A Guide To Basic Profit-Taking Techniques

Since the crypto market is a bit slow lately, now is a good time to discuss profit-taking strategies and techniques. It seems like common sense to take profits regularly, but you’d be surprised at how many people neglect to do so.

Not taking profits could result in what is known as “round-tripping” your bags. In other words, you hold onto your investments for too long without taking profits and end up losing most of the unrealized gains accrued during the bull market. These are the horror stories you hear about people losing 90%+ of their portfolio value. Not a good spot to be in.

So to avoid round-tripping, let’s discuss some common ways you can take profits. Most of these techniques are aimed at long-term holders, as opposed to day, swing, or leverage traders.

CryptosRUs 20% Rule

We can all learn from George. He likes to take profits whenever he gets below 20% in cash reserves (based on the total value of your capital). It’s really that simple. Take as much profit as you need to regain or maintain a 20% cash reserve status. Simple and effective. Keep in mind this is the bare minimum, and you can always take more profit as needed.

DCA Out

Dollar-cost averaging (DCA) out involves systematically selling a fixed amount of your crypto holdings at regular intervals. This strategy helps reduce the impact of volatility on the overall investment by ensuring profits are taken consistently over time. Just like you DCA in, you can DCA out. Set a specific interval, such as taking 5% profit every month, and stick to it.

House Money

Once your investment has doubled in value, take out your initial investment. What is left is known as “house money” or a “moon bag” because if you lose it all you won’t have lost any money, and if it does well you’ll be driving to the moon in your new Lambo. This is probably one of the more conservative and safe strategies we’re discussing.

Layered Price Targets

Assuming you’ve invested when prices were low, you can set specific price targets for each asset. If you aren’t sure whether or not you bought low, this technique might not be the best for you. For example:

• You bought 100 Avax at $10. When Avax gets to $20 you’ll take out 10% of the investment (10 Avax). When Avax gets to $30, you’ll take out another 10%, and so forth.

Big Baller Money Shot

This is by far the riskiest play we’ll be discussing. You would ride all your investments until you think the market has topped or is about to top. Then you take all your money out in one big sale. This method is risky but also provides the best reward. Remember that it’s nearly impossible to time the exact moment when the market tops out. But if you did your big-baller money shot close to 10-20% of the top, consider yourself a big-time winner.

Profit Taking Psychology

Understanding the psychology behind why it is so difficult for investors to take profits during crypto bull runs is crucial.

Firstly, during a market upswing, a phenomenon known as “FOMO” (Fear Of Missing Out) takes root. Investors see the value of their holdings increase and worry that taking profits too early will lead them to miss out on potential further gains. This greed-fueled optimism can cloud judgment, making it harder to sell even when it’s wise to do so.

Secondly, the volatile nature of cryptocurrency markets can lead to overconfidence. Investors who have seen their strategies pay off in the short term may become overly confident in their ability to predict the market, believing they can hold out for even higher returns.

Finally, there’s psychological resistance to selling what is perceived as a winning investment. Many investors anchor their decisions to past performance and the highs their investments have reached, making it psychologically painful to sell off a portion of their holdings, even if logic dictates that taking profits is the prudent action.

Final Thoughts

To be successful in crypto requires a keen understanding of market trends and a strong discipline in profit-taking strategies. Especially if you’re a long-term holder, the techniques discussed here can serve as valuable tools in safeguarding your investments and maximizing your gains.

It’s worth noting, however, that the effectiveness of any strategy depends on the investor’s ability to stay informed, adapt to changing market dynamics, and maintain a level of emotional detachment from your investments. The ultimate goal is to achieve a balance between profit maximization and risk management, ensuring that you not only protect your initial investment but also capitalize on the market’s potential for growth. Remember, you need to be strategic with when and how you take profits because the last thing you want to do is “round-trip” your bags.