Crypto Take-Profit Strategy: When and How to Take Profits
The crypto market ebbs and flows with volatility, creating endless opportunities for buying, selling and taking profits when the time is right. While there's no magic formula for timing the market and knowing when to take crypto profits and get out or when to stay put, there are several tips and strategies you can employ to maximize your gains when taking profits in crypto.
If you're thinking of taking your crypto profits, but aren't sure how or when to do it because you lack the right crypto profit taking strategy, we’ve got you covered. From when to sell your crypto to maximizing your gains, learning how to take your crypto profits is fundamental to your trading success.
Key takeaways:
- Investors and traders should have a take-profit strategy — actively selling crypto to lock in gains after price appreciation allows traders to multiply earnings and grow their portfolio.
- A successful crypto profit-taking strategy relies on understanding technical analysis (e.g., support/resistance, Fibonacci levels, pivot points) and setting profit targets with favorable risk/reward ratios to minimize losses.
Taking profits in crypto requires practice and time spent learning when and how to take them, however, it is crucial for traders and investors seeking to manage risks in their portfolios and avoid market dips and significant price corrections.
What Does Taking Profits in Crypto Mean?
Taking profits is the deliberate act of selling crypto or another security in an effort to lock in gains after a period of appreciation. Unlike HODLing, it often involves regular trading and market participation.
The HODL strategy for taking profits in crypto also leaves a heap of coins on the table. Even more than with stocks and other investments, coins go through a number of peaks and valleys before arriving at a particular price. Investors who know how and when to take crypto profits can take advantage of these rises and dips and increase their pot by a substantial amount of coin, while taking profits along the way.
In addition to earning regular income and growing your crypto portfolio, taking profits in crypto will also help you avoid some common pitfalls — one of which is buying the tops. Many new investors make the mistake of buying at the end of a trend, which means they have to suffer through some turbulent price corrections and watch their coin decrease in price. Since they have little experience, and no solid crypto profit-taking strategy to follow, these new investors often buy and sell at the wrong time, due to emotional factors like FOMO. This psychological hurdle is tough to overcome.
By following a proven crypto profit-taking strategy, and understanding how and when to take crypto profits by utilizing both fundamental and technical analysis, you can master the markets and profit handsomely from the volatility crypto has become famous for.
Pros and Cons of Taking Profits in Crypto
Cryptocurrency is wildly volatile. Unlike forex (FX) or stocks, double-digit gains (or losses) are a common occurrence. In fact, it's common to see your account jump up or down by two percent just minutes after hitting the buy or sell button. Taking profits in crypto by following a proven crypto profit-taking strategy will let you take advantage of these opportunities.
Pros of taking profits in crypto are as follows:
• Multiply your earnings
• Earn revenue while growing crypto holdings
• Take advantage of every market condition
• Minimal long-term risk
That said, taking profits in crypto can be challenging if you don't know how and when to take them. Fortunately, developing a strong crypto profit-taking strategy isn't very difficult once you understand support and resistance, Fibonacci levels, pivot points, and other key fundamentals of technical analysis.
Without proper understanding of these trading basics, however, the odds of becoming a successful trader and being able to take profits are greatly reduced.
Cons of taking profits in crypto:
• Requires an understanding of technical analysis
• Must follow a proven crypto profit-taking strategy
• Taxes can eat into profits
When to Take Profits in Crypto
Many newer crypto investors and traders have a hard time deciding when to take crypto profits. While knowing precisely when to enter and exit a trade largely comes down to understanding price charts and technical analysis, there are a few general signals to watch for.
Signs of Bearish Chart Patterns
One of the best times for taking profits in crypto is when you spot the formation of a bearish chart pattern. Death crosses, head and shoulders, shooting stars and other bearish patterns often signal trend reversals, and should be incorporated into any crypto profit-taking strategy.
Lack of Upcoming Catalysts
Another good example of when to take crypto profits is when the price of Bitcoin or another crypto you're vested in stagnates and loses upward momentum. This usually leads to price consolidation, which should serve as a possible exit signal in your crypto profit-taking strategy. However, you should wait for confirmation from another indicator prior to placing a sell order.
Change in Fundamentals
Another good time for taking profits in crypto is when a change in fundamentals begins to occur. Knowing when these changes are taking place involves fundamental analysis.
Unlike technical analysis, which relies on crypto price charts, patterns and indicators, fundamental analysis involves looking at the number of people buying and using a crypto, a change in the team behind it, and other available information to know when to enter a trade and when to take crypto profits.
Uncertain Macroeconomic Conditions
Similar to a change in fundamentals, your crypto profit-taking strategy should also account for changing or uncertain macroeconomic conditions. Events such as wars, pandemics and recessions can have a significant effect on the stock, commodities, FX and crypto markets. Any of these can cause major market disruptions, and can give clear signals for when to take crypto profits rather than watch them disappear.
