How to Take Profit in Crypto: Your Ultimate Guide to Profit-Taking Strategies

After scoring a big crypto win, a little bit of foresight and planning will help you take crypto profits and reinvest them. This risk management strategy can also help you cut losses when prices move against your position.

When crypto prices are rising exponentially like they are right now, you could benefit from taking profits when the opportunity strikes. You don’t want to hold on to your cryptocurrency for too long and risk a big correction wiping out your gains.

However, knowing when to enter and leave markets to maximize crypto profits and cut losses is a skill you must learn. Let’s look at how a crypto profit taking strategy can lead to successful trading.

What is a take profit order in crypto?

A take-profit order (also called ‘take profit’) allows you to sell crypto once it hits a target price, thus locking in profits on the trade.

Generally, a take profit order is set after entering a trade. Once the price reaches the take-profit level, the position closes automatically, with the trader taking the profit.

However, it is a bit tricky to know exactly when is a good time to take profits. You’re essentially asking: Is this profit enough, or do I want more? In addition, traders cannot always monitor the market continuously, waiting for the right moment to exit a trade.

Taking profits in crypto requires solid planning and discipline. So there’s no definite answer on when to take profit.

Some traders set take-profit orders based on the resistance level of trading patterns and channels. Others prefer to be guided by the stop-loss order set up simultaneously with the take-profit order.

Tips for taking profits in cryptocurrency

To set a take profit, a trader must first identify a price at which they want to exit the trade and lock in profits. Here are some crypto profit taking strategies to guide your decision-making:

• Price percentage-based: This involves targeting percentage gains from the entry price. For example, target a 10% gain if the trade moves in your favor.
• Fixed price: This involves targeting a specific price level based on technical indicators like moving averages, Fibonacci extensions , and resistance levels.
• Moving average: With this strategy, a trader views short or medium-term moving averages to identify potential resistance levels (i.e., where exits might be warranted). Alternatively, breaks above moving averages could be a sign that the upward trend is intact, and it might be time to exit with gains.
• Resistance level: This means targeting take-profit levels where the price has historically found resistance (i.e., levels where the price has historically been unable to breach upwards). This type of take profit order implies that the financial instrument has a certain historical volatility, which will be hard to overcome. In other words, once the price reaches this level, it may be difficult for the upward trend to continue.
• Take profit based on the ratio between take profit and stop loss:The trader first determines the risk level of the trade, sets a Stop-loss order at the acceptable level and simultaneously a take profit, which exceeds Stop-loss several times. The most frequently specified ratios are 1:2 and 1:3.

In addition to the above techniques, you should also ask yourself the following questions.

What was the reason for buying this cryptocurrency?

Always keep in mind that a cryptocurrency’s value depends on how many people say it’s valuable. Therefore, you should buy an asset based on its market value rather than the hype of it.

For instance, if you bought Bitcoin for its long-term value, maybe you should stick with it despite the short-term price swings.

You can take profits, for example, if the outlook for an impending bear market does not sit well with you. You can either reinvest the profits somewhere else or re-enter the market at a more favorable time.

However, if you invested in a popular coin that is no longer fancy to hold, then maybe it’s time to consider selling to take your profits.

How much is enough?

How much profit is enough is a critical question to ask. In other words, are you willing to risk it all and perhaps suffer a loss because you believe you’ll regain more if you hold a little longer?

The truth is it isn’t easy to be sure where crypto prices will move next. You could sell and see the price keep going up, for example, and regret selling so soon.

So what do you do? One strategy that served me so well involves having a specific profit percentage in mind. I usually target between 50-80% before I take profits on most of my trades.

That being said, you can target 100% profits or more. It really depends on how much risk you’re comfortable dealing with.

Is there a better opportunity?

If you can find a better token (e.g. new coins ) than what you’re currently invested in, it might be a good time to take your crypto profits. But bear in mind that such a move comes with an “opportunity cost”. In other words, you will be relinquishing your current crypto’s potential profits by letting go and going for another asset.

Can I take part of the earnings instead?

Sometimes, it is better to take a small part of your crypto profit instead of exiting the whole trade. By doing so, you can ensure that you can eventually cash out and earn a hundred percent of your profits.

It also helps cushion you from future losses by taking out the initial amount deposited. You can even reinvest for the next bull run and double your gains.

The pros and cons of take profit strategy

Pros

• The position will be closed automatically at a profit once the price reaches a specific level
• It frees the trader from needing to be on the trading platform for extended periods. The profit will automatically lock in once the price reaches a specific level
• Improves trading discipline

Cons

• It is possible that the trader will end up earning a much lower profit if the price of the asset continues to move upwards
• A take-profit order may not be executed in case of a price gap or if the price touches the specified level only short-term

Conclusion

Everyone wants to get money out of a trade. A take profit order allows you to lock in gains. However, you need to take into consideration the spread and also possible slippage during the execution of such types of orders. Use an automated trading bot to specify the desired profit percentage or price level at which you want the bot to lock in profits.