Investing in crypto is fun, exciting and can be profitable as well. However, taking your profits from your investments needs strategy and care. After all, the main score that distinguishes profitable crypto traders from unprofitable traders is profit. There are several factors that an investor must consider before deciding how to take profits in crypto. For example, you need to understand the reason why you are entering each trade and what you expect to get from the trade.
Every trader needs to come up with a recovery plan to use as an escape route when the trade goes the other way and they need to get out of it. One of the most frequently asked questions in trading is, is trading cryptocurrencies profitable? The short answer is, YES. But you have to master the craft and have the right crypto investment resources at your fingertips.
Digital currencies are highly volatile and it is that volatility that acts as a double-edged sword. It’s common to see your portfolio grow 10 – 1 000% within a short period over just hours and then turn into the negative. When it comes to taking profits in crypto, you need to have a plan and be always on your toes.
One of the major advantages of the crypto market over the stock market is that while a prospective investor is required to tick a lot of boxes to get access, the crypto markets are generally easily accessible. But it is also at this spot that the double-edged sword metaphor comes into play. Because it is easy to get into crypto exchanges where life-changing financial opportunities lie in the form of volatility, which is also at the same time, a vice to these newbies, as their emotions can be easily riled up and get in the way of logic. In the end, they blow their capital.
To come up with a solid profit taking strategy in crypto, you must approach it in a highly objective manner, free of emotions. Avoid falling in love with your trade, once you hit your profit targets, GET OUT. Do not wait for potential gains that might not even come. Remember the market is volatile, avoid treating short term positions like long term investments, HODLing can end up costing you dearly. Sitting through massive gains without taking any profit is a trap, do not fall into it. With crypto, dollars can quickly turn into dimes, so holding onto short-time positions for too long can lead to rapidly dwindling portfolios. Instead, you can come up with a solid strategy and stick to it.
As a trader or investor, your profit taking strategy will determine whether you end up winning or getting rekt. Therefore you need to come up with a plan ahead of time about what you want your take profit strategy to look like. Some traders prefer to exit their entire positions all at once, while others prefer to easily exit the market bit by bit across a range of prices. You need to decide about your approach and then stick to it ahead of time.
If you choose to leave your trades to run for long then you must set a stop-loss order. So that you do not lose all of your gains. For example, you have a bitcoin long position at $50,000 and an exit of the position at $55,000 for $5,000 of profit. What to do? As an option, you can set a stop-loss order at break-even $50,000 to stop your trade from losing you money. So if you start noticing that bitcoin is starting to go down, you can close the original order completely. In short, having a stop-loss at break-even ensures that you will not end up losing money if your trade is already profitable.
At the end of the day taking profit in crypto depends on your level of comfort with risk and ultimate goals. However, having a strategy will better your chances of success. One of the tricks that most traders employ is keeping an eye out for divergence. By definition, divergence occurs when the indicator and price of the coin do not agree and this can have an effect on your trades.
There is a higher probability that there is bound to be price retracement when divergence is recognized. Divergence will ultimately assist you to recognize and react appropriately to changes in the price action.
Another factor to watch when trading is Fibonacci levels. By its very nature, the cryptocurrency market at times pushes prices to Fibonacci levels. If you pay close attention to these levels, especially concerning retracements, you will gain an advantage when it comes to cryptos.
Also as you know crypto markets are influenced by algorithms and automated trading bots to some extent. These bots and algorithms tend to push prices to Fibonacci levels. If you pay attention you will notice that in some cases there will be some price reaction as a result of different Fibonacci levels. Such setups can provide a liquidity pool in the short term for you to close a trade and make a profit.
As you might have realized by now, having the correct strategies on your side can help you trade successfully. It is wise to learn to read the signals in the market so that you know when to get in and out at the right time. The more you practice and test your strategies the more chances to create wealth you also create for yourself.