The crypto market is volatile and it’s hard to predict when a coin may drop in value. The good news? You can protect your portfolio by regularly taking your crypto profits.
The bad news? Not everyone knows how to do it well. But don’t worry, we got you. Let’s dive into when and how you can take profits in crypto and the best way to reinvest that profit.
Why Should You Take Profit in Crypto?
As a crypto trader, it’s important to regularly withdraw the interests you gain on your coins.
Apart from spending your gains on that gadget you have been eyeing, here are 3 reasons why you should take your crypto profit:
1. To Have Enough Money to Invest in Other Cryptocurrencies
Think of your crypto gains like a bag of magic beans. You can trade those beans to get your hands on some new and shiny cryptocurrencies. It’s like having your cake, eating it too, and then finding out there’s another cake. It’s the ultimate win-win!
2. To Protect Your Crypto Portfolio
The bear market is like that big, bad wolf that’s always huffing and puffing, trying to blow your crypto house down. You can’t always stop the wolf, but you sure can reinforce your walls. By grabbing your profits before the wolf gets too close, you’re saving your money from getting swallowed whole.
3. To Invest in Other Things
Putting all your money in crypto may not be the wisest thing to do. It may be better to spread your money across some low-risk investments with a constant interest rate too like savings.
Questions to Ask Yourself Before Taking Profit or Reinvesting Your Crypto
1. Why Did I Buy this Coin in the First Place?
Before you dive into a coin, it’s wiser to have a legit reason beyond just joining the hype train. Let’s say you bought Bitcoin ’cause you see it as a strong long-term investment; in that case, sticking with it depends on the market’s mood.
But if you’ve hopped on a flashy new coin just because it was the talk of the town, it might be time to rethink your game plan. If you don’t see any real long-term potential or value in it, but you’re sitting on some sweet profit, consider cashing in and reinvesting that dough elsewhere.
2. What’s the Endgame Here?
When it comes to taking profits, the real question is, “how much cash is enough?” Are you willing to gamble it all, potentially lose some, but bet on a massive bounce back?
Crypto’s a wild ride, and you never really know how a coin will behave. You might sell only to watch the price skyrocket and regret jumping ship too early. But, honestly, crypto prices are all over the place, regardless of historical data.
So, what do you do? Most of the time, it’s all about the profit percentage you’ve already gained. People have different tastes depending on their risk appetite. That said, many traders aim for at least a 50% profit before cashing in. Just remember, you’re entering risky turf, which could hurt your investment. Set a clear profit percentage as the point where you take your gains and walk away.
When Should You Take Profit?
Every trader wants to know when they should remove their profit. Unfortunately, there isn’t a secret crypto guide that “reveals” the right time to take your crypto profits.
But don’t be discouraged. There might not be a magic spell, but these 3 things can help you decide when to withdraw your crypto profit:
1. Research
Proper crypto research is an important tool that can help you decide when to take your profit. When carrying out research, it’s important to ask yourself these questions:
- How much is my profit?
- Will the coin’s value increase in the near future?
- What is the current value of the coin?
- What will happen if I don’t withdraw my profit?
- Will I regret withdrawing my profit?
It’s important to answer these questions without emotions judging your clarity. Luckily, the results of your research can help you answer the questions.
2. Technical and Fundamental Analysis
Imagine you’re a crypto detective, with two trusty tools at your disposal – technical analysis and fundamental analysis.
First off, technical analysis! This is about reading crypto charts and stats to spot patterns in a coin’s price history. It’s your crystal ball for whether a coin’s price might go up or down.
Next, meet fundamental analysis. Here’s where you put on your Sherlock Holmes hat, investigating the coin’s economic value. You’ll look at stuff like why the coin was created, its future prospects, who’s behind it, and who’s backing it.
By using these two methods together, you’ll be able to pick the perfect moment to cash out those profits!
What to Do With Your Crypto Profits
Taking your profit in crypto is not complicated. All you need to do is calculate your profit and withdraw the difference. Here are 4 common things to do with your profit:
1. Re-invest Your Profit
You’ve just made some good money, but what next? You can dive deeper and invest your profits in different cryptocurrencies. If that’s a bit wild for you, consider high-interest savings for some steady growth. Or, if you’re feeling a little bit more adventurous, dive into DeFi (Decentralized Finance) and explore a universe beyond traditional banking!
2. Convert Your Profit into a Stablecoin
Let’s talk about turning your sweet profit into a stablecoin like USDT! Picture stablecoins as the superheroes of crypto, tied to a traditional value like your everyday dollar, or even shiny gold. USDC and USDT are part of the stablecoin family.
Transforming your earnings into a stablecoin is like parking your money in a safe garage where the volatile crypto market can’t touch it. It’s chill, calm, and retains its value no matter what.
Picture this: you invest your profit and get 500 USDT. That’s a steady $500 value locked in your digital wallet, impervious to the whirlwinds of the crypto world. Pretty cool, huh?
Learn More: What is the best stablecoin in 2023? USDT Vs USDC Vs BUSD
3. Trading a Percentage of Your Coin’s Profit
Let’s imagine your coin is increasing in value every day, but after doing your research, you discover that the coin’s value will drop when it gets to a certain price level. You can withdraw your profit by selling a percentage of your coin and HODLing the rest.
