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John Martin 08 Mar 2024 ◦ 9 min read

Cashing Out: How to Decide When to Sell Your Crypto

Cashing Out: How to Decide When to Sell Your Crypto

The largely unregulated cryptocurrency industry has offered significant earning opportunities but has also resulted in huge losses for those who risked too much. With news of ETFs and financial institutions welcoming cryptocurrencies, the question becomes: when is the right time to sell? 

Selling can be more difficult than buying, as fear of missing out on continued growth may lead to missed opportunities and losses. In this article, we will offer insights on navigating the complexities of selling cryptocurrencies to help maximize investment returns.

When to Sell Your Crypto?

Even though many analysts believe that Bitcoin's four-year halving cycle was disrupted last year, it still seems to largely determine the bearish and bullish phases of the market. A trend is never only upward or downward; therefore, knowing when to buy can help you plan when to sell.

The entire cryptocurrency market is always highly dependent on the movement of Bitcoin. Bitcoin's dominance is still over 40%. The remaining 60% is divided into 20% for ETH, with the rest being represented by numerous cryptocurrencies that may vanish in the coming months or years.

Having a clear goal is probably the first step and a small strategy that will help you work towards a specific direction. Whether it's paying off debts, saving for a major purchase, or pursuing another financial objective, having a specific goal will make your investments work for you. This will give you the right motivation to implement the plan.

It happens that the value of your asset has increased two or three times compared to the purchase price, and you start thinking about whether it's time to sell, even if you were determined to hold onto it for a long time. In this case, it is recommended to sell a portion of the portfolio, equivalent to the initial investment or 5-10% of the total portfolio.

Another scenario where it makes sense to consider selling an asset is when its fundamentals are no longer relevant, or when faith in the project diminishes. In this case, minimizing your losses should be the primary concern when attempting to sell at a fair price.

Setting Clear Financial Goals

Before entering any trade, it is important to establish clear financial goals. Determine your target profit margins and establish realistic expectations for your investments. Consider factors such as your risk tolerance, investment timeline, and overall financial objectives. Having a clear plan in place will help you make informed decisions about when to sell your cryptocurrency assets.

Monitoring Fundamental and Technical Factors

To track trends in the cryptocurrency market and determine the optimal moment to sell an asset after its growth, it is important to utilize technical and fundamental analysis.

Technical analysis:

  • Charts and Indicators: Utilize price charts and various technical indicators like moving averages, RSI, and MACD to identify the entry and exit points of a position.
  • Trends: Analyze the direction of the trend (upward, downward, or sideways) to decide on the sale of an asset.

Fundamental analysis:

  • Stay updated on the news and events that could impact cryptocurrency prices. Negative news can be a selling signal.
  • Financial Indicators: Analyze the financial indicators of the cryptocurrency project, including trading volume, market capitalization, etc., to make well-informed decisions regarding sales.

By combining these approaches, you can make more informed decisions about when to sell based on both the intrinsic value of the asset and market dynamics.

Emotional Discipline in Trading

Emotions influence human behavior, so it's important to learn how to deal with them. If it concerns minor decisions, then it will not bring problems.

When it comes to crypto trading, emotions can lead to financial losses that a trader could have avoided if decisions were made rationally, based on analysis and accurate mathematical calculations.

Crypto traders experience a significant psychological burden, making stress tolerance especially crucial for them.

Inexperienced traders are more susceptible to emotions and tend to react strongly to certain events in the market, such as a significant drawdown of an asset, rapid growth, or fear of incurring losses.

FUD 

Traders commonly use the term FUD, representing fear, uncertainty, and doubt within the industry.

Often, marketers and large traders use the impact of these emotions to manipulate the market.

These cryptocurrencies have a large market capitalization, making them susceptible to manipulation by major investors. However, we only use them as an example.

They noticed that the number of open long positions has greatly exceeded the short ones, and at this moment, it is advantageous to open short positions to "knock out" the longest positions.

So, they open short positions, and the price of Bitcoin begins to fall sharply. Traders who have just opened long positions see a long red candle and start closing their positions out of fear, to prevent further losses or to open short positions. As a result, when the number of short positions begins to prevail, whales close their positions and start buying back cryptocurrency – leading to the opposite situation.

And this can happen indefinitely. Fear can also prompt you to open positions and increase them significantly until your deposit is depleted. To avoid this, you must always follow a strategy and not stray from the intended path

FOMO

Another well-known concept is FOMO, which refers to the fear of missing out on potential profits or simply put – greed. This phenomenon is contrary to the FUD. 

Following this, traders feverishly buy assets, thinking that growth has just begun and the price is about to go up.

In fact, it turns out that growth is just beginning to fade. As soon as the activity of buyers decreases, the price sharply collapses, and the first buyers record a profit. And those who bought hay are left with losses.

Risk Management Strategies

Managing risk is a critical aspect of successful trading. 

  • Diversifying your portfolio across different assets can help mitigate potential losses from a single investment. 
  • Set stop-loss orders to automatically sell your assets if prices fall below a certain threshold
  • Consider using trailing stops to lock in profits as prices rise. 

By implementing risk management strategies, you can protect your capital and optimize your returns.

Conclusion

Knowing when to sell your cryptocurrency assets is a crucial skill that every trader must master. By staying informed about market trends, setting clear financial goals, monitoring fundamental and technical factors, maintaining emotional discipline, and implementing risk management strategies, you can make more informed decisions about when to cash out. 

Personal, market and fundamental circumstances can play a role in the decision to sell a cryptocurrency. However, if you choose reliable projects, do not risk the savings of a lifetime, and are patient, then in the long run, you can pleasantly and unexpectedly enrich yourself. Sometimes, investing and doing nothing for several years turns out to be the best strategy possible.

Remember that successful trading requires patience, diligence, and a strategic approach. With the right mindset and tools at your disposal, you can navigate the volatile cryptocurrency market with confidence and maximize your profits in the long run.

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