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Bitcoin Exit Strategies: An In-depth Guide
Entering a Bitcoin trade at an opportune moment can be a hassle. But exiting a trade can be far more challenging, especially if you lack a solid exit strategy. Not knowing when to exit a market can result in making premature profits or becoming an unwilling Bitcoin holder. If you’re thinking of taking some of your Bitcoin profits and reinvesting it in other sectors or paying some bills, you need to develop an effective exit strategy. Here, we look at some effective Bitcoin exit strategies to streamline your investment game.
Best Bitcoin Exit Strategies
Shed Off Greed
You need to figure out when you’ll exit the market and take some profits for other uses during a bull run. In many cases, traders are often tempted to let their investment ride the wave to realize more profits. However, cryptocurrencies are quite volatile, and the prices may tank in no time, eating up your profits. If you’re too greedy, your profits can quickly disappear, and you may count significant losses.
Considering that the crypto market is decentralized, you’re the only one in charge of your digital assets. Therefore, your trading decisions have a direct influence on the success of your trading decision.
A good strategy to prevent greed is to withdraw a set amount at each profit doubling after successful investments. The amount withdrawn should not reduce your Bitcoin holding too much but should be significant enough to cater to your bills or be used in other investments. To achieve this, you can set price targets and sell a predefined percentage of your Bitcoin. For instance, BTC @ 100k sell 10%, and BTC @ 150K sells 20%. Etc. This strategy will allow you to seamlessly exit the market by selling less Bitcoin every time it doubles. And if it re-enters another bear market, you can either hold or buy more BTC and add it to your portfolio.
Exiting the market during a bearish run is not a good idea, plus you can make significant losses. In a bearish market, don’t panic but rather exercise patience. Just wait for the price to tank as you conduct technical and fundamental analysis to determine the next Bull Run. Based on your market analysis, the next market bounce can take up to two or three months. When you’re sure of a bull run, you may want to maximize the opportunity by selling at the highest possible price and exiting the market using an ideal strategy. Don’t miss a Bull Run opportunity, as it may take up to 3 or 4 years to occur again based on the halving cycle and the historical price movement.
Find out the Risk-Reward Ratio Before You Exit
It’s no secret that exiting a market can be quite challenging. Before you exit, you should be guided by the Take Profit (T/P) levels and the Stop Losses (S/L). Technical analysis is necessary to determine optimal T/P and S/L losses. The Stop Loss should be placed slightly below the support level for a long strategy, while it should place the Take Profit near the resistance level.
When exiting the market, it’s recommended that you maintain a risk-reward ratio of at least 1:2 when placing S/L and T/P orders. The ratio is calculated by dividing the amount you’re prepared to lose by the profit you desire to achieve. A high risk-reward ratio means that it’s safe to exit the market. However, it should be used cautiously and in combination with other market exit indicators.
Divide Your Bitcoin and Sell in Tranches
Another excellent strategy for exiting the market is dividing your Bitcoin, establishing a single high price target, and selling in tranches. Based on how fast/slow the price moves into your target, you can sell your BTC holding in 3 to 5 tranches. The slower the market movement, the more tranches you have to use. Selling your BTC holding in tranches creates a smooth exit strategy and enhances your chances of realizing higher returns.
Spread your BTC Holdings across Different Exchanges and Platforms
Any avid BTC investor must spread BTC holdings across multiple exchanges and platforms such as wallets. This not only spreads the risk of holding your coins but also enables you to enjoy different fees when exiting the market. Besides, exchanges may break down at opportune times due to increased traffic making you miss a perfect market exit chance. Therefore, to avoid such inconveniences, have at least 4 to 5 different exchanges you use while trading BTC.
Analyze Market Sentiments and Topping Signals
If you’re looking to exit the market, it’s essential to analyze the market sentiments to determine other traders’ general perceptions. This can easily be done using Bitcoin sentiment analysis tools, usually available for free or at a small cost. For example, if the general perception is to sell, it may be the right time to exit the market.
In addition to sentimental analysis, you need to employ technical analysis in analyzing topping signals from on-chain data. It can establish an increase in large pools, old wallets, and whale selling – several websites provide such information. Analyzing a topping signal combined with sentimental analysis gives you a more in-depth insight into whether it’s right to exit the market or still hold on to BTC.
Have a Workable Plan
Finally, have a workable plan. Write how you want to exit the market and at what price you will sell your cryptocurrencies. It’s often recommended that you base your plan on your objectives rather than the prevailing price of Bitcoin. Your plan should also include what you plan to do with the proceeds from your Bitcoin sale. For instance, have an idea of where you’ll invest or deposit your money for the short term until you have a definite plan on when and where you’ll spend your earnings. If you need to reinvest your money into different asset classes, such as real estate and stocks, it’s crucial to do in-depth market research to avoid losing your entire proceeds.
Exiting the market is a crucial skill needed by any Bitcoin investor, especially if you plan on reinvesting the money not in cryptocurrencies but in another investment. You also need to exit the market if you want to take some profits to pay bills. To effectively exit the market, you need to: have a clear plan, use multiple exchanges and conduct sentimental and technical analysis. Most importantly, always buy and never sell all your Bitcoin holding unless you have to.