Blockchain technology has many uses outside of just payments, but they’re still far from mainstream adoption. As developers continue to create better DLT applications, people have found cryptocurrencies particularly profitable for speculative investment. Buying cryptocurrencies is tricky, but it can be even harder to know when to sell.

In December 2017, Bitcoin touched its all-time high value of nearly $20,000. 

Many attribute this incredible rise to the ICO boom that year, but regardless, Bitcoin had generated quite some hype. A project once run from the homes of just a handful of community members was now being featured on international news channels as one of the most revolutionary technologies since the Internet. 

Bitcoin hit the world like a storm, offering a solution to the world’s banking problems that didn’t involve banks. By February 2018, BTC had crashed to under $7,000, and by the end of the year, Bitcoin was worth a mere $3,000.

Its recovery in 2020 has certainly induced feelings of regret from traders who panicked and sold at the bottom.

Truth is… trading is hard. 

Especially in cryptocurrency markets — it’s important to distance yourself from emotions and keep a calm headspace. And that’s easier said than done! With practice and research, charts won’t seem as daunting anymore, and you’ll learn to distinguish the temporary movements from the permanent ones.

One of the big lessons to learn is when to take profits… 

How do I profit from crypto trading?

There are three essential rules to investing in cryptocurrencies: only invest what you can afford to lose, do your own research before investing, have a strategy to ‘buy low’ and ‘sell high’ (not the other way around!) 

Thousands of altcoins in the space have crumbled to near-zero values, making them practically illiquid. Though a sudden infusion of cash into these markets could have significant effects, this isn’t the most practical way to generate money. 

Some traders invest long-term, betting on the market’s growth over an extended period. Day traders, conversely, flip profits in the smaller movements on shorter time scales. Depending on your skill, experience, and risk averseness, both are viable strategies.

Spot markets aren’t the only place you can profit from cryptocurrencies. Derivatives are assets that derive their value from an underlying financial asset. In the case of crypto derivatives, the underlying asset is the cryptocurrency itself.

From futures and options to perpetual swaps, there are a number of different kinds of derivatives contracts with their own rules and systems. Though they are mostly used to hedge investments on the spot market, derivatives also offer ways to make large profits using a smaller investment with relatively lower risk.

Do I need to learn trading?

There are those who consider trading to be an art, while the less-informed believe it’s the obsession of lucky people. Regardless, it’s critical to learn the basics of swapping cryptocurrencies from one to another or selling back into fiat currency to cash out. With these simple skills you can maximize the profit potential from crypto investments. 

Take time to learn how to read a price chart and figure out how things like volume, orderbook depth, and other technical indicators affect the asset’s price. Look for support and resistance levels to gauge where the market stops to observe. Find out how stop-loss orders work, and make sure to use them whenever possible to avoid preventable losses.

But trading involves a lot more than looking at screens of information. Relate price movements to past events to figure out what affects the asset’s value and what doesn’t – what it can and cannot recover from. 

Selling as soon as you’re in the green brings in revenue faster, but playing the waiting game can yield more profit per investment. In an industry where assets grow exponentially fast, you neither want to sell too early nor too late.

When should I sell?

The crash that came soon after Bitcoin’s peak in 2017 saw its effects spread out over the first half of the following year. Through ups and downs, BTC oscillated lower and lower, repeatedly testing the $6,000 support to no avail.

In just two weeks between mid-November and early December, Bitcoin plummeted to $3,500, inciting fear, uncertainty, and doubt (FUD) into the minds of crypto investors worldwide. Of course, BTC would recover to over $12,000 by Q2 2019, but fearful traders could never have known this at the time.

No one can time the market perfectly, but it’s important to create a strategy for how you’re going to profit from cryptocurrencies before fully diving in. A prepared investor is a calm investor, and only a relaxed mind can tame the unpredictable waves of cryptocurrency markets.

How do I set targets?

It’s always useful to have a plan. Are you investing long-term or short-term? How much of your portfolio are you willing to invest? What are your goals for each investment? These are all crucial queries that need to be resolved before entering the world of crypto.

For short-term investments, make sure you’re ready to face the consequences of making the wrong call. Digital assets are incredibly volatile, and buying during a spike based on hype can be tempting but dangerous. Set small goals and work your way up to them, and adjust these goals accordingly.

