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When to Sell Bitcoin? Finding the Right Selling Opportunity

Michiel Mulders
March 23, 2021
Red chart in the background with the text "when to sell bitcoin?"

It’s not always clear when you want to sell your Bitcoin investment and lock in your profits. When you want to sell heavily depends on your situation. When did you buy Bitcoin? How much profit do you want to make? Or perhaps you need access to as much capital as possible? 

It’s not a surprise that most Bitcoin investors don’t have a clear plan when it comes to selling their Bitcoin position. Don’t worry, it’s not a big problem as you’ve already done the hardest part — investing in Bitcoin.

I want to introduce you to seven ideas or techniques that should help you to determine when you want to sell your Bitcoin position. I’ll cover planning, strategy, technical indicators, market cycles, hedging, and alternative investment opportunities. Let’s take a look.

Planning and Strategy

As mentioned in the introduction, you’ve just bought Bitcoin and need a selling strategy. So, when do you sell? The most simple question to this answer is setting a profit level. At which profit percentage do you want to close your position?

Some investors prefer a long-term Bitcoin investment as they hope to get the most returns out of their investment. For instance, they hope to get a 100% return in three years. At the same time, some want to ride short-term waves and will be looking at a profit margin of 10 to 15%. As you can see, this really depends on your investment goals. 

However, both long-term as short-term investors can make their selling strategy a bit more interesting. A strategy called “percentage-based” investing determines several profit levels at which you want to sell a certain percentage of your total position. Here’s an example price breakdown (assuming a Bitcoin price of $50,000):

  1. Sell 50% when the Bitcoin price reaches $70,000
  2. Sell 25% when the Bitcoin price reaches $80,000
  3. Sell remaining 25% at $85,000

You can be as creative as you wish with this strategy. This strategy aims to avoid closing your position all at once while the price of Bitcoin might continue to rise after you close it. You want to gradually lock in profits as the price of Bitcoin climbs up. If you are unsure about this approach, you can set a stop-loss when the Bitcoin price has reached your first price target. For instance, the price of Bitcoin hits $70,000, and you want to ensure that you lock in your profits, you can set a stop-loss at $68,000 to sell your position.

Technical Indicators

What if you could predict the future movement for the BItcoin price? Technical indicators try to provide you with future predictions by looking at historical data. By nature, trading markets consist of a lot of chaos. Yet, we can find some patterns in this chaos. Technical indicators are great to expose some of the patterns.

Let me introduce you to two indicators that can help you to predict the market. First of all, look at the Relative Strength Index (RSI) indicator on the 4-hour chart. This is a momentum indicator that measures the magnitude of the recent price changes to evaluate if an asset is overbought or oversold. For instance, if Bitcoin is heavily overbought, it’s likely the market will experience a correction. 

Another interesting indicator is the Moving Average Convergence Divergence (MACD) indicator. Again, this indicator measures past pricing events to predict possible price trends.

“The MACD may be useful for measuring market momentum and possible price trends and is utilized by many traders to spot potential entry and exit points.”

If you are unsure when to sell, you can combine both indicators to better understand the current mood and state of the market. 

All-Time High

Comparing the actual price against the all-time high (ATH) for Bitcoin or any other cryptocurrency might be a good measure to determine when to sell your position. 

For instance, you might want to sell your position when Bitcoin’s price is trading closely around its ATH. For some traders, the price trading around the ATH might be an indicator of strength, expecting the price to break its ATH. 

Yet, it remains a good measuring point to determine a selling strategy. One could write down that they want to sell the Bitcoin position when the price of Bitcoin reaches 90% of its ATH

You’ve Spotted a Better Investment Opportunity

Imagine you are in a situation where you’ve already made a 30% profit on your Bitcoin investment. The markets have stabilized, and you don’t want to wait for another three months to potentially enter a new bull run. Therefore, you can decide to move your investment temporarily to a better opportunity during this period. It’s totally fine to move in and out of your Bitcoin investment depending on the Bitcoin market state. However, trading Bitcoin frequently is often considered a riskier strategy than the “Buy and Hold” strategy

In short, don’t be afraid to switch investments when an exciting opportunity pops up.

You Lack a Diversified Portfolio

Some people tend to get excited by the investment opportunity Bitcoin offers. Therefore, they embark on a journey to invest all of the money they can afford to lose in Bitcoin. The past has shown us that this can be a very rewarding strategy. But also, it’s a very stressful experience due to Bitcoin’s volatile nature. Do you really want to embark on this journey of emotional stress?

If you are in this position, try to sell off some part of your position when you’ve made a profit. You can use this money to invest in other cryptocurrencies or use it to invest in other opportunities. It’s better to diversify your portfolio as quickly as possible to hedge against the risks of volatility. 

For instance, YouHodler offers a strategy called the “Barbell Strategy”. The strategy puts 80 to 90% of your investment in stablecoins to earn interest and 10 to 20% of your investment in a riskier investment like Bitcoin or any other cryptocurrency you like. If the market goes down, the interest earned from the stablecoins secures the balance of the account. If the market goes up, the trader enjoys both the stablecoin interest as the profits made for their Bitcoin investment. 

Exit Based on Bitcoin’s Historical Pricing Trends

It’s not very uncommon that Bitcoin traders make entry or exit trades based on historical pricing trends. Moreover, it’s not a secret that Bitcoin remains in a downtrend or uptrend during specific months of the year. 

Harvard researchers have found a 50% probability of a price correction to happen after an asset rally by more than 100% over a period of two years. The probability of a crash increases to 80% if the asset price increases by a minimum of 150%. 

For Bitcoin specifically, we often see a firesale during the Christmas holidays as people want some extra cash to buy presents and don’t want to be mentally bothered by managing their portfolio while they are with their families. Therefore, the first months of the year often see a rally as investments pick up again. During the summer holidays, it’s not very uncommon to see a short dip as investors go on holidays and get out of their positions. 

Of course, these are some very generic trends, but they can help you to time your decision to sell your Bitcoin position. Like many other people, you can sell your position around the end of the year or just before the summer holiday.

Optional: Hedge Your Risk When You Expect a Bear Market

Hedging risk is a common practice among institutional investors to protect their investments. When you don’t want to sell your Bitcoin position but still want to benefit from a bear market, you can open a short position simultaneously. This means you now have both a long and a short position for Bitcoin.

(Pro tip: You can open simultaneous long and short positions on YouHodler using the "lock trading" strategy)

As ig.com explains, you want to reduce your exposure by opening a short position at the same time.

“This way, if the market falls, you can cover some of the loss to your initial position with gains on your short position.”

Conclusion

Picking the right time to sell your Bitcoin position can be challenging, especially when you have many options to create a selling strategy or determine your ideal selling point. 

Most importantly, look at your personal situation. What’s your timescale for investing in Bitcoin, and what’s your expected profit? Answer both questions to get a rough idea about your selling strategy. 

If you want to make a quick profit, it’s best to look at the current state of the market. You can use technical indicators, the ATH, or historical pricing patterns to determine when the market turns into a bear market.

If you consider long-term Bitcoin investing, you can use a percentage-based selling strategy or use the above tip of hedging your risk during a bear market by opening a short position. 

In short, don’t be afraid to sell!

About the Author
Contributor

Michiel Mulders is a blockchain developer with a passion for the crypto space. His interests include blockchain, entrepreneurship, marketing, and carefully crafted beers. Cheers!

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