How to Take Profits in Crypto
Deciding when to take crypto profits based on fundamentals or macroeconomic conditions is one thing, but determining exactly how to take crypto profits is quite another. Do you set a random take-profit after a certain percentage gain, or should your crypto profit-taking strategy involve taking profits in crypto at certain areas of resistance — or by utilizing pivot points and Fibonacci levels? Smart traders use all of the above.
Setting Profit Targets
At some point, every trade has an exit. Entering a trade is easy, but where and how you exit determines how much you profit — or lose.
When taking profits in crypto, trades can be closed according to a crypto profit-taking strategy involving the use of trailing stop-loss orders and profit targets when specific conditions are met.
Depending on your crypto profit-taking strategy, the profit target can be a specific price target or a percentage-based target. Regardless, when the price of the crypto reaches a predetermined level, the trade can be closed either manually or automatically by entering a specific target profit during trade execution.
For example, if you purchase Bitcoin at $31,710 and have a profit target of two percent, you would place an order to sell at $32,344. If the price of Bitcoin reaches this target level, the trade is closed. In a nutshell, that's how to take crypto profits with price targets.
Taking profits in crypto with this crypto profit-taking strategy also allows you to calculate a risk/reward ratio prior to entering a trade. To do so, you need to enter a stop-loss, which should ideally represent less of a price change than your profit target. This way, the reward will outweigh the risk.
Risk vs. Reward
Although you can never know 100 percent whether a trade will be a winner or a loser, you'll be more likely to turn a profit when your reward is greater than your risk. For instance, if your average winning trade is $11 and your average losing trade is $6, you only need to win around 40 percent of your trades to earn an overall profit.
Taking profits in crypto by utilizing profit targets as part of your crypto profit-taking strategy also makes it possible to tell whether or not a trade will be worth taking. If the risk is greater than, equal to, or even not considerably less than the profit potential, then the trade isn't worth taking — and you should wait or move on to the next opportunity. In this way, determining a profit target can actually help you filter out poor trades.
Using Technical Analysis for Exit Points
Many traders use technical analysis to identify entry and exit points in order to maximize profit and minimize risk. While there are hundreds of technical indicators, chart patterns and tools you can use to analyze crypto charts and zero in on key entry and exit points, there are a few strategies in particular worth considering.
They include:
• Paying attention to areas of support and resistance
• Being aware of Fibonacci levels
• Keeping an eye on pivot points
Anyone wondering how to take crypto profits who’s interested in regularly taking profits in crypto should master these three strategies.
Using the Tools
The first, support and resistance, should be a part of any crypto profit-taking strategy. When looking at the price chart of any crypto in almost any time frame, you'll notice certain areas where upward momentum seems to halt. These are known as resistance areas. Conversely, you'll also see certain areas where downward momentum is stopped or reversed. These are known as areas of support.
Both areas are key. Whether you have an open buy order or sell order, keep your eye on these key areas and consider exiting the trade and taking profits in crypto whenever the price nears. While the price will break through either support or resistance if the momentum or trend is strong enough, more often than not crypto prices will react and bounce off of these areas in the opposite direction.
Fibonacci levels are equally important when learning how to take crypto profits. Why? Well, the crypto market naturally tends to push prices toward the various Fibonacci levels. By paying attention to these levels — especially retracements — and checking them as a part of your crypto profit-taking strategy, you'll gain the upper hand when it comes to taking profits in crypto.
When learning how to take crypto profits, understanding pivot points is also a must. Similar to Fibonacci and support and resistance levels, it's quite common to see price react to pivot points.
Pivot points are calculated to determine specific points where market sentiment shifts from bullish to bearish. Day traders, in particular, use pivot points for determining entry points, stops, and levels for taking profits in crypto.
At the end of the day, pivot points should be viewed as intraday technical indicators. Due to their ability to identify trends and reversals, calculating pivot points is a must when learning how to take crypto profits for maximum gain.
Should You Take Profits in Crypto?
Regardless of the crypto profit-taking strategy used, taking profits in crypto largely depends on one's risk appetite and investment timeline. If you have years to wait before seeing a return on your Bitcoin or other crypto investment — and the nerves of steel needed to wait out huge market dips and price corrections — then HODLing may be the right strategy for you.
However, if you want to realize some profits to avoid market dips and significant price corrections common in a bear market, then taking profits in crypto is definitely the right move.
Sure, taking profits in crypto takes practice and some time spent learning when and how to take them. However, by investing a little time into learning how to execute the right crypto profit-taking strategy, you can increase your potential gains, allowing you to manage risks better.
The Bottom Line
As you can see from the examples above, as well as from thousands of crypto success stories, the right trading strategies can help you make money with digital currencies time and again. However, before you even begin thinking about taking profits in crypto, you must get used to recognizing certain cryptocurrency signals or "tells" in order to know when to buy and when to bail. The more experience you gain and the more you learn about how these unique assets work, the more profits you can expect to take.
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