One of the trickiest things to do when investing and trading crypto is learning when to take profits and how. Your timing and technique could make a huge difference between life-changing gains and painful losses. Even so, no matter how much money you’ve put into trading or how experienced you are, it’s always important to keep learning and researching.
If you’re just getting started, check out this article we’ve put together for you! Here, we’ll cover three strategies for you to consider implementing and integrating into your transactions. That said, while this guide is meant to give you a few quick pointers, it is not meant to be professional or financial advice. It’s always important to take responsibility for your own trading activities and do your own research.
With that out of the way, let’s dive in!
Why is it essential to have a strategy (or a few)?
It’s always better to go into anything with a plan than without. This is especially if it concerns something like your finances. Trading, as with any speculative activity, is an area where emotions can run high. When emotions run high, you’re more likely to make wrong and irrational decisions. These can ultimately be disastrous for your portfolio and personal finances.
While it is, of course, impossible to predict everything with 100% accuracy, having a plan in place or some strategies under your belt can help you manage these risks. In turn, this allows you better maximize your profits in the long run.
Strategy #1: Set targets and stick to them
The euphoria and hype that comes with investing can get to everyone sometimes. When you see a position you’ve opened make astronomical gains, the question is always this – how much is enough? Many people often fall into the trap of being greedy. They continue to speculate and let the value of their chosen asset rise. While this sounds great in the short run, this could leave the door open for a considerable chunk of these profits to be lost. This is especially in when market corrections happen – it is not uncommon to see the value of digital assets plunging overnight.
Because of this, it’s crucial to protect the profits you make by setting a target. For instance, you could set a target to take a certain amount of profits once a specific price target is reached. For example, you might decide to take out 50% of your earnings to help allocate some risk the moment the coin of your choice makes a 400% profit.
Regardless of the numbers you choose, the most important thing to do is to honor them. That means being disciplined enough to take your funds out at those targeted levels.
Strategy #2: Pay attention to trend reversals and Fibonacci levels
While a fundamental analysis-based strategy would give you an idea of what assets to open positions in, this should always be coupled with some knowledge of technical analysis. This is because some technical indicators can help signal to you when a good time to take profit is. In particular, investors have favored the use of observing indicator-price divergence and examining Fibonacci levels.
While we won’t go into the details of these indicators today, we’ll explain the significance of these indicators. On the one hand, the divergence between an asset’s price movements and its relative strength indicator (RSI) would show you where trends might be reversing. In turn, you can use this knowledge to determine which points would be good entry and exit points to take profits.
On the other hand, pay attention to Fibonacci levels during retracements and market corrections. These will give you a good idea of where certain price support and resistance levels might be. You may consider taking profits at certain resistance levels, which signal the highest price an asset might reach during a specific time frame.
Strategy #3: Set a stop loss
Finally, risk management is an essential but often overlooked part of trading and taking profits. One of the key ways for traders to manage risks is by setting a stop loss. As its name suggests, this is a tool designed to limit the maximum loss that a trade could potentially result in. Once an asset’s value decreases to a specified price, the position is automatically liquidated to prevent losses that result from the price potentially falling further.
With these strategies in mind, you’ll hopefully have some tools in your arsenal to navigate the highs and lows of trading in the crypto markets. The important thing to remember is that profit is always profit, no matter how big or small. Formulate a plan, keep your head cool, and ultimately make sure you stick to it.
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