Trading Guides Cryptocurrency

When is the best time to exit your Cryptocurrency Investments?

By Stefano Treviso , Updated on: Jan 26 2023.

Depending on your entry points, the best time to leave your cryptocurrency investments or trades will be when there is a widespread sense of euphoria in the cryptocurrency markets and either your profit targets were realised or previously determined price levels were reached.

Nowadays we’re constantly bombarded through social media with stories of newly made crypto millionaires driving exotic cars and enjoying the finest pleasures of life. All this fuss causes many new traders and investors to join the markets in hopes of achieving stratospheric returns.

The main issue is that with cryptocurrency and many other asset classes, it’s very easy to get in but it’s very hard to find a way out sometimes. This is due to the counterintuitive nature of the financial markets and here’s why:

• If we see thousands of positive headlines about crypto prices, our heads think that it will continue going up and we feel tempted to jump in
• If see thousands of negative headlines claiming that the bottom is not year yet, that recession is coming and the world will burn, we feel tempted to get out to not lose more

In reality, the only thing happening is that we’re being victims of something called: FOMO (fear of missed opportunity).

In both scenarios described above, we’re feeling fear about missing out on profits or fear of losing our funds and our last opportunity to escape. Trust me, been there, done that.

The problem that most of us normal people fail to recognise is how the cryptocurrency market really works so before diving deep into strategy, let’s ask ourselves an important question:

How do the people that have more than $100,000,000 in crypto trade?

That’s right, I’m asking you right now, what do you think is the trading methodology used by these people? 

Here’s the thing, there are two types of traders: retail traders (you and me) and institutional traders (the big guys).

Unless all of us retail traders around the world synchronised at the same time and with great difficulty, we could not move the markets. On the other hand, if a single institutional investor pushes the “sell” button on a trading platform with all his crypto, he could crash the markets, so definitely he can’t do that and the question we need to ask ourselves is, what the hell are they doing then?

Simple, they’re buying (accumulating) when the markets are crashing and then they’re slowly exiting their positions during euphoric bull runs and when everyone is celebrating and the reason for that is that euphoria gives them the necessary liquidity to exit. Let me translate what I just said:

At any given time in an exchange, there are people instantly buying and selling crypto via market orders (orders that get executed instantly at whatever price is available) and there are also people providing liquidity or setting limit orders (orders at a higher or lower price than the current one) which then make up the orderbook of an exchange. That’s how trading in essence works. 

Having clarified order books very well, then we can conclude the following:

• If an institutional investor cannot go to a crypto exchange and push the sell button because he will simply crash the markets with his massive wealth, then when can he sell? The answer is: slowly and when more people are buying
• If the institutional investor cannot also click the buy button with his massive wealth because he could push the price of an asset up to the sky then when can he buy? The answer is: when markets are crashing and everyone else is getting out

As you can see, cryptocurrency trading can be quite counterintuitive for the average person and that is because most of us don’t understand how the big money guys operate. After finally understanding it, everything changes.

Now that we understand the most important part of institutional trading, we’re reading to dive deep into strategy.

Choosing the best cryptocurrency exit strategy for you

In order to choose the best strategy or a combination of them, we need to have a clear understanding of our entry points.

The reason for this is that a bad entry will most likely give you a bad exit or a very lengthy one whereas a good entry will provide you with many exit opportunities to be considered along the way with far less risk.

Choosing when you had a bad entry point

Let’s stay you bought a lot of Bitcoin on a single purchase with the below market conditions:

• Excessive euphoria on newspapers
• Bitcoin at all time highs or close to it
• Single amount or lump sum purchase (meaning that you didn’t buy slowly over a long period of time but rather at a single price with all your power)

If you did this, then time to break the bad news as your most likely options are:

• Exiting at a very small profit if prices go above your entry price
• Exiting at a small or big loss on any significant price levels
• Holding forever (assuming you don’t care or need this money which I hope is the case) and waiting for new massive price gains

As you can see, a bad entry will remove the possibility of great exits for you, so remember, if you actually want to squeeze the best of this strategy guide, try always to time your entry into the market correctly according to how the big money is playing the game, otherwise you’ll become what institutional investors call “exit liquidity”.

Choosing when you had a good entry point

If you entered the market correctly, meaning that you didn’t buy at all time highs or during euphoria periods using all your life savings, then good news! You’ll benefit greatly from the strategies below and find them quite simple.

