When to sell your crypto and the importance of setting targets

In Trading Strategies

The remarkable rise in the value of Bitcoin in 2017 – from 900 USD at the start of the year to nearly 19,000 USD on December 17 – demonstrated the incredible income potential of Bitcoin and other cryptocurrencies.

If you sold at the top you could have made great profits, but if you held for another few days, you would have lost more than 7000 USD as the price dropped 30% in value to just over 11,000 USD.

Crypto is volatile. As a trader, you need to learn when to sell a cryptocurrency and how to set targets.

The dotcom boom

The decision about when to sell an investment is not unique to cryptocurrency. It’s a challenge that anyone who invests must face.

A good parallel to inform your decision-making in regards to cryptocurrency is to think about stocks during the dotcom boom. Many people bought stocks in Internet companies in the 1990s. As the value of dotcom company stocks climbed, individuals who owned these stocks had to decide whether to hold or sell.

Of course, the bubble went bust. People who had held onto their dotcom stocks and didn’t sell anything lost out big time.

But those who sold saw healthy profits. They cashed out. They might have sold before their respective investments reached their peak price, but they still earned a large profit.

Both examples illustrate the need to understand your own personal expectations. Investors always want the highest gains possible, so a more instructive guide is to ask yourself: What am I willing to lose?

By creating a framework around your investments that is guided by your ability to absorb loses, you are able to set expectations about how much risk you can handle in the volatile cryptocurrency markets.

Deciding when to sell

What would you like to earn by investing in the crypto market? Is 5% in gains over the course of 30 days enough? Are you looking to double your investment?

Questions like this could help you understand your expectations and goals as well as define the amount of time you would like to spend on any given day watching the markets.

Given the volatility that is currently inherent in cryptocurrencies, day traders spend their waking hours watching the computer and jumping on gains as they come in, while also trying to mitigate the losses.

Learning about how cryptocurrency exchanges work and the speed at which currencies go up and down, you’ll have a clearer idea of what to expect.

There are different theories you can adopt to help you make decisions about setting strategies for when you want to sell a specific currency. One of those is called “regret theory”. At its core, the theory aims to help you identify, in a specific scenario, which of several decisions would leave you with the least regret, and it’s helpful in terms of investing decisions.

Consider the following scenario:

Say you bought a Bitcoin in the fall of 2017 when it was valued around 4,500 USD per coin and the value was increasing. If you didn't sell at the top and kept holding, you would have missed the opportunity to sell the coin and get a 15,000 USD profit. Say you held to 6,500 USD per coin, you can sell it now and earn about 2,000 USD – still a good profit. Now, if you’re not planning to hold on to the currency for the long haul and are expecting to sell you could do one of two things:

  • Sell your investments now, and take your profit.
  • Hold on to your investments, hoping Bitcoin has another surge, and make more money.

One of two things could happen:

  • If you hold onto the coin, the price could drop, and you could lose out.
  • If you sell now, you could make a good profit, but the price could go up, and you’ve missed out on a chance to make even more.

Which action would leave you with less regret? Consider that, and it will may you think about your strategy for trading.

Your feelings about investment scenarios can help you set targets that include both income targets and targets to avoid losses.

Setting targets

When you begin to decide specific coin values at which you want to sell, you can use a number of tools provided by exchanges to execute your sales.

One tool is a “stop loss.” Setting a stop loss is an important aspect of trading cryptocurrency. It allows traders to protect profits, limit losses and even initiate new positions when the market breaks out.

Alternatively, you can set a “limit sell order”, which allows your trade to close when your coin hits a certain higher price.

Day traders look to make quick, short-term gains, which can be lower than 1% per trade. These traders will normally have a very large “bankroll”, meaning that they can still make good money even if the percentage gains are small.

Experienced traders will rarely risk more than 1% of their total bankroll. Although this sounds like a small amount, in the long run this will protect you from taking major losses.

A more conservative approach to cryptocurrency trading is to plan to hold on to your investments over a longer period of time (hodl). Given the volatility of the crypto markets, allowing yourself the time to see gains over time can limit your exposure and create a higher probability of gains in the longer time frame.

Once you have figured out how the markets work and you feel you are ready to start trading, you will need to set yourself some targets, work out a strategy and stick to it.

Happy trading!

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