Taking Profits: Why, When and How

By Violet64 | cryptochat | 6 Sep 2020

The world of cryptocurrency is a very volatile one, just over this week major cryptocurrencies like bitcoin and Ethereum have went up 10-30% and proceeded to dump up to 50% then go back up over the past day. Clearly this is not a market for the faint of heart. But how do you actually succeed in it? Sure, you can try timing the dips and pumps but that might be difficult or unpredictable at times. Instead you should aim to take profits on a pump so that whatever happens afterwards you aren’t as affected.


The principle of taking profits

Say you bought 5 Ethereum at $300 each, and over the next week it goes up to $450. If you held all your coins you would be at a 50% profit, but this is risky as you don’t know if it will soon after crash down so you lose your profits or even worse go under $300 so you lose money. This is why you should focus on taking profits on the way up. In this example you could sell 1 ETH at $350, then 1 at $400 and 1 at $450. This means you have already made a profit of $300 on your initial investment and you have actually realised that profit (meaning you sold and cemented it). Now if Ethereum crashes back down to $300 you will have already made $300 and you can sell the remaining two, congrats you have made a profit. Sure, Ethereum could then continue going up to $500, but you don’t know this, and in a market this volatile anything is possible within a few short hours, after all any profit is better than no profit or even a loss.


When to take profits

So now that we have discussed the potential benefits of profit taking and why you should do it, it is time to look at when to actually take profit. It is important to understand what potential gain you expect out of your investment, 50% return? 100%? More? The reason it is important to identify this is taking profits at 5% gain when your max is 10% is much better than taking the same gain at a max of 100%. A good rule of thumb is to sell at 10-20% intervals of your maximum, so you are essentially selling 0.5-1 ETH per order in the previous example where you bought 5 ETH. It is up to you to set these orders, if you have very high confidence your investment will reach or surpass the maximum prediction you might want to start taking profits later, and vice versa if you are not sure how it might fare. Perhaps you might not want to even set up automated orders and manually review the information in real-time, however this can be flawed as you introduce human error and emotion into it, so tread carefully if you wish to not automate the process.


How to setup your orders

Probably the easiest way to do this is if you already have your coins on an exchange and are only planning on trading to profit. As such, you can simply pre-set limit orders at the prices where you wish to take profits (and don’t forget to set a stop loss) and you’re set, all you have to do now is wait. If you are instead investing or using your cryptocurrency elsewhere it might be worth it to make sure you have an exit plan if you need to take profit or exit the whole position, leave yourself some liquidity and don’t lock your funds for too long. Also, important to note that you don’t have to use regular intervals or amounts, depending on your situation you might want to sell more at a higher price, or make back your initial investment fast. Most importantly of all is to not become too greedy, not everyone is going to be lucky enough to get a 10x or so on, remember that any profit is good in the first place so don’t risk too much.


Thank you for reading, I have been away for the past 2 weeks as I have been quite busy but now I am back with regular uploads, so be sure to follow and check often for more quality content.


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