To give you a brief introduction, here’s how your exit strategy can vary according to your entry point:

• If you bought in when the markets were crashing and at a low price, then your best exit points will depend on public sentiment, price levels and market cycles
• If you bought in slowly over long periods of time using Dollar-cost averaging, then your exit points will also most likely depend on your total return of investments in percentage.

Time to dive into each specific strategy!

Strategy 1: The Garbage Media Indicator

The garbage media indicator is one of the most valuable contributions from one of our writers known by the alias “Romanon. N” and it's nothing more than a method to analyse public sentiment using the news and your own personal connections as follows:

• If random newspapers that are not even finance related are publishing articles about cryptocurrency prices
• If acquaintances of your own that have nothing to do with crypto are asking around about how to get into crypto
• If completely unknown people to you that are not employed in the cryptocurrency industry (eg: your Starbucks barista, your hairdresser, etc) are starting to talk about crypto and the new Bitcoin killer coin

You’ve successfully reached the maximum level of danger for the garbage media indicator and it’s time to exit at all costs as the most likely thing to come is a proper market crash.

Garbage media refers to news sources that discuss completely trivial and useless subjects such as “What is the brand of the outfit that Kim Kardashian or Justin Bieber wore last Sunday”. When these garbage media sources start talking about crypto, it’s time to panic.

The logic of the garbage media indicator goes as follows:

• If institutional investors need public euphoria and a massive wave of capital to exit the market, then the garbage media sources are a great way to drag in a massive amount of innocent retail liquidity for the institutional investor’s exit purpose

So, lessons learned! Don’t get trapped with the innocent investors and become part of the exit liquidity by buying due to FOMO in order to allow another hedge fund manager to buy his 14th Lamborghini.

Strategy 2: Partial exits or Dollar-cost averaging out

Going back to the same example mentioned earlier of how institutional investors get in and out of the markets we can conclude that if they were to trade like a regular person, they would simply collapse prices, right?

Well, the good news is that you can also exit the markets like an institutional investor and lock in some profits. Remember, the objective in reality is not to buy a lamborghini from a $1,000 investment, the objective is to exit the market profitably and not to be asking “When moon and lambo”.

Let’s assume in this example that you bought 1 Bitcoin at $16,000 recently (during January 2023) and prices are starting to grow steadily. In order to determine our partial exit points, we need to find the previous support and resistance levels for Bitcoin (if you don’t know what we’re talking about, here’s a technical analysis guide and a price action guide that will help you find the sweet spots).

Resistance levels are nothing more than previous price points where the asset in question (BTC) has shown signals of potentially reversing due to high concentrations of supply (a lot of people willing to sell) and to a certain extent, these levels repeat in the future like a self-fulfilling prophecy.

Assuming that you already learned how to find the levels, here’s some potential numbers that I came up with:

• Exit 1: $22,700
• Exit 2: $25,170
• Exit 3: $31,700
• Exit 4: $41,000
• Exit 5: $48,000
• Exit 6: $69,100
• Exit 7: $79,000

So, if we have 1 BTC, here’s how I would potentially time my partial exits:

• Exit 1: $22,700 - Sell 10% of our Bitcoin for $2,270
• Exit 2: $25,170 - Sell 10% of our Bitcoin for $2,517
• Exit 3: $31,700 - Sell 20% of our Bitcoin for $6,340
• Exit 4: $41,000 - Sell 10% of our Bitcoin for $4,100

By this point the total value of our cash exits is of $15,227 so we almost recovered our $16,000 investment and still got 50% of our initial purchase available (0.5 BTC left to sell).

• Exit 5: $48,000 - Sell 20% of our Bitcoin for $9,600
• Exit 6: $69,100 - Sell 15% of our Bitcoin for $10,365
• Exit 7: $79,000 - Sell 15% of our Bitcoin for $11,850

By now, our total exit value was $47,042 and our initial investment was $16,000 leaving us with a profit of $31,042.

If you were to have simply bought at $16,000 and exited at $79,000, then your profit would have been of $63,000 per Bitcoin but the question here, could you really be sure that you would reach the top and accurately exit?

In reality, you certainly couldn't now and that’s why exiting partially allowed the investor in our example to recover almost his full investment by the time Bitcoin reached a value of $41,000 and then be left with 0.5 Bitcoin more to partially sell during a further climb.

Kindly bear in mind that if during a climb you see that the garbage media indicator breaks loose and for a considerable period of time the euphoria starts peaking then it could also be time to break your partial exit plan and accelerate the process further or exit completely. 

Strategy 3: Price target exit

Price target exits are mostly designed for traders that entered into a particular level and want to close their full positions when a particular price is reached. 

