Crypto exit strategy – When to sell your coins

- 5 minute read

Zenz van der Wielen
Digital Marketeer
Zenz van der Wielen

Many new investors don’t have a plan when it comes to selling or cashing out their bought crypto’s. If you are new in trading cryptocurrencies or shares, this might be the first time that you are asking yourself ‘‘Do I hold or sell my cryptocurrencies?’’, or ‘’What is the best moment to sell?’’. These questions can be hard to answer even for experts. In this article we will explain the most common mistakes, how to avoid them, and tell you about the most used crypto-exit strategies.


Cryptocurrency exit strategie

How to create an exit plan for your cryptocurrency holdings

  1. What is an exit strategy?
  2. Why you need an exit strategy
  3. Limit/Stop orders
  4. Price targets
  5. The Step-by-Step-Method (Dollar-Cost-Averaging-Out)
  6. Initial Investment Return
  7. Cyclus
  8. Re-investing
  9. Stablecoins - Create passive income with your crypto
  10. Conclusion

What is an exit strategy?

Technically, an exit strategy is a contingency plan created with the intent of liquidating a position in a financial asset. Or simply put: A plan to sell your financial assets. The goal of an exit strategy is to limit the losses in case of a break-down. With that explained, we’ll discuss the most used exit strategies.

Why you need an exit strategy

A result of holding (or Hodling) a specific coin for too long (or due to greed) can result in massive losses, even when the price used to be way above the entry price. Let me give you an example. If you decided to buy a cryptocurrency in January, and the prices happens to jump up with 20%, you might think that selling is the way to go. However, all of your friends have decided to hold the coin. Meaning, you would be the only one missing out if the coin decided to moon (as crypto-fanatics would call it). This phenomenon is also known as The-Fear-of-Missing-Out (FOMO), a mistake many investors make while trading. After happily looking at your portfolio, you decide to hold the coin for another 2 months. Within these 2 months the price of your investment has turned south, and the price has suffered a massive -50% reduction. Meaning your investment is now worth less than it originally was. What now? Do you sell and take the loss? Or do you hold and wait for a price recovery? Who knows, the coin may never return to its all-time high. As you can see choices like this could have been avoided if you had an exit strategy in the first place. If you decided to sell your assets (or a small portion of the total) when the price rose with 20%, you would have made significant gains. This is why you need to really think about a solid exit strategy. Below you will find the top 4 most used exit strategies in cryptocurrency.

Limit/Stop orders

One of the most and well-known ways to limit a loss, or take profits at a certain price range, is called ‘Limit orders. What this means is that you are able to prematurely decide that your stock will automatically be sold or bought at a specific price point. For example, you have bought 100 dollars of Bitcoin at a price of 25.000 dollars, and would like to sell that Bitcoin once the price hits 20.000 dollars. A way to do this would be to set a limit order (to sell) at the price of 20.000 dollars. Meaning that once the price hits that specific price target, an order to sell the assets at that specific price will be added to the transaction-book. The order will remain open until the price limit is hit, or until you decide to cancel the order. What’s convenient about limit order is that they will be executed automatically, even when you are sleeping. Setting up limit/stop orders can be one way to limit losses or take profits. However, you should keep in mind that in case of extreme price fluctuations the order might not get filled in time! None the less, having limit/stop orders in place is always a great idea

Price targets

Before you start setting price targets, it is important to formulate your general objectives before you invest in cryptocurrencies. Think about what you want to achieve with your investment or if you want to invest for the long or short term. Knowing why you invest, makes making decisions a lot quicker and easier.

Subsequently you're going to determine at which price targets you're going to sell your crypto's. Having targets protects you from big losses. Let us take Bitcoin as an example. If you have invested in Bitcoin and you believe it can be worth 100,000 euros, you might want to set some price targets. Depending on your goals, you can sell parts of it at 80,000 and 90,000 euros. By doing so, you ensure yourself of a nice profit. If the price suddenly drops sharply, you have already put away a nice amount to be able to re-invest.

The Step-by-Step-Method (Dollar-Cost-Averaging-Out)

Always make sure you have a plan before investing in anything. You should think about when you will be satisfied with the result. Will a 20% increase in price make you happy? Or are you someone that wants at least 200% profits before selling? This is where the Step-by-Step-Method comes into play, also known as Dollar Cost Averaging Out. Dollar-cost averaging (DCA) is normally applied as a purchase tactic where you spread your budget and periodically buy one asset for one fixed amount. This way, you don’t have to factor in the volatile nature of cryptocurrency. You just buy or sell at regular intervals.

