When should I sell? Is this the top? What if I take some profits now and I get out too soon? Difficult questions...
I get it, crypto life is hard. No wait, crypto life is awesome! Everything is booming, nothing comes down, it is one big party. The only thing we don’t know is how long this party will last before we see a major correction. Or maybe we won’t even see a correction, but we’ll end up in a bear market for a while. Or not even that. Who knows?
Anyway, personally I feel most comfortable when I take some profits along the way. It gives me peace of mind. With taking profits I mean really take it out of the crypto world. That’s right, to fiat money (I know this is an ugly word for some of you here :-P).
I have struggled with taking profits for a while and I notice 90% of the people in the space do. I always thought it was a better decision to leave my profits in crypto and thereby have a higher ROI on my money than with fiat. Which is easy to think given that the market keeps on growing and is currently not far from its ATH.
But you know what they say: “Fix the roof when the sun is shining”. That is the reason why I tried a few different things and I now finally have found a method for profit taking that works for me.
If you are struggling with profit taking, it might be something for you as well. Preferences are personal of course.
Portfolio Profit Taking vs. Coin Profit Taking
When is the right time to take some profit? Image source
The first mindset shift was to start determining when to take profit based on my portfolio as a whole instead of the price of a single coin. Don’t get me wrong, I continuously look for opportunities to get more ROI on my investments.
Not having a crystal ball, that means I will never be able to determine the best price to get out of a coin or token upfront. That’s a fine art and I will always make suboptimal decisions. Accepting that, I now decide on when to take profit based on two very simple rules.
The first thing I did, was to take out my initial investment. I did this when I was up around 300% and basically did it in one go. By doing this I made sure I would at least never lose money in this crazy crypto world. I could have done it sooner, but this felt like a good moment to me.
The 50/10 Rule
The second thing I did (and still do), is follow another very simple rule: if my portfolio goes up 50%, I take out 10% and turn it into fiat. If my portfolio goes up another 50%, I take out another 10%. And so on, and so on. To me, this is the right balance between locking in a part of my profits, while still being able to profit from a growing cryptocurrency market.
For clarity reasons, let’s illustrate it with an example:
- Peter starts with an initial investment of $2,000.
- On day 120 Peter’s portfolio is worth $8,000 and Peter takes out his initial investment of $2,000. Peter’s portfolio is now worth $6,000.
- On day 180 Peter’s portfolio is worth $9,000 and he takes out 10% ($900). His remaining portfolio is now worth $8,100.
- On day 220 Peter’s portfolio is worth $12,150 and he takes out 10% ($1,215). His remaining portfolio is now worth $10,935.
- On day 300 Peter’s portfolio is worth $16,403 and he takes out 10% ($1,640). Etc., etc.
You get the picture. What this method does is that is forces you to look at your portfolio as a whole. Since you ‘have to’ take out 10%, you will look at all your positions and decide which positions are best to sell.
Yes, if the market continues to rise, you have missed out on some extra profits. On the other hand, you ensured yourself of some profits in case of a black swan event and might have gotten a bit more peace of mind as well. Next to that, what about the awesome opportunity you will be able to take advantage of when the market crashes with 70%? You actually have fiat money to buy in again, as opposed to those that never took some profits off the table.
I see profit taking as a way of building an opportunity treasure chest for when a great opportunity comes by and nobody has the means to take it, except you ;-)
Cheers and good luck with your investments!
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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.