Topics Strategies
Bybit Learn
Bybit Learn
Intermediate
Jun 6, 2022

Crypto Take-Profit Strategy: When and How to Take Profits

The crypto market ebbs and flows with volatility, creating endless opportunities for buying, selling, and taking profits when the time is right. While there's no magic formula for timing the market and knowing when to take crypto profits and get out or when to stay put, there are several tips and strategies you can employ to maximize your gains when taking profits in crypto.

If you're thinking of taking your crypto profits, but aren't sure how or when to do it because you lack the right crypto profit taking strategy, we’ve got you covered. From when to sell your crypto to maximizing your gains, learning how to take your crypto profits is fundamental to your trading success.

What Does Taking Profits in Crypto Mean?

Taking profits is the deliberate act of selling crypto or another security in an effort to lock in gains after a period of appreciation. Unlike HODLing, it often involves regular trading and market participation.

HODLing, short for “holding on for dear life,” is a hands-off form of investing. While this crypto profit-taking strategy has helped create plenty of wealth for those with the insight to buy low and get in on the ground floor of Bitcoin, Google, Amazon or other investment assets, it takes several years to see a significant return on investment. In other words, it takes patience — a lot of patience.

The HODL strategy for taking profits in crypto also leaves a heap of coins on the table. Even more than with stocks and other investments, coins go through a number of peaks and valleys before arriving at a particular price. Investors who know how and when to take crypto profits can take advantage of these rises and dips and increase their pot by a substantial amount of coin, while taking profits along the way.

In addition to earning regular income and growing your crypto portfolio, taking profits in crypto will also help you avoid some common HODL pitfalls — one of which is buying the tops. Many new HODL investors make the mistake of buying at the end of a trend, which means they have to suffer through some turbulent price corrections and watch their coin decrease by 25 percent or more. This psychological hurdle is tough to overcome.

Most HODLers also don't know how to take crypto profits when the time comes. Since they have little experience, and no solid crypto profit-taking strategy to follow, HODLers often buy and sell at the wrong time, diminishing their potential profits.

By following a proven crypto profit-taking strategy, and understanding how and when to take crypto profits by utilizing both fundamental and technical analysis, you can master the markets and profit handsomely from the volatility crypto has become famous for.

Pros and Cons of Taking Profits in Crypto

Cryptocurrency is wildly volatile. Unlike forex (FX) or stocks, double-digit gains (or losses) are a common occurrence. In fact, it's common to see your account jump up or down by two percent just minutes after hitting the buy or sell button. Taking profits in crypto by following a proven crypto profit-taking strategy will let you take advantage of these opportunities, and outpace a HODLer in no time at all.

Pros of taking profits in crypto are as follows:

• Multiply your earnings

• Earn revenue while growing crypto holdings

• Take advantage of every market condition

• Minimal long-term risk

• Learn how to take crypto profits and become an expert trader

That said, taking profits in crypto can be challenging if you don't know how and when to take them. Fortunately, developing a strong crypto profit-taking strategy isn't very difficult once you understand support and resistance, Fibonacci levels, pivot points, and other key fundamentals of technical analysis.

Without proper understanding of these trading basics, however, the odds of becoming a successful trader and being able to take profits are greatly reduced.

Cons of taking profits in crypto:

• Requires an understanding of technical analysis

• Must follow a proven crypto profit-taking strategy

• Taxes can eat into profits

When to Take Profits in Crypto

Many newer crypto investors and traders have a hard time deciding when to take crypto profits. While knowing precisely when to enter and exit a trade largely comes down to understanding price charts and technical analysis, there are a few general signals to watch for.

Signs of Bearish Chart Patterns

One of the best times for taking profits in crypto is when you spot the formation of a bearish chart pattern. Death crosses, head and shoulders, shooting stars and other bearish patterns often signal trend reversals, and should be incorporated into any crypto profit-taking strategy.