In more long-term situations, the most challenging action can be to simply hold on. Bitcoin has recovered from apparently fatal crashes, but not every cryptocurrency is Bitcoin. A sinking ship can be a dangerous place to store your loot, and while a bigger ship may be on the horizon, jumping onto a lifeboat instead can sometimes be a more reasonable move to make.

The larger and longer you hold your investments, the more insight into the future you need. No one can truly predict the future, but it’s possible to draw conclusions. Look for events that could affect your investments in the future. Is an upgrade primed for launch? Perhaps the supply rate is halving. Is a famous brand planning to invest in cryptocurrencies?

Learning when to make the right move is as important as making the right move, and it’s paramount to create strategies that benefit your style of investment. Whether it’s long or short term, planning out your targets can be a powerful tool to tackle the nerve-racking space that is blockchain.

What price should I sell at?

While digital assets appreciate at rates unheard of in traditional markets, it’s vital to manage expectations. There are multiple reasons why you’d want to sell at a certain price point. However, If an asset’s value drops, selling before the bottom could significantly help you cut losses, but some traders also sell at the top just to buy back the bottom.

This is known as ‘short-selling,’ when a trader sells an asset only to use the funds to reinvest in the asset later at a lower price. $100 is worth a lot more when Bitcoin is at $3,500 than at $10,000, and many traders use this method to grow their portfolio over time.

At times, liquidity can be an issue with cryptocurrencies, creating slippage for large buy and sell orders. Though this problem will fix itself in time, as more people invest in the space and encourage more trading, it’s still something to keep in mind when investing in greater quantities.

Bitcoin’s upside potential is infinite, with no real ceiling to how valuable it could become. Blockchain is showing up on institutional investors’ radars, and as more money enters the ecosystem, the more valuable its products and services will become.

Learn more about the industry, and really get a feel for how much you think it’ll be worth. A bankless future than runs on a decentralized economy. What’s the perfect price to sell at? There’s only one way to find out.

How much should I sell?

A risk-averse investor ensures his portfolio is sufficiently diverse so it can withstand the losses of one asset through the gains of another. Some assets are more unpredictable than others, but even if you could time the market perfectly, it’s never a good idea to sell all of your holdings in an asset at once.

As mentioned earlier, with larger sell orders, slippage in low liquidity markets can cost you a pretty penny if you aren’t careful. This can be avoided by learning how to set up stop losses while trading and analyzing orderbook data before setting up orders.

During a bear market, exiting the asset entirely might seem like common sense. However, by selling a portion of your investment, you could reinvest at a lower price, thereby increasing your holdings when the market eventually (hopefully) flips back up.

Even when selling, it can be advantageous to go in with a plan. Fear can make you act in ways you wouldn’t ordinarily behave and hamper your decision-making in ways that aren’t always evident. Don’t sell because you’re worried; sell with purpose.

What signals should I look out for?

Countless things can affect the value of a digital currency. With how small the industry is and its relatively low liquidity, even a single news article can create dramatic movements in cryptocurrency spot prices. Twitter is filled with people either hyping up or spreading FUD about various blockchain-based projects in an attempt to influence the market.

Market sentiment is usually a strong indicator of future price movement, but fickle markets create fickle opinions. Only a strong understanding of blockchain and trading fundamentals can help filter out the noise. Technical indicators may be statistically accurate, but remember to take its warnings with a grain of salt and the context of the economy surrounding it. Signals don’t move markets – markets do.

What do I do with the profits?

Reinvest! Wealth accumulation is a slow and continuous process that takes years of disciplined investments. Reinvesting your profits into the ecosystem doesn’t just grow your portfolio — it improves the crypto economy as a whole.

Blockchain was created to facilitate decentralized money, and investing in the space contributes to its development. This benefits crypto investors in the long-run, and also ensures steady and measurable growth, which leads to consistent, impactful progress that makes the technology more valuable.

As an investor in cryptocurrencies, creating a thriving market is in your best interests, and regardless of whether you’re a day trader, a casual enthusiast, or even a venture capitalist, the best investment you can make is in yourself.