Cryptocurrency trading is incredibly volatile, which can both be thrilling and intimidating. It’s easy to get lost in all the buzz surrounding Bitcoin and other altcoins, but if you really want to capitalize on this ever-growing market, it is essential to know how to make profits from cryptocurrency.
Some of the ways you can take profits from cryptocurrency include selling part of your position or using a trailing stop loss. Crypto staking or peer-to-peer lending are also excellent options if you want to profit from cryptocurrency without selling it.
All this sounds complicated, we know, but don’t worry! Taking profits from cryptocurrency doesn’t have to be difficult. In this article, we’ll explain the basics so you can take your profits without stress and anxiety.
Read on to learn exactly how to take profits from cryptocurrency!
What’s “Taking Profits” in Cryptocurrency?
“Taking profits” in cryptocurrency is the act of selling your coins to realize a gain. It is the opposite of “HODLing,” which is the strategy of holding onto coins for a long period of time with the intention of accumulating profit potential from an increased value over time.
Taking profits from cryptocurrency trading requires knowledge of “cost basis,” or the average price per unit you paid for each coin.
Cost basis is important because it sets the threshold at which you can realize a gain and take profits from your position. The difference between your sale price and cost basis determines how much money you make on any given trade.
For example, if you buy 1 Bitcoin at $20,000 and sell it later at $25,000, your cost basis is $20,000, and your gain on the trade is $5,000.
Knowing how to take profits from cryptocurrency involves understanding when it’s the right time to sell. The timing of your trade is key – there are several strategies you can use to determine when to sell.
How to Take Profits From Cryptocurrency
One of the biggest dilemmas cryptocurrency traders face is deciding whether to cash out all at once or wait for the price to rise even further. Both options are risky in their own way — if you wait too long, the price could dip, while if you take profits too soon, you could miss out on greater gains.
Fortunately, there are two strategies you can use to make the most of any trading opportunity: selling part of your position or using a trailing stop loss. Let’s take a look at each of these methods in detail.
Selling Part of Your Position
Selling part of your position is a great way to take profits from cryptocurrency without cashing out your entire position. This approach basically involves selling some of your coins to realize a gain while leaving the rest in your wallet for potential future gains.
By selling part of your position, you can still benefit from any upward price movements but also limit your losses if the market takes a downturn. This approach allows you to take profits from cryptocurrency trading without completely removing yourself from the game.
For example, let’s say you buy 1 Bitcoin for $10,000. After the price rises to $20,000, you could sell 0.5 Bitcoin for $10,000 and realize a gain of 50%. You would then have 0.5 Bitcoin left in your position, which you could sell for $15,000 when the price for 1 Bitcoin rises to $30,000.
This way, your total profit would be $15,000, which is greater than if you had sold all 1 Bitcoin when it was at $20,000 (since then, you would have only made a total profit of $10,000).
Using a Trailing Stop Loss
A trailing stop loss is another great way to take profits from cryptocurrency trading. A trailing stop loss is a dynamic stop-loss order that adjusts automatically as the price of your coin moves in your favor.
Rather than setting a fixed price level at which you want to close your position, it follows the market price and will open or close your position when the coin reaches a certain distance from its current price, usually expressed in percentage points.
For example, let’s say you bought 1 Bitcoin at $10,000 and set a trailing stop loss of $9,500. If the price of Bitcoin rises to $20,000, your stop loss would also increase to $19,500 (a 5% decrease from its current price).
When Bitcoin’s price starts falling from $20,000, your stop loss will convert to a market order at $19,000, closing your position and allowing you to pocket a profit of $9,000 even if Bitcoin’s price eventually falls back to $10,000.
By using this strategy, you don’t have to worry about manually entering buy and sell orders when prices move in unexpected directions. The trailing stop loss will do it all for you and take profit from crypto without any further action on your part.
How to Take Profits From Cryptocurrency Without Selling
If you’re hesitant to sell your coins and prefer to take profits without actually selling them, there are a few strategies that can help you do just that. These strategies enable you to hold on to your coins while still profiting from them.
Here are two ways to take profits from cryptocurrency without selling:
Crypto staking is a great way to take profits from cryptocurrencies without selling. It involves holding coins in a wallet, which can then be used to generate passive income. Crypto staking is similar to interest-bearing bank accounts, except that here you are rewarded with cryptocurrency instead of cash.
When you stake your coins, you become an active participant in the network and thus gain access to rewards in the form of transaction fees paid by other users on the blockchain. In addition, some projects offer additional rewards for validating blocks or verifying transactions.
The total rewards can go up to 8% or even higher sometimes, depending on the project and the number of coins you hold.
It’s important to note that crypto staking isn’t risk-free — if the coin price drops significantly after you start staking your coins, it’s possible that you may end up losing more than what you gained from rewards.
Peer-to-Peer (P2P) Lending
Another way to take profits from cryptocurrencies without actually selling them is peer-to-peer lending offered by DeFi (decentralized finance) projects. DeFi offers an array of services, such as lending and borrowing, that are powered by blockchain technology.
With P2P lending, you can lend your coins to other users in exchange for a predetermined interest rate. The interest rate depends on the coin’s market value and specific terms like loan duration or repayment schedule. P2P lending is a great way to earn passive income and take profits from cryptocurrencies without selling them.
However, it’s important to remember that P2P lending carries some risks as well — borrowers may default on their payments, leaving you with losses instead of gains. It’s also important to do your research before getting into DeFi products and make sure you understand the risks associated with them.
Learning how to take profits from cryptocurrency is essential for any serious trader. By knowing when it’s the right time to sell, you can maximize your gains and protect yourself from potential losses.
Whether you opt for selling part of your position, using a trailing stop loss strategy, or trying out crypto staking and P2P lending, it’s important to remember that every method has its own risks. So before taking any action, make sure you do your research and understand the potential implications of your decision.