People are always debating over when to realize your gains and take your crypto profits. There are many strategies and things that factor into this. Let’s dive into all that now!
There are many things to be considered when investing but for me, the main focus for when to take out profits is centered around risk. By that, I really mean risk aversion or risk tolerance. How much risk can you deal with emotionally and financially? The answers to this should guide most of your profit-taking process.
The three main things that make up your risk are the cadence of your trading and profit-taking, your profit taking strategy, and the coins you are investing in and their fundamentals or tokenomics.
Trading Cadence: This is how often you are trading. So for example, if you wanted to trade every day and try to take your profits at the end of each day as a day trader, you are ready for the riskiest way to invest bordering on gambling. Holding is very safe if you’re holding a really good cryptocurrency while it would be very bad for a bad cryptocurrency. The safest way to take your profits is to have a strategy in place and follow it unemotionally.
Your Profit Taking Strategy: This is when you will take your profits. Many people set specific price points or multipliers, like selling Bitcoin once it hits 5x the price you bought it for as an example. Some people just take profits from small wins and lock it all in, whereas holders may be treating more like gold. For me, the safest way to do this is to wait until my investment has 2xed and sold off my original investment so that the rest of my investment is 100% profit eliminating any possibility for loss. Then after this, you can incrementally sell off portions of your holdings at different price multipliers like 2x, 5x, 10x, etc. This way you ensure you can’t lose money and that you will not lose out on big gains in the future. While this doesn’t give you as much reward, it eliminates the most risk. You still have to invest in coins that will be able to go 2x for this to possible, so now let’s look at fundamentals.
The Coins You Invest In: Even if you don’t understand all the different consensus models, you should have the basic grasp of whether or not the token you’re investing in is: scarce, inflationary or deflationary, and a good store of value. You can have a million things to consider like uses cases etc., but I want to keep this simple. When you know what type of cryptocurrency you to invest in you still have to consider its trading volume and how many exchanges it's listed on and if they’re reputable. The last thing you want to do is buy a coin no one is trading and then no one will buy it from you later on. If this is too complex, just stick to the top 50-100 coins, they’re much safer. However, you should always do research and know what you’re holding. My biggest holdings are ETH and BTC.
Does that cover most of it? There are probably a million other things you could consider, but this is the introductory take on when you should take crypto profits.
Let me know if you think there’s something I missed or could have included. When do you take your profits? Has this changed your approach to crypto investing? Feel free to share your investment strategies with everyone and remember this is not financial advice. Also, don’t forget to like, share, and subscribe!