Lack of Upcoming Catalysts

Another good example of when to take crypto profits is when the price of Bitcoin or another crypto you're vested in stagnates and loses upward momentum. This usually leads to price consolidation, which should serve as a possible exit signal in your crypto profit-taking strategy. However, you should wait for confirmation from another indicator prior to placing a sell order.

Change in Fundamentals

Another good time for taking profits in crypto is when a change in fundamentals begins to occur. Knowing when these changes are taking place involves fundamental analysis.

Unlike technical analysis, which relies on crypto price charts, patterns and indicators, fundamental analysis involves looking at the number of people buying and using a crypto, a change in the team behind it, and other available information to know when to enter a trade and when to take crypto profits.

Uncertain Macroeconomic Conditions

Similar to a change in fundamentals, your crypto profit-taking strategy should also account for changing or uncertain macroeconomic conditions. Events such as wars, pandemics and recessions can have a significant effect on the stock, commodities, FX and crypto markets. Any of these can cause major market disruptions, and can give clear signals for when to take crypto profits rather than watch them disappear.

How to Take Profits in Crypto

Deciding when to take crypto profits based on fundamentals or macroeconomic conditions is one thing, but determining exactly how to take crypto profits is quite another. Do you set a random take-profit after a certain percentage gain, or should your crypto profit-taking strategy involve taking profits in crypto at certain areas of resistance — or by utilizing pivot points and Fibonacci levels? Smart traders use all of the above.

Setting Profit Targets

At some point, every trade has an exit. Entering a trade is easy, but where and how you exit determines how much you profit — or lose.

When taking profits in crypto, trades can be closed according to a crypto profit-taking strategy involving the use of trailing stop-loss orders and profit targets when specific conditions are met.

Depending on your crypto profit-taking strategy, the profit target can be a specific price target or a percentage-based target. Regardless, when the price of the crypto reaches a predetermined level, the trade can be closed either manually or automatically by entering a specific target profit during trade execution.

For example, if you purchase Bitcoin at $31,710 and have a profit target of two percent, you would place an order to sell at $32,344. If the price of Bitcoin reaches this target level, the trade is closed. In a nutshell, that's how to take crypto profits with price targets.

Taking profits in crypto with this crypto profit-taking strategy also allows you to calculate a risk/reward ratio prior to entering a trade. To do so, you need to enter a stop-loss, which should ideally represent less of a price change than your profit target. This way, the reward will outweigh the risk.

Risk vs. Reward

Although you can never know 100 percent whether a trade will be a winner or a loser, you'll be more likely to turn a profit when your reward is greater than your risk. For instance, if your average winning trade is $11 and your average losing trade is $6, you only need to win around 40 percent of your trades to earn an overall profit.

Taking profits in crypto by utilizing profit targets as part of your crypto profit-taking strategy also makes it possible to tell whether or not a trade will be worth taking. If the risk is greater than, equal to, or even not considerably less than the profit potential, then the trade isn't worth taking — and you should wait or move on to the next opportunity. In this way, determining a profit target can actually help you filter out poor trades.

Using Technical Analysis for Exit Points

Many traders use technical analysis to identify entry and exit points in order to maximize profit and minimize risk. While there are hundreds of technical indicators, chart patterns and tools you can use to analyze crypto charts and zero in on key entry and exit points, there are a few strategies in particular worth considering.

They include:

• Paying attention to areas of support and resistance

• Being aware of Fibonacci levels

• Keeping an eye on pivot points

Anyone wondering how to take crypto profits who’s interested in regularly taking profits in crypto should master these three strategies.

Using the Tools

The first, support and resistance, should be a part of any crypto profit-taking strategy. When looking at the price chart of any crypto in almost any time frame, you'll notice certain areas where upward momentum seems to halt. These are known as resistance areas. Conversely, you'll also see certain areas where downward momentum is stopped or reversed. These are known as areas of support.

