Most people who invest in cryptocurrencies do so for one purpose – to make a profit. There is nothing wrong with that, in fact, the reason for the emergence of the first cryptocurrency, Bitcoin, is the bad financial system we live in.
With that said, you have to know when to sell your cryptocurrencies and which exit strategy to use when doing so. Below I will walk you through the three best ways to take profits in crypto and explain when to use them.
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How to take profits in crypto?
In order to take profits in crypto, you obviously have to make profits first. When your crypto is up from your initial investments you can choose to sell it, or continue holding it. It all depends on your investment goals and the conviction you have in your cryptocurrencies.
There are a few strategies that you can use to take profits in crypto:
DCA out
DCA stands for dollar-cost averaging. It is one of the most popular techniques to buy cryptocurrencies but also, it is a great selling strategy. It basically means that you sell your crypto in a few instances, instead of selling everything at once.
You already know that the best time to sell your crypto is when that crypto reaches the top. However, nobody knows when the top will happen, and it’s pretty difficult to predict it. That is why dollar-cost averaging is an awesome strategy. When you decide to sell your crypto, you simply divide your position into several parts and sell it one by one in some period of time.
For example, you may want to sell $10,000 of your Bitcoin. You would divide your Bitcoin into, let’s say 5 parts, and sell $2000 each week. In 5 weeks you would sell all your Bitcoins and your selling price will be the average of those 5 weeks.
Taking out the initial stake
The second commonly used strategy is to take out the initial stake. That strategy is often used when investing in small-cap cryptocurrencies that are relatively riskier than large-cap cryptos. When you reach a certain profit, you would sell the initial stake you invested, and leave your other crypto in your portfolio. With this technique, you are certain that you won’t end up with a loss, and you can reinvest your initial stake in other projects.
Reaching goal
Many people started investing in crypto with a specific goal in mind, for example, to buy a house or a car. When you have a goal in mind, it is pretty straightforward what you need to do. After you have reached your goal, you would sell your crypto.
You can also use this strategy with a specific cryptocurrency. Let’s say you found a cryptocurrency that you believe can go up to 50% in the next 3 months. So your goal is to earn 50% with that investment. When you reach that goal, you will sell your cryptocurrency.
When to sell crypto profits?
When it comes to selling your cryptocurrencies, it all comes down to what kind of investor you are. There are three types of investors:
- Trader
- Short-term investor
- Long-term investor
Trader
A trader is an investor that buys and sells crypto in a single day. A trader relies on momentum and short-term market insights. For a trader, it is important to sell crypto profits every day, and he will do so using predetermined buy and sell orders.
Short-term investor
A short-term investor is a type of investor who is looking to catch a crypto train. The market moves in cycles, meaning there are bull and bear runs. If you have ever experienced a crypto bull run, you know how fast the market can grow. Short-term investors are looking to take advantage of those cycles, and they are taking profits when the market loses its bull run power.
Long-term investor
Long-term investors are almost never selling their positions. They have a long time horizon when it comes to their crypto, and they choose to sell cryptocurrencies when they think a certain cryptocurrency is overvalued. After making a thorough analysis, they sell crypto that is overvalued and invest back in when it comes down to its fair price.
If you are a long-term investor like I am, you will not bother with market volatility and you will sell your crypto profits only when the project changes fundamentally. That means, that you understand the project you are investing in, and if that crypto project starts giving poor results, that is when you sell your crypto profits. Until then, you would just hold your crypto and hopefully earn passive income with these methods.
