Written by
Ewelina Skorupka
Published on
Knowing how to manage your risks is very important in futures trading. Even pro traders can misjudge what might happen in the market. In Lesson 3 of the Futures Series from Kanga University, we discuss how traders can manage their open positions using protective orders. These orders include Stop Loss (SL), Take Profit (TP), and Trailing Stops.
You will also learn the difference between Stop Market and Stop Limit orders, how to use them on a futures platform like Kanga, and how to approach position sizing through effective capital risk management.
The Purpose of Take-Profit and Stop-Loss Orders
Whenever you are trading, anything can happen. You might think you’re going to make a profit, but then the market shifts and you incur losses. In lesson 3 of the Kanga Futures Series, take-profit and stop-loss orders allow traders to automate their exits. This usually happens at the price levels you already set, either to protect your profits or reduce losses.
For example, you enter a long position on Bitcoin at $93,000. Assuming you set a take-profit at $97,000 and a stop-loss at $91,000, the system will exit the trade automatically at those price points. One of the major benefits of this type of order is that it prevents you from using emotions while trading.
Trading exchanges, including Kanga Futures, enable traders to place these orders as soon as they open a position. This saves time and ensures trades are protected even if the trader is not monitoring the market.
Where and How to Set Stop Loss and Take Profit
Placing SL and TP levels requires more than a guess. Any level you set should follow a logical method based on market structure, trading strategy, and volatility. On Kanga Futures, once a trader initiates a position, they can enable the TP/SL feature directly in the order window. Here, they can input exact price points or use a percentage-based setting to define their take-profit and stop-loss levels.
The exact placement will vary depending on trading style. A scalper might set tight SL/TP values, while a swing trader may allow for wider ranges. However, in both cases, traders should understand that their SL represents the maximum amount they are willing to lose on a single trade.
Take-profit targets, on the other hand, should be based on logical price objectives. In other words, this should be based on your technical analysis and should be linked to previous resistance levels, Fibonacci extensions, or the measured move from a chart pattern. Your win-rate and risk-reward profile should guide how far they aim with their TP orders.
Stop Market and Stop Limit Orders
Traders must select the appropriate type of stop order for various scenarios. A Stop Market order executes at the best available price once the market hits the trigger price. This ensures that the order is filled, but does not guarantee the exact price at which it will execute. As a result, it is mainly useful in volatile markets where executing the order promptly is crucial.
However, a Stop Limit order requires two values, the stop price and the limit price. When the stop price is reached, the order becomes a limit order. If the market price moves beyond the limit, the order remains unfilled. This gives the trader more control over execution, but carries the risk that the order may not be executed at all in volatile markets.
Choosing between the two depends on context. In low liquidity environments or when trading large positions, Stop Limit orders can be preferable. But when execution is the top priority, many traders prefer Stop Market orders.
How Trailing Stops Protect Profits
A Trailing Stop is a dynamic version of a stop-loss. The main function of this type of order is that it adjusts parameters as the market price moves favorably. Hence, it allows traders to shift their risks while automatically locking in profits. For long positions, the stop price trails below the current price by a fixed percentage or dollar amount. As the price increases, the trailing stop follows suit.
Also, if the price falls, the trailing stop stays in place. On the other hand, if the drop hits the stop, the position is closed.
This tool is useful in markets where you want to remain in the position as long as momentum continues. It removes the need to manually adjust the stop and avoids cutting winners too early. However, trailing stops must be set with realistic deltas to avoid your trade closing because of minor fluctuations.
Managing Risk and Capital Allocation
Effective use of SL and TP begins with understanding capital at risk. Professional traders rarely risk more than 1 to 2% of their trading capital on a single trade.
For instance, if a trader has $10,000 and risks 1%, they are willing to lose $100. If their SL is $500 away from their entry, their position size should be 0.2 contracts. This simple calculation can make or break a portfolio over time.
It’s also important to match SL/TP placement with the trade’s risk-reward ratio. A minimum of 1:2 is a common baseline. This means the take-profit target should be at least twice as far as the stop-loss.
For example, a trader opens a long position on ETH/USDT at $3,000. They expect resistance at $3,300 and see strong support at $2,900. Hence, they set their take-profit at $3,300 and their stop-loss at $2,900. The trade carries a $100 risk per unit and a potential reward of $300. This creates a 1:3 risk-reward ratio.
In Summary
Lesson 3 in the Kanga Futures Series explains why traders shouldn’t be obsessing over entries. Instead, it is the exit strategy that separates calculated risk-takers from the rest. Using TP/SL effectively will help protect your capital in the market.
Kanga Futures equips traders with all the tools necessary to automate these decisions. Whether you are using static Stop Losses, dynamic Trailing Stops, or precise Stop Limit orders, knowing how and when to use them will improve your trading strategy.