The Step-by-Step-Method allows you to sell a predetermined percentage of your stocks at certain price points. There is not a golden rule that will lead to definitive success. However, this strategy can prevent becoming too greedy, or selling to late, while still taking profits from time-to-time. Many investors will always keep 5-10% of their holdings for a longer period of time, just in case of a bigger up-cycle or because they firmly believe in the project they have invested in. It is always smart to take profits at a certain price range. This tactic may seem simplistic by nature, but will eventually lead to better results instead of trying to time the market/your sell orders. An example of the step-by-step-method can be found below.

Selling Point Percentage to be sold%
$25,700 10%
$35,700 10%
$49,700 20%
$79,700 20%
$104,700 20%
$155,300 10%

Initial Investment Return

Another smart things investors do, is taking profits similar to the invested amount. For example, if you have invested 1000 dollars, taking profits to an equal amount on a later point in time could be a great way to liquidate the risk of losing money. This way you make sure that no matter what happens, you can never lose more money than you initially invested

Cycles

Like traditional financial markets and the stock market, the crypto market also has cycles. A cycle consists of two phases, called the bull market and the bear market. In the bull market, the value of most cryptocurrencies increases exponentially. Price increases of thousands of percent in a few months are not unthinkable. In the bear market the opposite happens and prices of most cryptocurrencies decrease rapidly. These price decreases, also called corrections, may in some unique cases lead to a drop in value of more than 99%.

Defining the beginning or end of a cycle is difficult to predict. Usually, it is only when a new cycle has started that one discovers that a new phase has begun. Although many choices are based on previous cycles, there can never be a guarantee that the current cycle will be synchronized with the previous one.

The current cycle is proceeding quite differently from the previous cycle four years ago (crypto cycles tend to last about 4 years). This time, cryptocurrencies are more accessible than ever. There are dozens of brokers and exchanges with mobile applications that make transactions and trading quick and easy. The growing popularity of crypto has not gone unnoticed in the corporate world either. Every week, new institutional organizations start investing in one or more cryptocurrencies.

When you invest on the basis of the cycle strategy, you accept the many corrections that accompany a bull market. You know that the market is very volatile and therefore you are not afraid of small and large dips. Nevertheless, this strategy is very risky, because the end of a bull market cannot be predicted. You can try to time it but this crypto-exit strategy is only advisable if you know what you doing. So use this strategy mainly as a tool and not as the exit strategy.

Re-investing

A big mistake many people make is that they invest in 1 project, and nothing else. Of course, this isn’t a disaster if the project you have invested in skyrockets. However, betting on multiple horses could give you better results in the future. This is why it is important for you to think about what projects you would like to hold for the long run. For example, if you think XRP (Ripple) is the future for global payments, you might want to support this project for a long-time. If you have just bought XRP because you expect it to go up in the short term, we would recommend to sell projects like this using the Step-by-Step-Method. But now what? You have successfully closed your trades and have made significant gains. Many investors will then re-invest their earnings into new projects to make even more significant gains. Remember that it is always better to take profits before it is to late. Especially in the cryptocurrency market, price fluctuations happen very often, and can be quite extreme. You can trust us when we say this. We have been there before. Taking profits from time to time is a sensible approach.


Stablecoins - Create passive income with your crypto

This is mostly a strategy after you have already made profits. You can go on holiday with your well-earned crypto profits, but you can also invest it so that your profits will continue to grow. During a bear market, it is not interesting to invest in crypto, because the values will mainly decrease. A nice alternative to stay invested in cryptocurrencies is to convert your profits into stablecoins, while you will receive interest on it every year.

Receiving interest from the bank because you have money in it is a thing of the past. Depending on the size of your savings, you will have to pay taxes on them. Fortunately, nowadays there are several platforms where you can get a nice return with stablecoins. You don't have to worry about your deposit becoming worth less money, because stablecoins are stable cryptocurrencies. Therefore they will not decrease or increase in value.

On platforms such as Celsius Network and BlockFi, you can earn interest up to 10% on various stablecoins, including USDT and USDC. Depending on the amount you invest and the period of time you commit to the investment, the interest rate is determined. Normally, the longer the period of time, the higher the interest.

Conclusion

Before investing, we would strongly advise you to do your own research about a project! The cryptocurrency market can be very volatile, which can result in financial losses. However, the opposite is also true. With safe investment strategies like the ones mentioned above, you minimize the risk of losing your investment. In short we recommend you to use limit/stop orders, the Step-By-Step-Method, take profits and potentially reinvest your earnings into new projects.


Always do your own research!

The above mentioned strategies are for educational purposes only. Anycoin Direct never gives financial advice. You should always do your own research before investing!