Recently, I’ve seen friends losing money again, and they asked me how to avoid losing all of their principal. Actually, the answer is very simple: you need to know how to take profits and cut losses.

When it comes to what “cutting losses” means, many beginners don’t fully understand it. Cutting losses isn’t just as simple as admitting a loss and closing everything out; its core is to protect the principal you still have left. From my own experience, the people who truly manage to stay in the market are the ones who know how to cut losses.

I remember one time I bought a certain coin. I thought I’d wait and see whether it could rise even more—but it kept falling all the way down. If I hadn’t set a stop-loss level in advance, I might have really ended up losing everything. Later on, I developed the habit of thinking, before entering a trade, about the maximum amount I can afford to lose, and then setting a stop-loss. This mindset becomes much steadier, and I won’t get all flustered just because of price fluctuations.

Taking profits is basically the opposite logic. When you’re in profit, set a target price, and when the price reaches it, you automatically sell. Many people get stuck on the thought, “What if it later goes even higher?” But my view is that it’s most important to actually put the profits into your pocket. Once, I was greedy and didn’t set a take-profit, and after the price rose to the high point, it fell back again—everything I originally earned was given back.

As for how I practice cutting losses, this is what I do now. For example, if I buy a coin with 1000 dollars and the maximum loss I can tolerate is 100 dollars, then I set the stop-loss at 900. But here’s a small trick: you can’t simply place a sell order at 900, because the current market price is 1000, so it would execute immediately. Instead, you need to use a trigger mechanism: set a trigger price of 900 and a stop-loss price of 890—this way, when the price drops to 900, the system will automatically place a sell order at 890.

There’s also an interesting method called trailing stop-loss. Simply put, it’s not about setting a fixed price rigidly; instead, it adjusts according to market fluctuations. For example, I set a trailing stop-loss -200. If the coin price rises to 2000, the stop-loss price will automatically change to 1800. The advantage is that when the market moves in a favorable direction, I can earn more, and at the same time it also protects the profits I already have.

In real trading, many exchanges and platforms have built-in take-profit and stop-loss features. You can set these prices when placing your orders, so you don’t have to keep staring at the screen. The system will handle the trades automatically, completely avoiding wrong decisions caused by human factors.

To be honest, the biggest role of take-profit and stop-loss is to help you control risk. Since the cryptocurrency market is so volatile, if there are no clear rules for when to enter and exit, it’s easy to be swayed by emotions. My current trading strategy is built on clear take-profit and stop-loss rules, so no matter how the market moves, I can stay rational.

Oh, and everyone’s tolerance for profit and loss is different. I suggest setting take-profit at a level where you feel, “If I earn this much, I’m satisfied,” and setting stop-loss at a level where, “If I lose this much, it would really hurt.” There’s no absolute standard answer—what matters is finding the rhythm that works for you. If you’re still worried about losses, why not start by learning how to cut losses first? This could be the most important lesson in your trading career.