For example, If your coin increases by 30%, you can sell 10% of the coin and convert the profit to fiat or other cryptocurrencies. This way, you can protect your interest without dumping the coin.
4. Dive into Fresh Coins
Welcome to the wild world of fresh coins! Some traders love to strut on the high-risk, high-reward tightrope, betting on new coins and Initial Coin Offerings (ICOs). Of course, they’ve still got their safety net – their major moolah tucked safely in trusty classics like BTC, ETH, and LTC.
After they’ve got a tidy profit and jumped out of an investment, they’ll dive back in at a cheaper rate. But here’s the spicy bit – they’ll throw some profit into the thrilling gamble of shiny new ICOs and coins.
Imagine this: You start with 5 BTC and grow it to 8 BTC. You then hurl those 3 BTC of pure profit into an exciting, potential-100x-return project. If it soars, you’re the early bird with a tasty worm! If it sinks, hey, you’ve only risked your profit, and your main stash is safe and sound.
5. Squirrel Away Your Profits
Some traders prefer to stash away their profits in coin form, safe from the rollercoaster ride of daily trading. For instance, if you’ve successfully grown 2 BTC to 2.4 BTC, you could move the 0.4 BTC profit to a cold storage wallet, or an offline wallet. These coins can be held for the long term along with your other set-aside earnings.
Remember, coins in cold storage aren’t easily accessible if you decide to reinvest them when a bull market comes knocking. To balance this, you can take short positions when the market is bearish, helping to counteract potential losses from your stored coins.
The final option? Good old cash. It may not be as exciting as the others, but it’s still a solid choice. You can park your crypto gains in a savings account, ready for future investment opportunities or to buy the dip in the market.
3 Mistakes to Avoid When Taking Your Profit
We have talked about the various ways you can take profit in crypto, but you also need to know and avoid the mistakes traders make when withdrawing their profit. Here are 3 things to avoid when taking your crypto profit:
1. Not Doing Enough Research
Research protects you from a lot of things. In addition to helping you decide the right time to withdraw your profit, research helps you discover new and fun crypto projects to reinvest your profits.
Here’s how to do research properly:
- Know Your Coins: Start by familiarizing yourself with different coins. BTC, ETH, and LTC might be the kings and queens of crypto, but there’s a whole royal court of altcoins to explore.
- Gotta Love the Charts: Roll up your sleeves and get down with some technical analysis. Study past price trends, keep an eye on volume – it’s a wild, chart-filled ride that’ll give you a hint of where a coin might be heading.
- Detective Time: Fundamental analysis is next. Put on your Sherlock hat and dig deep. Why was this coin created? Who’s behind it? Who are the investors? Uncover these mysteries, and you’ll have a clearer picture of a coin’s value.
- Stay Updated: Keep a pulse on the latest crypto news. Unearth emerging coins, spot market trends, and discover innovative blockchain projects.
- Communities and Forums: Jump into online crypto communities. Reddit, Twitter, Discord, and more – these are your gold mines for firsthand experiences, discussions, and insights.
- The Final Call: Combine everything you’ve learned to make informed decisions. Whether it’s the right time to pull out profits or a cool new project to reinvest your earnings.
2. Not Having a Strategy
It’s easy to make mistakes when you don’t have a strategy. A solid strategy helps you plan and make the right decisions. It also guides how you withdraw and re-invest your profit.
- Map It Out: Start by planning
- Set Your Goals: Next, jot down your crypto goals. Whether it’s a Lambo or decent passive income? Your goals are like GPS and will direct your moves.
- Identify your entry and exit prices: When do you jump in and when do you parachute out? It’s like planning your moves on a giant crypto chessboard.
- Diversify: Don’t put all your eggs in one basket! Spread your investments across different coins. It’s like having your own crypto buffet – variety is the spice of life!
- Decide if you’re a ‘hodler’ or a trader. Are you in it for the long haul, or do you prefer the adrenaline rush of short-term trading?
- Withdraw & Reinvest: Lastly, strategize your profit plans. When and how will you withdraw? Where will you reinvest? It’s all about perfecting your crypto dance moves.
And that’s all there is to it! Remember, a solid strategy is your best friend when it comes to cryptocurrencies!
Learn More: Top 7 Strategies for Day Trading in Crypto
3. Acting Out of FOMO
Fear of missing out (FOMO) is a mental state that occurs when you don’t want to miss out on the latest trends. Yes, the crypto community is a good source of information, but you shouldn’t base all your decisions on hype and other people’s advice. Let your research and strategy always guide when to take your profits in crypto.
Final Thoughts
Knowing when to take profit in crypto isn’t a one-size-fits-all type of thing. What works for you may be different from what works for someone else. But if you use this article as a guideline, you can cut out the noise and have a killer strategy for taking profits and re-investing in crypto.
With a Quidax account, you can re-invest your profit in other cryptocurrencies in minutes. Plus, tons of amazing features like the stop-limit feature on the Quidax app make trading easy. All you have to do is sign up on Quidax to get started.
