In this blog, we will talk about when to sell cryptocurrency and book profit rather than see the drastic turn and lose your investment.
Bitcoin and Ethereum in the crypto market overall have done amazing this year but let’s take a look back in 2017 when everything came crashing to a halt within just a couple of months.
The big bloodbath in cryptocurrency brought Bitcoin below 6000. We had seven-time periods where bitcoin was more than double in a month.
Let’s take an example of Bitcoin, if you had bought Bitcoin at close to all-time highs on January of 2018 at $20000 per Bitcoin token, just a few months later it would be down 50% to $10000 and just 10 months later down nearly 80% to $3667.
You don’t want to be the person who buys in at the top and holds forever while the market collapses beneath you.
So when do you sell ?
Those of you that are 100% crypto investors with huge convictions in cryptocurrency and believe it’s going to change the world with a 20 plus year time horizon.
The answer of when to sell, would be “Never”.
If you’re not that type of person, I think that it’s always a good practice to take some profits out of your crypto investments, especially during long bull runs like the one that we’ve seen in the past year and a half.
There are a few exit strategies that you can employ which I also personally use.
We will go over 3 different exit strategies.
You can use to your advantage to exit the market, either temporarily until crypto dips again, or permanently if your life goals have been met.
First Exit Strategy:
The one simple rule you need to know about when to sell your cryptocurrency is that you need to have a plan when entering a position. A proper plan and strategy can be the difference between making 2050 or 100% versus not making any money at all.
Some crypto traders, when exiting positions to take profits, they don’t cash it out entirely. Instead, what they might do is they might sell at healthy levels to take some profit and then hopefully buy back it at a lower price.
That’s how you could feasibly make a lot more in cryptocurrency. With crypto being so volatile, what you can do is sell at high prices, convert them or actually just swap them to sable coins, and then, when it drops again, you can buy back in.
Since crypto operates in cycles, a lot of traders will employ this strategy and try to leverage their money that way.
Let’s say you enter a crypto position. You want to plan at what price you want to sell at, so that way you’re taking profits all along the journey.
This method takes more of an active trading approach because you’ll have to keep a close eye on the price of that said cryptocurrency and sell when it hits those price targets.
Here’s how it would work.
For example, let’s pretend Ethereum is trading at $4000 and you make a $10000 investment into it. So basically you bought 2.5 Ethereum for $4000.
The first thing you have to do is, ask yourself, I’m going to sell off a portion at every 10 percent rise in the price of Ethereum.
So here’s an example.
Let’s say: Ethereum reaches $4400 you’re going to sell 25% of it. When it reaches $4800 you are going to sell another 25% and so on.
At $5200 you might sell 30% or all of it.
Doing this means that you’ll be taking out profits and eventually, if there’s a crypto dip, you could buy back in at a cheaper price.
This is a common strategy that many traders use, if they can get their cost or their initial investment out of the investment while on the up, then they can feel less stressed about whatever happens to their free ride.
Second Exit Strategy
The second exit strategy for crypto is to write down exactly what type of return you would be comfortable getting. The important part here is to stick to that return percentage
The first thing would be figuring out the actual percentage and to get that is to do some research and have a really solid understanding of why you’re buying in the first place.
Before we understand the second exit strategy, we need to understand that exit strategy depends on what is your investment time horizon and what you want to do in it.
Someone with a short time horizon, who has no money to lose might employ a very strict trading strategy. They might have tight leashes on how much they could lose.
On the other hand, let’s say, a person with a five or ten-year plan might not care too much about strategies and may just want to see what happens to the price in the long term.
All of this can just determine your exit strategy. If you do need the money soon, cryptocurrency might not be a place you want to dabble into, the swings are volatile, much more than the stock market, and the crypto market trades 24/7.
This means you could be sleeping when the market could drop a good percent. This makes Exit Strategy very important which you want to practice when it comes to crypto.
If you’re buying a cryptocurrency like the FLOW token, which trades close to ten dollars, you want to think deeply and figure out what type of return you’d be happy with.
To get that target return percentage perhaps you read the white paper, you see the market potential for FLOW, or you think it might get listed on a new exchange.
With all this data, you end up forming a hypothesis, based on all the factors you have researched, you would know that FLOW token has about 20 to 40% upside.
Then you need to ask what % of return you would be expecting and would be happy with, depending on how much risk you want to take in pursuit of that 20% upside, you should also set a downside percentage as well.
For example, if you know you’re happy with a 20% return and you want to cut your losses at 10 percent, that’s a target profit/loss ratio of 2 to 1 or 20% to 10%.
You can set up limit orders in your brokerage account to automatically execute when the crypto hits these price targets, to keep your emotions out of it.
In my experience, you have to countertrade your emotions. Of course, there always will be a fear of selling too early, and that might haunt you if you take your profits, and then all of a sudden, the cryptocurrency goes 1000% but that’s when you have to tell yourself: Profit is Profit.
Being less emotional will make you a better investor and trader overall.
Third Exit Strategy:
The next strategy is to dollar cost average your investment.
Let’s say, you know you want to get out of a position in four months and your overall total investment as of right now is $10000 normally.
Dollar-cost averaging means that you’d sell a certain dollar amount on a set day every single month until you’re completely out of the position.
You could sell $2500 each first of the month for a total of four months. The other option is that you could also sell a percentage every single week or month instead. That would also work for dollar-cost averaging your investment out.
So, for example, you could sell 25% of our total investment out on the first of January, go 5% on the 1st of February, and so on until you’re finally out of the position.
This strategy is best for someone who doesn’t care too much about hitting certain price targets like earlier but wants to make sure that their timing isn’t poor.
This way you’re ignoring the fluctuations in the price of your investment. Whether it’s up or down, you’re selling the same percentage or dollar amount.
Every single period of dollar-cost averaging is a less risky way to obtain a favorable price when you sell, and it’s extremely good in the crypto environment when the price fluctuation swings are huge.
Dollar-Cost averaging works both ways, in selling and in buying, and is one the most potent methods to increase your return.
So these were the 3 important strategies on “When to sell Cryptocurrency” and how you should take care of your crypto investment and plan to book your profit.
Hope you liked this article on “When to sell Cryptocurrency”, do read our other article on “Next Cryptocurrency to Explode 2022“