How to correctly take profits in a bull market for cryptocurrencies?

Written by: THE DEFI INVESTOR

Compiled by: ShenChao TechFlow

Many people made a lot of money in the last bull market, but what really matters is not how much you made.

It's how much of that profit you can keep when the inevitable bear market arrives.

Many who succeeded in the last cycle ultimately lost all their profits due to greed, the fear of missing out on future potential gains, or poor exit strategies.

In light of this, today I will share my cryptocurrency profit-taking strategy to maximize my profits during a bull market.

Profit-Taking Strategy

Your profit-taking strategy should be adjusted based on two things:

• Your time frame

• Whether you are a technical analysis-based trader or a fundamental analysis-based investor

Most of my capital is invested in long-term positions, and I occasionally engage in short-term trading based on fundamentals and volatility.

Therefore, in this article, I will mainly focus on my strategies for profiting from long-term positions and short-term narrative investments.

But before we begin, here’s a tip:

Whether you are a long-term or short-term investor, strive not to become a loyal member of the crypto community who never sells, because nothing goes up forever.

The main reason many people struggle to take profits is that they feel they have become part of the project community and stop thinking objectively.

The harsh reality is that 95% of cryptocurrencies will eventually disappear, and if you don’t take profits, others will certainly take theirs.

Short-Term Positions

I build short-term positions based on cryptocurrency narratives that I expect will gain significant attention.

When trying to predict, I consider many factors, but the three most important are:

• Social media hype—what projects are currently trending on crypto Twitter?

• Upcoming catalysts (new product launches, multi-chain expansions, etc.)

• Tokens recently purchased by smart money

I will take profits on these positions based on fundamental and technical factors.

First, the most important thing to remember as a narrative trader is that 90% of hype events ultimately turn into sell-the-news events.

Let’s take a look at the price movement of BTC after the approval of the Bitcoin ETF.

Although the Bitcoin ETF has seen massive inflows now, its approval ultimately became a significant sell-the-news event in the short term.

This may be because the market had already priced in Bitcoin due to the crazy hype surrounding this event on crypto Twitter.

Therefore, when I buy a token that I plan to hold short-term due to an upcoming catalyst, I usually take partial or even full profits before the date of that catalyst.

Next, as I mentioned above, I also use technical triggers to take profits on short-term positions.

I am not someone who excels at trading analysis, but I believe there are psychological factors at play when prices attempt to break through previous resistance levels.

For example, here is the candlestick chart of FXS price.

As you can see in the chart above, I marked the price levels where the token has attempted to break through multiple times with a blue line.

One way to gradually take profits on a crypto position is to mark all key resistance areas of that token and sell a portion of your position when it reaches another resistance area.

You can easily do this on TradingView and create a watchlist that includes the tokens you currently hold.

Now let’s look at another example.

PENDLE, a token I have mentioned multiple times, has recently surged to and beyond its previous all-time high.

The reason for this surge is that Pendle's TVL has recently skyrocketed due to its new yield trading pool for Eigenlayer's liquidity re-staked tokens.

For tokens like this that are entering price discovery and continuously setting new highs, you cannot take profits based on the technical triggers I mentioned above.

However, there is a strategy you can use: reverse dollar-cost averaging.

Reverse dollar-cost averaging is the opposite of dollar-cost averaging; it involves regularly withdrawing the same amount of funds from your investment.

For example, you could sell 20% of your position each week.

This is not a perfect strategy, but it allows you to lock in some profits while letting the remaining portion of your position run if it continues to rise.

Long-Term Positions

When I talk about long-term investments, I don’t mean tokens I want to hold for the next five years. Rather, I mean those that I plan to hold until the later stages of the bull market.

I believe the crypto market will continue to be cyclical. So, it makes no sense to not sell my positions during a bull market and then buy them back at lower prices during a bear market.

I primarily take profits on my long-term positions based on fundamental triggers when I believe the peak of that bull market cycle is approaching.

Until then, I will only hold my long-term investment positions.

I summarized some crypto top signals from the last bull market in the chart below:

Some other better top signals include:

• You frequently see expensive items like luxury goods on crypto Twitter

• Every junk coin surges regardless of fundamentals

• Google search traffic for the term "crypto" skyrockets and hits new highs

When these things start to happen, you can assume we are in the final stages of the bull market, and it’s time to sell most of your positions.

I plan to use the reverse dollar-cost averaging strategy to do this when these top signals appear.

Next, this may sound crazy, but there is a technical indicator that has actually predicted the tops of Bitcoin's last three bull market cycles.

That indicator is called the "Pi Cycle," which can be found on TradingView.

The Pi Cycle top signal is generated by combining two daily moving averages.

When one of these moving averages crosses above the other, the Pi Cycle signals that the historical all-time high of Bitcoin for that bull market cycle has arrived (as shown in the chart above).

Based on historical data, the Pi Cycle is the most accurate indicator for Bitcoin to date.

Why is this indicator so effective? That remains a mystery, but I personally plan to take profits on my long-term positions when the Pi Cycle gives its next sell signal.

No one really knows what will happen next in the financial markets, but in many cases, studying historical data can increase your chances of success.

That’s it for today. I believe we are still far from the top of this bull market. But it’s a good idea to start formulating your profit-taking strategy from now on.

When we reach a stage of extreme market heat, if you don’t have an exit profit-taking plan, it will be difficult to convince yourself to take profits.