Navigating the Crypto Market
If you’ve ever been invested in the world of crypto, you probably know first-hand just how much of a wild ride it can be.
Cryptocurrencies are well known for their volatile nature, with prices that can surge double digits seemingly every week, and while it’s an exciting time for investors, it can also be challenging to decide when to actually sell your crypto assets
In this article, we will provide some valuable insights on when to sell crypto as an investor or trader, taking into account the volatile nature of this asset and, in doing so, hopefully, help you take advantage of the significant gains that are possible in this market.
The Volatile Nature of Crypto
It almost goes without saying at this point, but Crypto is an incredibly volatile asset class, with prices fluctuating significantly over very short periods.
This volatility makes it difficult to time buys and sells, and many people have made and lost millions on Bitcoin or other crypto assets due to timing.
Keeping that in mind, it is essential to understand when to sell if you want to make money trading or investing in crypto.
This doesn’t mean perfectly timing markets, but it does mean thinking deeply about the circumstances that would lead you to sell because weeks can truly go by in minutes in crypto.
Crypto vs. Traditional Assets
One of the significant differences between crypto and traditional assets found in the stock market is that most cryptocurrencies do not have intrinsic value.
This lack of intrinsic value makes it challenging to time sales based on fundamental factors, such as valuation, earnings, or other traditional financial metrics.
As such, crypto investors and traders need to consider other factors when deciding when to sell crypto.
Planning to Sell
Building on the points mentioned above, it is crucial to have a clear plan of when to sell before buying crypto.
Hopping on the crypto train without a predefined plan of when to sell is a dangerous ride because it forces a game-time decision that is more likely influenced by your emotions.
Having a plan helps to avoid rationalizing losses as they get worse, which is commonplace when emotions are involved.
A clear plan also helps you stick to reasonable levels when selling for a profit rather than riding the roller coaster back down because greed got the best of you.
When to Sell for a Loss
One of the most challenging decisions for any investor or trader is when to sell for a loss.
Nobody enjoys realizing a losing trade, but holding onto a loser out of hope it will come back is how bad trades turn into worse trades.
Given the volatile nature of cryptocurrencies, it’s only a matter of time before a position experiences a strong move against you, so you need a plan for those circumstances.
If you have a set of rules or contingencies in place, you won’t be making spur-of-the-moment financial decisions like a chicken with its head cut off.
With that in mind, let’s dive into some of the factors you should consider.
When engaging in any form of investing, it is essential to know your risk tolerance, i.e., the maximum amount of loss you can stomach.
If you can’t tolerate a loss greater than about thirty dollars, you should cut your losses if and when you are ever down more than thirty dollars.
Be very clear about how much money you are willing to risk, and don’t allow yourself to lose anything beyond that. Selling stuff for a loss isn’t easy, but it’s necessary sometimes to avoid huge losses.
Managing risk is arguably the most important quality of successful traders and investors, but you need to identify your risk before you can properly manage it.
Next, you’ll want to consider your investment timeframe.
Are you investing in crypto to make money in the next year, or are you playing the long game and holding onto your assets for the next decade or more?
If you’re in it for the long haul, you may be willing to tolerate more volatility and hold onto your assets during periods of fluctuation.
However, if you’re looking to get in and out of a trade quickly, it might not be wise to suffer through such crazy price swings.
Put another way, the expected length of your investment will greatly impact how you view price action and what times are more or less appropriate to sell.
Knowing the length of your investment will also help to put things into perspective and manage your expectations. If you are a long-term investor, day-to-day price action is of little consequence.
Bitcoin being up or down 10% this month doesn’t matter if you are only investing to be up 30% by the same time next year, but it matters quite a bit if you were planning to hold for 30 days.
When to Sell for a Profit
There is no best time to sell crypto without hindsight, which we all know is 20/20, and perfectly timing markets is an unrealistic expectation.
However, the following factors should still be considered when deciding when to sell and realize your crypto profits.
Original Trade/Investment Thesis
What was your original trade/investment thesis? Keep things as simple as possible and sell whenever that thesis is invalidated or proven correct.
For example, if you bought Bitcoin with the expectation that it would be worth $100k+ in ten years, you have no reason to sell unless BTC hits 100k or it has been at least ten years.
If you’re a short-term trader expecting Bitcoin to surge 8% toward a critical level over the next week, the same rules should apply.
The key is not to overthink it. Have a well-defined trade idea and sell as soon as you’ve been proven right or wrong.
Another approach that can be useful in identifying potential sell points is technical analysis.
By analyzing historical price and volume data, technical analysts look for patterns and trends that can provide insights into future price movements.
For example, a chartist might look for key support and resistance levels that have been tested multiple times and be looking to sell if and when price reaches those levels.
However, it’s important to note that technical analysis is not foolproof, and there’s no guarantee that past price movements will repeat in the future.
In short, technical analysis can be a valuable tool in identifying potential sell points, but it should be used in conjunction with other strategies and sell signals consistent with your initial investment thesis.
Better Investment Opportunities
A frequently overlooked reason you may choose to sell your crypto assets is the potential for finding a better investment opportunity somewhere else, which is a common consideration among stock traders.
Whether you’re a stock trader looking to sell stocks or a crypto trader looking to sell crypto, you can always come across something in the markets that you believe has better growth potential than the cryptocurrency you’re currently holding.
In this case, selling your current position and investing in the other may be a wise decision. The same could be said of a crypto-to-crypto exchange if the alternative has more potential in the digital currency space.
This is what’s commonly referred to as the opportunity cost of holding something, which takes into account how much profit you are hypothetically giving up.
Even if you make money with an investment, there is a cost associated with better investments you missed because you chose the underperforming one.
While there are many strategies for selling crypto, it’s important to accept that just like you’ll never have a perfect entry, you’ll never have a perfect exit.
You may also sell a coin for a profit only to watch it rise further and further or cut a loss only to see it rebound minutes later.
This is the unfortunate nature of investing and shouldn’t discourage you from creating and sticking to a clear plan around when to sell your crypto.
It’s also important to consider your personality when deciding when to sell because plans that don’t align with a person’s personality are much harder to follow.
As an example, if you bought BTC at $20,000 and it rose to $25,000, would you be more upset if you sold and it continued higher, or if you held on and it dropped back down to $15,000?
Understanding your personal risk tolerance and emotional reactions to the crypto market movements will help you make better decisions and avoid regrets.
Finally, it’s essential to remember that selling is not a binary decision.
You can always sell a portion of your holdings and leave the rest to continue to grow.
This approach can help you manage risk and take advantage of market opportunities while avoiding any 100% commitment to winning or losing.
Conclusion: When To Sell Crypto
Selling crypto is a crucial part of managing risk and maximizing returns.
While there’s no one-size-fits-all strategy for selling, it’s essential to have a plan in place before you make a purchase.
Understanding your risk tolerance, investment thesis, and emotional reactions to market movements are some of the best practices to help you make better decisions and avoid costly mistakes.
Moreover, by sticking to your trade thesis, using technical analysis, watching for significant changes in the market, and staying true to your investment thesis, you can make more informed decisions about when to sell your crypto assets.
And by accepting that you’ll never have a perfect exit, you can avoid second-guessing yourself and focus on making the best decisions for your portfolio.