When it comes to investing in cryptocurrency, there are a number of different exit strategies that traders and investors can use. Depending on the current market conditions, some strategies will work better than others.
At Alphachain, we’re experts in crypto. So, with that in mind, here’s our guide to cryptocurrency exit strategies, including 5 key crypto exit strategies you can use in 2023 and beyond.
What is a Crypto Exit Strategy?
The cryptocurrency market is highly volatile and subject to large price swings, you’ll see this daily if you track cryptocurrencies with heatmaps. This means that investors need to clearly understand when they want to sell their investment and what sort of return they are looking for to minimise their potential risk and boost their potential returns.
A crypto exit strategy is a well-defined plan that sets out the conditions under which investors will sell their cryptocurrency holdings. Ideally, an exit strategy will allow traders to make more money than their initial investment, but it should also protect them from large losses if the market moves against them.
What are the 5 key crypto exit strategies?
Though the crypto world and its trading strategies can be hard to initially get to grips with, we’re here to help. The following are 5 common crypto exit strategies that investors can use in order to make significant gains and protect their losses in the long term, including:
- Exit at price targets
- Exit by portfolio
- Exit by return (%)
- Dollar-cost average out
- Exit by cycle.
We’ll take a closer look at each of these strategies throughout the rest of our guide.
How do you pull out of crypto?
To pull out of crypto (aka sell your investment) you need to find a reputable exchange that accepts the currency you want to sell and then place an order to sell your holdings. Once your order is filled, you will then be able to withdraw the proceeds from the sale into your bank account.
To pull out of crypto using an exit plan, you will need to first decide when you want to sell your investment and what sort of return you are looking for. Once you have a clear understanding of your goals, you can develop a well-defined plan that sets out the conditions under which you will sell your investments. To implement this plan or strategy, you have a few options:
- Using a stop-loss order: A stop-loss order is an order placed with a trading platform that automatically sells your investment when it reaches a certain price or other condition. This can help to limit your losses if the market moves against you, and also helps you to make a profit if the market moves in your favour. There are numerous stop-loss strategies that you can use to ensure this is implemented effectively.
- Manually selling using your exit strategy: You can also manually sell your investment using your exit strategy. This involves monitoring the market and placing an order to sell when the conditions of your strategy are met.
- Utilising the best trading platforms: Some trading platforms offer advanced features that can help you to execute your exit strategy more effectively. For example, some platforms allow you to set up conditional orders that will only be executed if certain conditions are met.
When is the best time to exit crypto?
The best time to exit crypto will depend on your investment goals and risk tolerance. If you are looking for short-term gains, you may want to sell your investment as soon as you reach your price target. However, if you are looking to hold your investment for the long term, you may want to wait for more favourable market conditions.
It is also important to consider the fees associated with selling your investment. Some exchanges charge high fees for making trades, so you may want to factor this into your decision of when to sell.
5 Crypto Exit Strategies For 2023 and Beyond
- Exit at price targets
Price targets involve meeting a specific price point before selling your investment. This strategy can be used to take profits at regular intervals or to cash out completely after the price reaches a certain level. The benefits of using price targets include disciplined selling and the ability to take advantage of short-term price movements.
To exit using price targets, you will need to set a target price for each of your investments. Once the price reaches your target, you can place an order to sell your holdings.
It is important to remember that the cryptocurrency market is highly volatile and subject to large price swings. This means that your target price may not be reached for some time, or it may be reached and then quickly surpassed. As such, it is important to have patience when using this strategy and to be prepared to adjust your target price if the market conditions change.
- Exit by portfolio
The portfolio exit strategy involves selling all of your investments in a particular asset or group of assets once they reach a certain level of return. This strategy can be used in crypto investment, as well as in other types of investments.
The benefits of using this strategy include simplifying your investment portfolio and taking profits at regular intervals. However, it is important to remember that this strategy also carries the risk of missing out on potential gains if the assets you sell continue to increase in value, so if trading FOMO is often an issue for you, price targets might be the better option for you.
To exit by portfolio, you will need to set a target return for each of your investments. Once an investment reaches your target return, you can sell your holdings and reinvest the proceeds into another asset.
It is important to note that your target return will need to be realistic in order for this strategy to be effective. If your target is too high, you may miss out on potential gains. If your target is too low, you may sell your investments too early and miss out on potential profits.
- Exit by return (%)
Crypto investors can also exit by their return percentage. This strategy is similar to the portfolio exit strategy, but with one key difference. When using this strategy, you will sell your investment once it reaches a certain percentage return, regardless of the current market value.
For example, if you buy an asset for $1,000 and it increases in value to $1,500, you would have made a 50% return on your investment. If you had set a target return of 30%, you would sell your investment and take your profits once it hit 30% ($1300) meaning a guaranteed return but the potential to miss out if the market value continues to increase to $1,500.
The benefits of using this strategy include taking profits at regular intervals and simplifying your investment portfolio. However, it is important to remember that this strategy also carries the risk of missing out on potential gains if the assets you sell continue to increase in value, so keep a close eye on the return percentages you choose to ensure they’re not too low.
To exit by return percentage, you will need to set a target return percentage for each of your investments. Once an investment reaches your chosen target profit level, you can sell your holdings and reinvest the proceeds into another asset.
- Pound-cost average out
The crypto market is highly volatile, which can make it difficult to know when to sell your assets. One way to mitigate this risk is to utilise a pound-cost average out strategy. This strategy involves selling your assets over a period of time at fixed intervals.
For example, if you have 1 BTC that you bought for £10,000, you could sell 0.1 BTC every week until you have sold all of your holdings. This would allow you to take advantage of any short-term price movements while still selling your assets over a period of time.
To utilise this technique as an exit strategy, you will need to set a schedule for selling your assets. This schedule can be weekly, bi-weekly, monthly, or any other time period that you feel comfortable with. Once you have set a schedule, you will need to stick to it in order to take advantage of the strategy.
- Exit by cycle
By assessing the crypto market performance cycle, you can determine when is the best time to sell your assets. The market cycle typically consists of four phases: accumulation, markup, distribution, and markdown.
By understanding each stage of the crypto market cycle, you can exit your investments at the top of the cycle, before prices start to decline. The first step in utilising this strategy is to identify the current phase of the market cycle. Once you have done this, you can begin to form a selling plan for when you will exit your trades.
It is important to remember that no two market cycles are exactly alike, so it is vital that you do up-to-date market research before making any decisions.
Crypto Exit Strategy FAQs
Should you hold crypto?
Whether you should hold crypto long-term will depend on your trader personality, i.e. your investment goals and risk tolerance. If you are comfortable with the risks associated with investing in crypto, then you may choose to hold your assets for the long-term.
However, if you are not comfortable with the risks, you may want to sell your assets and invest in another asset class. It also depends on which exit strategy you choose, as some may require you to hold investments longer than others.
What is a chandelier exit?
A chandelier exit is a technical analysis tool that can be used to identify the most recent high and low price points. This information can then be used to set a target exit price for your investment. To use a chandelier exit, you will need to identify the highest and lowest price points for your asset over a certain period of time.
Once you have done this, you can set a target price that is between the high and low price points. When the market reaches your target price, you can sell your investment and take your profits.
What is a good stop loss percentage for crypto?
There is no single answer to this question as it depends on your investment goals and risk tolerance. However, eToro tells us that “On cryptocurrency trades that are in profit, the minimum Stop-Loss amount is 10% of the initial amount invested subtracted from the current value of the trade.”
This makes 10% a good starting stop-loss percentage for many investors, meaning that if the price of your asset falls by 10%, you will sell your investment and take your profits.
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