Take profit: Why, When and How, Part- 1

Why are you reading this blog lol? To take profit, you must make some profit first lol.

Ok then let’s start with ‘Why is it important to book profit?’

HODL (Hold on for dear life) is a widely used term among crypto nerds and I am also part of this cult, but it doesn’t mean you should be lazy and just sit around. It’s often easier and faster to earn a 200-500% profit from a crypto, reinvest that money, and earn it again, rather than waiting for a direct 1000% gain. To make 200% gains in crypto, you don’t even need to wait for a bull market.

Let me give you a recent example from my portfolio. My biggest holdings in 2023 were $INJ, $RENDER, $FET, $SOL, $BNB, and TON. Except for $BNB, the rest delivered at least 5x returns, and this was before the bull run had even fully started. Even though the bull run hadn’t fully started, it was still my best one so far. I didn’t sit around waiting for my 5x profits to grow more. I booked profits because I believed I had already made a good return and didn’t want to risk losing my gains if BTC dropped. I managed my emotions and controlled my greed.

What I feared happened later—most of my coins returned to their entry prices. If I hadn’t booked profit, I would’ve been devastated. But thankfully, I did, and now I have the margin to either increase my positions in the same assets or diversify into newly launched projects with more potential.

Taking profit in cryptocurrency trading is an important part that can help you maximize returns and minimize risks. It helps you from being one of those trapped traders who had a chance to make some profit but their greed stopped them from doing so. Knowing when and how to take profit is often more important than entering the trade itself.

There is no ideal answer for when to take profit. It depends on the goal of each individual investor and their expectations from a particular investment. Some say that booking your initial amount as soon as you double your money is ideal, and that’s a good strategy. However, as I mentioned, this also is not an ideal choice every time.

For example, if you bought BTC at $16,000 and the price reached $32,000, you might sell half and secure your initial investment. To minimize your risk, this is one of the best strategies you could use. But there’s a reason you’re invested in crypto and not in real estate or gold, right? You could sell some of your Bitcoin till $45,000 or even $60,000 and hold the rest for an even longer period. It’s pretty obvious that Crypto investors typically have a higher risk tolerance. I’m talking about investors here, not gamblers who expect to buy a Lambo with a $100 investment overnight.

What I mean is, if you bought the largest cryptocurrency at $16,000, you might be able to take on a bit more risk and hold it for a longer period because the risk compared to the reward was very low when price was at $16,000. The same applies to other cryptocurrencies. You have to decide when to take profit based on the nature and volatility of the specific coin. For example, with some coins, you should book your initial investment once you’ve doubled your money. For others, you might hold a little longer and aim for a 3x return, or even hold until they achieve a 5x return.

Here are a few things to help assess your judgement when booking profit:

1. Be realistic

How can we be realistic when the main tagline of crypto bros is “Wen Lambo”? Let me explain how to stay realistic. Be mentally prepared to see gains in your portfolio. Yes, just as I often say to be ready for losses when you enter a trade, you also need to prepare your mind for the gains as well.

Let me explain by giving you an example of what happens to most crypto investors when they start their journey, and I hope you can also relate to it.

When a beginner sees their $3,000 investment grow to $10,000, the first thought isn’t about booking profit. Instead, they start imagining, “What if this $10,000 becomes $30,000?” If $3,000 can turn into $10,000, why not $30,000? It’s just another 3x.

Then comes the next “what if”: “What if that $30,000 becomes $300,000?” He thinks, “This seems plausible in the crypto world because a 10x return isn’t that big of a deal in the crypto market.”

The imagination begins, “With that $300,000, I could buy a used Lamborghini in Dubai or maybe a small apartment in my hometown.

And… Now by booking profits and withdrawing at $10,000, I am ruining my future Lamborghini.” So they leave the investment untouched.

After some time Crypto market dumps and the coin drops by 30%, and the $10,000 becomes $7,000. Another small dip in the crypto market, maybe because Michael Saylor decides to buy more Bitcoin, and the investment falls back to $3,000.

It doesn’t stop there. Since the coin is already in a downtrend, everyone starts shorting it at every pullback, the bears become aggressive, and smart money pushes it lower to shake out most small investors and create fear and chaos. Now, what was once a $10,000 investment is down to $1,000.

The person starts using words that a trader is not supposed to use.

A trade is not supposed to use words like “I would have, should have or could have.” If these words are in your mind then it means the mistake is already done and there is only one thing you can do now, “Learn from the mistake and start stronger.”

Conclusion- Take profit.

2. Psychological Round Numbers for Taking Profit

Keep the take profit target below a round number. For example, you want to sell $SOLANA at $160, so try to your sell target at $159.5 or something like that.

Traders often aim for round numbers when taking profit. These are known as psychological levels because they tend to attract a lot of attention from the market. So whales play with these numbers and sometimes the price reverses before touching a round figure. You may have noticed that I usually use the terms zone or area instead of level, you’ll often see terms like “support area” or “resistance area” rather than specific levels, as prices often fluctuate around these zones.

3. Book Initial amount

If it’s a mid or low market cap cryptocurrency, it’s wise to book your initial investment once you’ve earned a 100% profit. These coins tend to be more volatile, which means they can experience sharp price movements both up and down. By securing your initial investment, you reduce your risk and essentially play with “house money,” allowing you to stay in the market without risking your original capital.

The blog is getting a bit lengthy, so I’ll cover the rest of the points in the second part. Stay tuned!