the charts you will see these three different prices.
The Market Price – this is the price at which the pair is currently at.
The Buy Price – this is the price that you can buy at.
The Sell Price – this is the price that you can sell at.
There is a difference between the buy and sell prices – this is what we call the spread.
It is essentially a small fee for whenever you enter a trade and it is how the broker churns out some money.
The spread can vary depending on the volume of trades and current volatility in price. The more people trading a particular pair, the smaller the spread will become.
This is because more people paying the fee allows the broker to lower it, and thus increases their competition with other brokers and their spreads!
The spread will typically not be very high, but you should always be aware of the current spread if you are looking to enter a trade.
That sums up the basic crypto trading terminology that you need to know!