Both areas are key. Whether you have an open buy order or sell order, keep your eye on these key areas and consider exiting the trade and taking profits in crypto whenever the price nears. While the price will break through either support or resistance if the momentum or trend is strong enough, more often than not crypto prices will react and bounce off of these areas in the opposite direction.

Fibonacci levels are equally important when learning how to take crypto profits. Why? Well, the crypto market naturally tends to push prices toward the various Fibonacci levels. By paying attention to these levels — especially retracements — and checking them as a part of your crypto profit-taking strategy, you'll gain the upper hand when it comes to taking profits in crypto.

When learning how to take crypto profits, understanding pivot points is also a must. Similar to Fibonacci and support and resistance levels, it's quite common to see price react to pivot points.

Pivot points are calculated to determine specific points where market sentiment shifts from bullish to bearish. Day traders, in particular, use pivot points for determining entry points, stops, and levels for taking profits in crypto.

At the end of the day, pivot points should be viewed as intraday technical indicators. Due to their ability to identify trends and reversals, calculating pivot points is a must when learning how to take crypto profits for maximum gain.

Should You Take Profits in Crypto?

Regardless of the crypto profit-taking strategy used, taking profits in crypto largely depends on one's risk appetite and investment timeline. If you have years to wait before seeing a return on your Bitcoin or other crypto investment — and the nerves of steel needed to wait out huge market dips and price corrections — then HODLing may be the right crypto profit-taking strategy for you.

If you're like most people, however, you want to see some profits and a return on your investment as soon as possible. You don't want to wait till years down the road; you want your venture into crypto to pay out right away, again and again. Chances are you also don't have the stomach for large downswings and seeing your account in the red. If this sounds like you, taking profits in crypto is definitely the right move.

Sure, taking profits in crypto takes practice and some time spent learning when and how to take them. However, by investing a little time into learning how to execute the right crypto profit-taking strategy, you can multiply your potential gains, allowing you to grow your crypto portfolio much faster and begin enjoying the fruits of your labor.

Reinvesting the Profits You Take in Crypto

After taking profits, many crypto investors choose to keep a portion of those profits, and reinvest the rest back in the crypto they just sold. They do this by selling high when the price begins to stall and consolidate, and then they wait for it to rebound off of a pivot point, support level or Fibonacci level before placing another buy order.

By actively trading and reinvesting your profits in this fashion, you can earn substantially more than you could by simply buying and HODLing for years, months, and even weeks or days. However, doing so and becoming consistently profitable takes fundamental knowledge of the markets, the right crypto profit-taking strategy, and the ability to stick to the strategy or adapt to market conditions as needed.

Another option is to employ strategies that allow you to build up your portfolio of principal coins, while investing in other ICOs and innovative coin projects. By going this route, you aren't just transferring Bitcoin into dollars and into your bank account for spending. Instead, you're reinvesting it into newer coin projects and technology with much more upside potential.

For example, if you traded 0.10 Bitcoin (BTC) and converted it into 0.20 BTC, you could reinvest the 0.10 BTC you earned as profit into a new type of coin or ICO — perhaps with the potential to provide a 50x or 100x return. If your gambit is successful, you would be an early investor who’s able to reap substantial rewards.

This crypto reinvesting strategy is ideal for investors looking to build their portfolios with a variety of high-return coins without taking too much risk. Both of the above strategies, however, offer amazing return potential and solid protection from future losses. Each also allows you to gain from the volatility of crypto, and from the nearly constant emergence of new coins and crypto technology and services.

The Bottom Line

As you can see from the examples above, as well as from thousands of crypto success stories, the right trading strategies can help you make money with digital currencies time and again. However, before you even begin thinking about taking profits in crypto, you must get used to recognizing certain cryptocurrency signals or "tells" in order to know when to buy and when to bail. The more experience you gain and the more you learn about how these unique assets work, the more profits you can expect to take.