It’s All About Taking Profits (Part I)

It’s never a bad to take some profits if you are up.

Recently I was engaged in a discussion with some people about when is the absolute best time to take profits when you’re up in a trade. Well, as you can expect like anything in life everyone has their own opinions and their own strategy for when they take some off the top. Even with all the varying strategies, there is one thing that resonates through the Cryptospace, and that is it’s never a bad idea to take profits when you are up. You may be asking yourself, well how to do I know when or how to take profits. Well, that is what we are going to hopefully go over in this article. In saying that, remember that there is no right or wrong way to take profits. It is solely up to you as the individual to decide what method works best for you and fits your trading plan.

“ Singin’ go on take the money and run” — Steve Miller Band

Sell Half on the Double

This is probably by far one the simplest approach to taking profits. This method works buy you waiting for your initial investment to double, go up 100%, before you start taking profits. Now, this can be applied in many different ways, but the most common approach is that you start to take off your initial investment out, sell 50% of your holdings, to recoup the investment that you put into the trade. This is where this method shows promise, as now you have your initial investment back and you are basically on a free ride to the top or the bottom. This strategy lends itself to reducing your exposure to the ever-volatile market while leaving you with enough holdings to make a decent profit as the market continues to move. So, what your telling me is that I can put money into it; wait and let it double and then have no skin in the game? Sign me up right!!! Well while that sounds like an awesome strategy lets take a little closer look at it.

Let’s say you stick to your trading plan, and you are only going to take out profits when your coin hits 100% or doubles, you should ALWAYS stick to your trading plan. Well, your coin never makes it up to 100%, but you only gained 20%, 30%, or 40% on your trade. Well if you are a disciplined trader your not going to touch it and let it sit there and wait till it doubles. While you are waiting for it to hit your price, the market begins to sell off, and you are right back where you bought it at or worse below it. So while this strategy lends itself to you recouping your initial investment and still holding enough to trade you are still highly exposed while waiting for your investment to hit your profit taking level. Also, take note that while 100% moves can happen in crypto, the chances of that are still meager and can take a long time to come to fruition.

Overall, I would say that if you are looking for more of an investment strategy and not concerned about how long it takes to gain profit, than this may be something you should consider and think about adding into your trading plan.

Risk / Reward Ratio (R/R)

It will get back up there right???
Risk / Reward (R/R) or Risk VS. The reward is simply risking a set amount of reward to your risk. Say you are trading a 2:1 R: R, this means that you are going to reward your 2x(times) what your risk was. Mean if you buy into a coin at $20 you will place a stop-loss at $15 to limit your risk to $500 or below. This is assuming that you think your coin will hit $30 for your profit taking point. It becomes clearer if we break it down into mathematical form:

R/R = (Take Profit -Entry ) / (Entry -Stop loss)
R/R = ($30–20) / ($20-$15) = 10/5 =2

Most popular trading books cite that a R/R of 2:1 is the optimal and minimum way to implement a R/R into your trading plan. Well, I say unto you that no profits are bad and if you implement only a 1:1 R/R well than that is perfectly acceptable as well. There is no such thing as bad profits! Another advantage of this strategy is that it can reduce your stress or anxiety when you are trading. Your whole trade is laid out before you even hit that button to buy. You know your profit taking objective and your stop-loss, which should be way less on your mind. This will also prevent you from going too far in the negative should a trade go against you. Remember trading is about discipline.

I like a trading plan that implements a R/R system but as with anything there are drawbacks to this as well, and it always seems to be coming back in the form of that trading plan. Remember you should ALWAYS stick to your trading plan (Tired of me saying that yet?)! This is a very limiting factor as you may miss out on some more substantial gains if you take out your profits when you hit your objective, but then again profits are better than no profits.

In Closing

In the order of everyone trying to absorb this article, and to not throw to much at everyone at once I will stop it here at just these two strategies for now. I will write another article with the remaining strategies, as they are a little more advanced and sophisticated. As I said at the start of this article, there is no right or wrong way to take profits; as long as you are taking profits. There is nothing worse than getting a great entry and watching it gain 20% or 30%, and then it comes right back down to your buy-in, and you did not take any profits. The trick is for you to find what works best for you and your trading plan.

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