Honestly, there is no ‘perfect time’ to sell bitcoins or any other cryptocurrency, as every trader has different trading goals. One might take profits out of minor corrections while others may be good ol' HODLers.

To answer your question - You should sell your crypto holdings based on your strategies and personal finance goals. Are you wondering, "Which strategy should I implement? How to minimize losses?" Well, keep reading, this post answers these questions and many more.

Things To Keep in Mind While Selling Bitcoins:

1.Be Aware of Bullish and Bearish Trends All the Time

Like the traditional stock market, the cryptocurrency market is largely driven by the sentiment of all stakeholders - large whales, small holders, HODL investors, crypto regulators, everyone. Also, the degree of impact depends on the size of the BTC holding or the kind of influence. An Elon Musk tweet or a government rule on bitcoins can push the market in one direction, whereas a common trader can only make a minor impact.

With that said, there is no sure-shot way to precisely know the market sentiment. Bearish trends are hard to sustain. The bull market can be tough, too. Seeing people getting 30x returns on their cryptocurrency investment is rough, isn’t it?

Well, cryptocurrency trading was never easy, nor is it impossible to make substantial profits. If you keep an eye on the bullish and bearish indicators, you would know when to sell and bank profits. For this, you have to keep a tab on crypto charts, news around bitcoins - Which companies are betting on bitcoin? Who tweeted what? Which government supports blockchain revolution?- etc.

2.Market Timing

As discussed, there is no way to ‘time’ the market. There is no perfect answer to, 'When to sell?' A reasonable approach is to gradually close fractions of your position to lock profits and leave the rest to benefit from further price gains. This is called scaling out.

For instance, you can sell 10% of your position every time the price goes 20% higher. Is this the optimal approach, you ask? Not optimal, but scaling out will likely give good profits with less stress. (Well, nothing is optimal in trading cryptocurrencies. Different strategies suit different traders. So, the strategy that aligns with your personal finance goals is optimal for you).

The truth about parabolic markets is that you will mostly end up with 40% less money than you would make at the absolute peak. Realize your gains, considering the extreme volatility of the crypto world.

Say you invested $1k in bitcoins, and with proper management, you turn it into $10k. That is indeed an overwhelming feeling of making 10x. What if the value of your portfolio falls from $10k to $7k. At first glance this might be quite painful, isn’t it? - Look at it from a different angle. You can stick with a negative narrative of “I lost 30% from my $10k valuation peak” or you can switch to a positive one “I made 7x from the start and I am proud of myself!”.

3.Don’t Panic And Stick To Your Plan

Buying or selling crypto impulsively will almost always harm your pocket. As a result, you shouldn’t get FOMO’ed to rush into buying (“fear of missing out”) and FUDed (“fear, uncertainty and doubt’) to sell all your crypto units.  

The smartest way is to always place a stop-loss order each time you enter the market or to use a TWAP order to spread the funds by time and volume (we will discuss this in brief later in this blog). Here, if the price plunges below your set limit, your position will close immediately and save you from further losses.

If you feel FOMO, then don’t go all-in. You can increase your risk exposure steadily as the market gradually rises (TWAP or GRID trading). As the market goes higher, you can start selling units (#1 market timing).

4.Be Careful With Leverage

Leveraged trading is the practice of increasing your trading power by borrowing funds from a broker against a small collateral (initial margin). The amount by which you multiply your position is called ‘leverage’. For example, a 20X leverage trade allows you to buy 20 times the value of your initial investment.

Such profits might excite you. Nevertheless, when the price of the asset you bought starts to fall, your initial margin can be quickly liquidated. This implies that if the market goes against your prediction, you would lose 20x more than you would in regular trade. Let’s understand this by example.

To sum up, both - profits and losses are multiplied in leverage trading. As a result, be careful while trading in leverage. You should use stop loss and take profit orders to minimize the potential risks in leverage.

5.Short Selling The Crypto

Short selling (shorting) refers to selling borrowed cryptocurrency units to purchase them again at a lower price and return them to the lender while banking on the price drop. This is done when you are bearish about the cryptocurrency.

Say you are bearish about bitcoin, and you borrowed 1 BTC unit and sold it at the current price of $48,000. Now you are 1 BTC short. Your bearish prediction hits right and bitcoin tumbles to $44,000. Now, you will buy 1 BTC at $44,000 and return it to the lender while banking a profit of $4,000 minus the interest.

Shorting could be rewarding in a bearish market. However, if you are short selling in a bull market to capitalize on short-term corrections, you should be cautious as you would incur huge losses if the price shoots up.  

Nevertheless, be it short selling, leverage trading, or any other trading strategy, proper risk management could save you from losses. With that said, let’s discuss some of the major risk management tools.

6.Automated trading strategies:

In automated trading you can delegate certain rules for the bot to implement on the market. For example, at Bitsgap there are GRID bots that are designed for the sideways and rising markets. The built-in algorithm executes trades in accordance with a pre-defined set of trading rules. Regardless of the market phase, bots seek for the opportunities to buy low and sell high each time the price swings. There are high-yield and low-risk strategies. It is all about the tradeoff between the risk and return. High-yield strategies are exposed to 2x volatility because both the base and quote currencies fluctuate. For example, you can customize the bot to trade AAVE/BTC. This implies accumulating returns in BTCs. Imagine the price of both AAVE and BTC appreciate relative to the USDT, this is a multiplier effect.

Top 3 Risk Management Tools And Principles

1. Stop-Loss

A stop-loss order is an advanced order that automatically closes your position if the price of the crypto asset falls below your set limit, thereby saving you from further losses.  Say, you have bought BTC worth $1000. You can only afford a loss of $100 on your investment. Here, you can set a stop-loss order that sells your BTC holding as soon as the value of your investment falls below $900.

2. Take-profit

A take-profit order closes your position when your set profit level is reached. This saves you from manually tracking your portfolio. You should set your profit level carefully, a lower profit mark will cut your profits if the price soars higher than your predicted level. Also, a good profit level will save you from losses if the market takes a nosedive after a spike.  

3. Do Not Put All Your Eggs in One Basket

While the Crypto landscape is indeed volatile, every crypto asset will not take a nosedive simultaneously. For instance, say you have five crypto assets in your portfolio, even if two of them are underperforming or generating losses, the profits from the remaining three assets will compensate for the loss. This is the potential of diversifying your crypto portfolio. It is thus recommended that you diversify your crypto portfolio to mitigate losses in this highly volatile market.

The vast amount of cryptocurrencies are highly correlated to Bitcoin’s volatility. Basically, they are moving in tandem. If Bitcoin rises by 10%, these cryptocurrencies can rise by 5% or 20%, for example. Conversely, if Bitcoin falls by 10% these cryptos can fall by 5 or 20% as well. Make sure to diversify your portfolio with those assets that comply with your volatility preference. You can use TradingView to compare assets:

The Bottom Line

No matter how bullish you are, cryptocurrency trading is still a risky endeavor. No rule of thumb says a crypto asset cannot fall by 80% and stay there for years. Even top crypto assets can plunge to the floor and remain there for years.

With proper analysis and risk management strategies, you could even squeeze profits from a bearish market (as seen in short selling). The only thing you should keep in mind is that you should not trade impulsively; your trade movements should be based on analysis and strategies.

Written by Dmitry Perepelkin