While it is true that partial exits also use price levels to determine them, in the case of the price target exit we’re referring to a single price exit.

Let’s say that you entered the market on 26th January at 5:00 pm when bitcoin was trading at $23,080 per BTC. After doing some analysis you determined that the next available resistance level that could potentially trigger a reversal is $25,170 and you prepare yourself to get out fully with a roughly $2,000 profit when that price is reached.

Creating a price target exit strategy is nothing more than determining an optimum price point to fully exit your position and lock in those profits. On the other hand, it’s also advisable to have an adverse price target strategy and create a stop-loss exit strategy using support levels in case an asset’s price moves against you.

Strategy 4: Percentage returns exit

Percentage returns is mostly a strategy designed for investors that dollar-cost average as they have been accumulating the asset for long periods of time with smaller purchases and they simply wait for a healthy return on their total investment without caring too much about all the price levels that they bought at.

Dollar-cost averaging is a powerful strategy for the average investor as it eliminates the risk of price fluctuations when buying with all your funds an asset at a single price and rather spreads out the risk across a long time frame.

Overall, the dollar-cost averaging investor will always win assuming markets continue to rise as they have done for the past 100 years.

If you’ve been accumulating Bitcoin for a period of 2 years at different price levels, all you need to do is take into consideration when is your expected returns target met and simply exit the market disregarding all the volatility and price fluctuations out there.

Conclusion

The key to success in cryptocurrency exit strategies is to have a good entry to start, understanding how the big money operates and then to actively monitor the following variables: price levels and public sentiment (garbage media indicator).

No matter which type of trader or investor you are, the markets are a game where for you to win money, someone else has to lose it. That’s the harsh reality.

If you exit Bitcoin at $69,000 then it means that someone bought at $69,000, right? And what happened to that person / institution? Well, they got left with their tail between their legs holding a Bitcoin bought at $69k while the price drove itself down to $16k.

To be fair, the above example is not 100% accurate and is just for explanatory purposes. In reality the reason why people buy at $69,000 can be many, such as:

• Plain FOMO (fear of missed opportunity)
• Accumulation due to belief that the price will be higher in the next few years and they didn’t care to buy at a premium
• Accumulation for lending purposes so they can earn interest by borrowing the Bitcoin to investors or institutions that want to open shorts
• An obligation as a market maker

The reasons are many, but in truth, if you want to maximise your odds and truly understand the game, you need to put yourself in the shoes of the big guys with a lot of money and understand how they enter and exit the markets being the whales that they are.

Before creating your perfect exit strategy, make sure to have a good entry to start, you’ll be 10 steps ahead of everyone else.

Frequently Asked Questions

When should I exit crypto Investments?

The best time to exit cryptocurrency investments is when market cycles are showing a signal of completion, euphoria and positivism are at its peak with regards to cryptocurrencies or your personal price levels or profit targets have been met.

How long should I hold crypto for?

Unless you’re a professional trader and you’re dedicated to this, the best case and most simple scenario is to hold cryptocurrencies for a long period of time and only invest in them if your risk appetite allows you to put money on an extremely risky asset class that could potentially crash to 0.

The reason for the long term preference is that predicting market movements on a short timeframe will usually be very difficult even for expert traders and its subject to a lot of volatility and uncertainty but overall, the markets have shown a tendency to rise over long periods of time so assuming you can tolerate the risk, the best strategies for the average person will always be: long term hodling or dollar-cost averaging.

What is the best way to take profits from crypto?

The best way to take profits from crypto is having entered the markets at a low price and during a pessimistic environment and exiting the markets during maximum euphoria periods as previous market cycles have proven that an excess in positive sentiment for prolonged periods of time usually signals and incoming market crash due to institutional investors exiting the market.

Should I sell my crypto at loss?

Realistically speaking, unless you need money for a life or death situation (which in the first place raises the question that why are you investing in Bitcoin if you’re not fully solvent and have a solid extra cash base) you should avoid exiting positions on major cryptocurrencies at a loss as it might simply be a matter of waiting long enough for a market recovery (could be months or years) yet it’s very important to note that nothing can be certain in this life and much less with cryptocurrencies.

This idea only applies to the major cryptocurrencies that serve as a store of value such as Bitcoin and Ethereum. If you’re dealing with “shitcoins” then there is a high possibility that if you don’t sell you could continue to sustain even bigger losses as the coins itself don’t have any value.

Overall this is a decision that only you can make as it will depend mostly on your level of risk tolerance and your financial position in life. Our suggestion is to evaluate your own finances and risk appetite before making a decision.