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When Should a Cryptocurrency Trader Take Profit?
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Last time, we talked about when you should sell your crypto and setting targets. In this article, we’ll discuss when is a good time to take a profit.
It’s a more nuanced question than when to sell and tackle a different set of problems. A lot of times, selling has to do with cutting losses and moving on while taking profit relies on discipline and having a solid plan.
As traders, it’s a good problem to have, but it can also cloud your judgment, especially when you don’t have a clear goal with the money you’ve just made. With that in mind, before entering a trade, you already need to know what the endgame is and how you’d get there.
That sounds like a tough question, but nothing about trading is easy, especially when deciding what to do with fresh gains. It’s like asking, is this much money enough or do you want more? If you find yourself always leaning towards the latter, then your game plan may need a major overhaul.
Here are questions traders can ask themselves to help decide when to take profit, some of which have little to do with technical proficiency.
- Why did I buy this coin?
- What do I want out of this trade?
- Do I want to invest in something else?
- How well do I deal with regret?
Your answers to these questions will help define a path to a potentially more profitable outcome.
Why Did I Buy This Coin?
If you have bought a coin but don’t have the answer to this question, you may have a bigger problem than just not knowing when to take profit.
One of the biggest misconceptions people have about trading cryptocurrency is it’s the same as stocks. While they do share some general mechanics, crypto is nothing like stocks.
The main difference is stocks represent something much more concrete than crypto. People who invest in stocks often see value in the company and its product or service. This value goes up or down depending on how useful the company remains to its customers.
A crypto’s value is based on how many people say it’s valuable. You’re basically investing in the future of those people.
Most investors who bought bitcoin before its first crash did it for the thrill and got some money out of it. Those who stayed after the crash and even the next were the ones with a plan. They stuck to their guns and got (hopefully) paid.
Before buying a coin you need to know why. Is it because it’s all the rage? Is it new and got all the hype? Is it super expensive and do you have too much money to care? Does it have a cool name?
Whatever it is, the investment needs to have a reason because that reason will determine its purpose.
What Do I Want Out of This Trade?
We obviously want money out of any trade, but if that’s your answer, then how much is enough?
This is often where people get stuck because they don’t know what the coin would do next. They could sell but then the price might keep going up afterwards - they wouldn’t know how to deal with that regret.
If you’ve ever watched Who Wants to be a Millionaire, the contestant was periodically faced with the dilemma of either taking what they’d earned or risked everything on the next question. Taking profit in crypto is a lot similar to that - the price could keep going up or plummet in disregard of historical data.
The key to answering this question is to avoid the raw numbers and focus on the percentage. People have different sweet spots for taking profit in crypto but most traders tend to set their targets at 50%. 100% is usually the dream and anything beyond that is a bonus, but if that’s your mark then you should learn to stop there, too. Push aside temptations and do the right thing.
Do I Want to Invest in Something Else?
At some point on your investment journey, you’ll inevitably encounter a better opportunity than what you’re currently doing.
When this happens, ask yourself if you’re willing to let go of what you’ve already invested in. Basically, you’re forgoing all potential profit your current crypto could make in the future. That could also happen as soon as you’ve transitioned.
Many investors are often able to afford multiple investments and would have no problem putting in more money should opportunities arise. But if you only have one egg and one basket, then this is the decision you’d need to eventually make.
The hard part here is if your coin hasn’t reached a certain target before the discovery of something potentially better. Should you ride it out until it does or end things early and move on to the next adventure? The thing is, profit is profit no matter how small, and what you’re actually risking is the opportunity itself. Once again, avoid focusing on the raw numbers and instead of the long-term outcome.
How Well Do I Deal With Regret?
Whether we like it or not, regret is a part of every opportunity. Taking profit in crypto is capitalizing on a good opportunity. Regret often comes when you realize you could have gotten a lot more.
How well you deal with this has much to do with your investment plan. Tell yourself to stick to the target no matter what happens afterwards. Eventually, you’ll develop a sense of detachment from anything that’s not part of the plan.
All in all, the only complex thing about taking profit is what the traders want to achieve. For some of us, a little bit of gain would call for celebration. For others, the only time we’d sell the coin is when it dies.
The next time you wonder if you should take profit just know that you’ve already made some money. Perhaps not maximum value like the experts suggest, but considering today’s volatility trend, what exactly is maxed value, anyway?