Cryptocurrency trading has become an increasingly popular avenue for individuals looking to capitalize on the lucrative crypto markets. While there is the potential for substantial profits, knowing how and when to take profits is one common issue that traders face.
The ability to secure profits at the right time can make a significant difference between success and missed opportunities. In this article, we take a look at the considerations and strategies to effectively take profits in crypto trading.
What Does Take Profit In Crypto Mean
Taking profits in crypto is the act of closing your position to lock in the gains after it has appreciated. Unlike HODLing, taking profits requires a more active approach in the crypto markets. Instead of buying and sitting in a position for months or years, when the price of a cryptocurrency rises and reaches a predetermined target, traders will execute a “take profit” order to lock in their profits.
By taking profits, traders can capitalize on favourable market conditions and ensure that their paper gains are realized before the market potentially reverses. This allows traders to strike a balance between maximising their returns and managing volatility in the crypto markets.
Importance Of Taking Profit In Crypto
Taking profits in crypto with a proven strategy is of paramount importance for several reasons. Firstly, profit-taking helps traders maintain discipline and emotional control. It prevents the temptation of greed where profits are secured based on predetermined targets rather than chasing unrealistic gains. Secondly, taking profits allows you to secure your profits. By taking profits, you can convert your paper gains to tangible returns. Additionally, regularly taking profits allows you to reinvest them in other opportunities and compound your returns over time.
Perhaps the most important reason why you should take profit is that it helps you manage risk effectively. It ensures that you do not get overly exposed to market downturns or sudden price crashes, protecting your capital and minimizing potential losses.
Taking profits is a crucial component of any successful trading strategy and incorporating it into your crypto trading strategy can help you achieve success in the markets and reduce the risks associated with market volatility.
How To Take Profits In Crypto
Sell your whole position
Selling your whole position is the most straightforward way to take profits in crypto. This approach requires you to simply close your entire position and exit the market when prices reach your profit target level. The benefit of this approach is that it allows you to lock in your profits entirely. The downside is that you might potentially miss out on further price appreciation.
Sell part of your position
Instead of closing your entire position, you only sell a portion of your position while keeping the rest. This approach allows you to lock in some profits while still allowing you to profit if prices continue to rise.
Use a trailing stop loss
With a trailing stop loss, you set a predetermined percentage or dollar amount below the current market price. As the price of the crypto rises, the stop loss automatically trails the price, maintaining the set percentage or dollar distance from the price. This approach allows you to lock in profits while giving the crypto the room to continue its upward momentum.
When To Take Profits In Crypto
Signs of Bearish Price Action/Chart Patterns
When the charts display bearish price action and/or chart patterns, it is a sign to lock in and take your profits. Some examples of bearish price/chart patterns include price trading below the moving averages, shooting stars and head and should patterns. By being vigilant to these signs, you can proactively protect your profits and exit your positions before they turn against you.Taking profit when bearish price action and chart patterns emerge allows you to preserve your capital and potentially re-enter the crypto market at more favourable levels.
Change in Fundamentals
The fundamentals refer to the underlying factors that influence the value and prospects of a crypto. These fundamentals include but are not limited to technological advancements, regulatory developments, partnerships, or market conditions. When there is a change in the fundamentals, it can impact the future performance and value of the crypto. Identifying fundamental changes can allow you to make informed decisions on when to sell and take profit.
Poor Market Conditions
Similar to changes in fundamentals, poor market conditions can affect the price of crypto. The exponential growth of the crypto industry in recent years means that the industry is more closely tied to the global economy than ever. Poor macroeconomic conditions, conflicts and pandemics can have significant effects on the crypto markets and traders should pay attention to these events and look to take profits.
When You Reach Your Profit Target
Before you enter a position in the crypto markets, you should have already set a take-profit level. The profit target level can be determined by fundamental or technical analysis or both. Once that target is reached, it is important to remain disciplined and follow your plan. Taking profit at your profit target allows you to secure your gains. Selling once prices reach your profit target helps you not only make profits but also preserve and grow them over time.
Mastering how and when to take profit in crypto trading is a crucial skill required for success in the markets. By understanding how and when to take profit, crypto traders can take advantage of favourable market conditions, secure gains, and safeguard their capital against potential downturns.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service.
Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.