First of all, this topic will be of interest to those investors who want to catch large movements of cryptocurrencies and not be distracted by local noise. This type of cryptocurrency trading is primarily interesting for large deposits. The fact is that it is not so easy to enter and exit a position with a large deposit, while controlling the risks. In addition, such work requires a lot of time and skills. Basically, investors who come to the market with a lot of money have neither the time nor the desire to trade market situations within the day.
Of course, there is no clear one answer to the question “when should you sell cryptocurrency that you have been holding for a long time”.
The main factors for successful long-term trading in the cryptocurrency market
The first factor that will help answer this question is the entry point into the market.
Very often, novice investors enter the market when, on the contrary, large players leave it and sell their positions. Your psychological state and the time spent in a trading position will depend on how skillfully you buy cryptocurrency.
For example, you could buy Bitcoin in March 2020 at a price of $3000-$5000 and sell it for $40,000 in six months. And you could buy Bitcoin in January 2018 and only from December 2020 withdraw investments at no loss, after sitting out a very serious drawdown. In the case of buying Bitcoin at $3000-$5000, it is psychologically easier to wait for growth to $20,000 and even higher. There, the investor will sell his Bitcoins, making an excellent profit.
However, an investor who bought in 2018 will dream of getting out of the position at the same $20,000 without thinking about any earnings, only to return the investment body. Therefore, the psychological factor of choosing a target for selling is very important and directly proportional to the correct choice of the entry point into the market.
By the way, we help investors to properly manage their deposit and wisely enter the market with risk control. You can find more information on the link.
The second important factor is understanding where the powerful liquidity zones are on the chart.
You have probably noticed that the price on the chart in certain ranges moves quite aggressively and with lightning speed, and in some ranges it stops. Moreover, in places on the chart where the price flies non-stop, trading volumes are often low. And in the range where the price starts to slow down and reverse, you can see high trading volumes. All this confirms the existence of the law of supply and demand in the market.
It is at the moments when in the cryptocurrency market the price begins to slow down noticeably on large timeframes (daily or weekly timeframe), you should think about fixing part of your position. Why it is worth selling just part of the position, and not the whole – we will just talk further.
The third important factor is always to have a part of the deposit ready for re-purchase.
This relieves psychological stress and allows you to buy more if the price starts to fall, and you have not fixed the position. When you have a deposit to re-buy, you are waiting for a correction to buy and increase your position at good prices. When you do not have free funds, each local collapse of the cryptocurrency market is maximum stress for you, since you did not have time to sell. As a result, you start counting unfixed profits and want to take at least something. In such cases, the market often reverses again, leaving the investor out of position, in no mood, and with no basic income.
The fourth factor is to make trading decisions looking only on the large timeframes.
Small timeframes can be confusing and make you give up your position.
For example, you open the 4-hour timeframe and see the following situation on it:
We see a local growth trend in the BTC market and a test of the global range of $40,700-41,700. This range was considered critical in the summer of 2021, as the price failed to fix higher several times. On the chart, we can see that the Bitcoin price is slowing down in front of this range and sellers manage to break the trend line down. The price fixes below $40,700-41,700 and locally the situation does not look very pleasant for buyers. Though, if you look at this situation on the daily timeframe, you get a different impression:
On the daily chart, we see that buyers closed each daily candle with a hint of continued growth and there is no reason to worry about a medium-term growth. And if you look at the situation on the weekly timeframe, then there are no signals for selling BTC at all.
Greed is the main enemy of the long-term investor
However, there is such a human sin as greed. Do you think many investors who held Bitcoins from $5-10k recorded at least partial profits in the 50-60k range?
Holding an asset for a long time is often blurry to the eye. An unexpected negative situation shakes the investor’s peace of mind and here it is worth making the right decisions.
First of all, it is worth making yourself what percentage of your deposit drawdown is acceptable for you. The absence of stop orders in long-term trading requires better control of your deposit.
After setting the maximum drawdown level, it is worth calculating the fraction of the deposit for which you can afford to invest in a particular cryptocurrency. For example, you allow a maximum of 30% drawdown from your deposit. You can enter a cryptocurrency with your entire deposit and close the position after a 30% drawdown. This is the wrong method. You can also go, for example, 30% of the deposit in a specific coin. But it is best to diversify the risks by choosing several cryptocurrencies for crypto investing. For example, by entering 3 coins at 10% of the deposit, you reduce the risks, since there is little likelihood that all 3 coins will fall at the same time and equally strongly. That is, a wide investment portfolio is better than the entire deposit in one cryptocurrency.
Having determined the volume for one position, you should take out yourself, which will be a signal to enter a new position. You can enter 10 different cryptocurrencies in one trading situation. And all 10 coins will go against you if the market phase changes. Perhaps, some will fall harder, others weaker. But, the investment portfolio is frozen for a long time.
Nevertheless, if you set yourself a rule that entering the next position is possible only when:
- You fixed a profit on a previous position
- You moved the previous position to breakeven, because the price confidently moved in our direction
- You don’t like the position and you are ready to close it and replace it with another.
Control of your investment portfolio will become much more comfortable. Firstly, you will have entries into a position in different trading situations. Secondly, you will not have a strong and sudden drawdown.
As you can see, it is not so easy to manage even long-term investments. However, if you adhere to these rules and consistently monitor the market, your trading will be comfortable and, most importantly, consistently profitable. If you do not have time or desire to control your crypto portfolio – contact us!