Should I Take Profit or Re-invest?
Jan 3, 2022
To take profit or not to take profit is a dilemma that many crypto traders struggle with. Unfortunately, there’s no easy answer to this question as the future is unknown.. Obviously, being in profit is a good problem to have, but it's always important to be prepared and have a take profit strategy so you’re not left with this dilemma. Let's take a look at some of the factors that may influence your decision:
Benefits of taking your profit after a trade
Profit taking is essential if you want to become a profitable trader, you cannot become a profitable trader if you never take profit. Yes, HODLing is great, but if you never take profit, you will never reap the rewards of all your hard work. The great thing about crypto trading is that because of the volatility in the market, traders have the potential to make large profits in short periods of time, however, you should always be cautious of the risks involved.
By taking profit, you remove yourself from the market, mitigating any losses. Whereas, if you don’t take profit, a reversal could happen, leaving you at a loss when you were previously in profit.
Setting profit targets is a great strategy as it can help eliminate some of the emotion in trading. When it comes to setting profit targets, you should always set realistic targets before entering a trade. Once those targets hit, it's important that you walk away from the trade.. After all, unrealised profits are not real profits.
Drawbacks of taking your profits after a trade
It can often be really difficult to know when to take profit, especially when you’re a new trader. Most new traders often miss out on incredible profits simply because they take profit too early.
Of course, there’s no guarantee that you will profit by HODLing your crypto for a longer period of time, as it is a high risk investment. Long-term investing, however, gives traders a better chance of profitability, especially with the crypto market being so volatile.
If you don’t plan on sticking with your investment for a long period of time, you may be pressured to take profit at the first small rise in price and then potentially miss out on future gains.
Pros and Cons of reinvesting your profit
Deciding whether or not to reinvest your crypto profits can be a really difficult decision, especially for new traders. We outline some of the pros and cons of reinvesting your crypto profits:
There is, of course, the potential to make even greater returns with the profits you have already made. It is, however, important to remember that crypto trading is high risk, your reinvestments carry no guarantee and the potential for extreme loss still remains. A good strategy that some investors use involves taking their initial investment off the table and then only reinvesting their profits, mitigating risk, as any losses will not impact your initial capital.
For example, say that you invest $2,000 in BTC and then with the recent price increase, your BTC holdings are now worth $10,000. You will then take out your initial investment of $2,000 and leave the remaining $8,000 until a future date. This way, you won't lose any of your initial investment.
Knowing when to take profit is a key factor that distinguishes a profitable trader from an unprofitable one. If you never make a profit, you’re never going to make money. The next time you find yourself in a profitable trade remember that unrealised profit is not really profit.
Remember, proper diligence and sound judgment should be used in evaluating the risks associated with these activities. Trading cryptocurrency carries significant risk and losses can exceed deposits. Refer to our Terms and Conditions and disclosure material