I’ve had a few people asking about what strategies I use for holding, buying and selling cryptocurrencies. So I thought I'd share one strategy I utilise when taking profits from crypto. Please note my disclaimer at the end!
Park the Buying strategy
I’m going to park my thoughts on buying cryptocurrencies for now. I generally don’t buy in bull markets (like the one we’re currently in). Also my strategies for accumulating coins are very different to what I'm going to outline here.
For now I want to concentrate on my approach to selling and taking profit in crypto.
Balance sheet is sweet, now what?
When you’re in the midst of a mega bull market it’s hard to determine what to do and when. Whether you've made all the right moves or haphazardly stumbled your way into profit, it can be difficult to know how to react when your investments suddenly go parabolic in a matter of days.
What makes it worse is there are no obvious indicators on what the market is going to do next. You read forum posts and articles and the advice is contradictory. Some say the crypto bubble will burst any day now... some say crypto is in it’s infancy and is about to go mainstream… some say sell for bitcoin… some say 'forget bitcoin', the flippening has arrived… some say get your money out of crypto altogether before a major exchange is hacked… it goes on and on….
The SSS system in Bull Markets
I’d like to point you to an article, I’ve found incredibly resourceful in times like this:
Rpietila’s Sane and Simple Bitcoin Saving plan
I use a variant of this plan to decide when and how to take profits from a crypto-investment.
The rake
The concept is simple:
Each time your coin doubles in value, take out a certain percentage ('rake') in profit
This money can be used to diversify your portfolio, treat yourself or increase your standard of living.
Example 1
The SSS system is probably best illustrated with an example.
Say you bought 10,000 STEEM at 50 cents ($5,000). Or better still you earned 10,000 STEEM through months of adding consistent value to the platform.
Your plan could look something like this (with a 10% rake):
| Price | Sold | Out | Left | Acc Value | Tot Out |
|---|---|---|---|---|---|
| $1 | 1000 | $1000 | 9000 | $9000 | $1000 |
| $2 | 900 | $1800 | 8100 | $16200 | $2800 |
| $4 | 810 | $3240 | 7290 | $29160 | $5040 |
| $8 | 729 | $5832 | 6561 | $52488 | $9072 |
| $16 | 656 | $10498 | 5905 | $94478 | $16330 |
| $32 | 590 | $18896 | 5314 | $170061 | $29393 |
| $64 | 531 | $34012 | 4783 | $306110 | $52908 |
| $128 | 478 | $61222 | 4305 | $550998 | $95234 |
As you can see, over time there is steady growth in the value of your crypto holding, as well as a healthy amount taken out. You can see that STEEM at $4 (three doublings from your initial 50 cents) will enable you to take out what you put in and still hold a very healthy amount. If one STEEM hits $128, you'd have cashed out $95k, while still holding an account worth over half a million dollars.
STEEM at $128 might seem far-fetched. That would give it a marketcap the same as what Bitcoin is today. However if you believe Steemit (and other Steem apps) have the potential to be the next Facebook, Twitter or Snapchat then you may not see such a valuation as so fanciful.
Only a few months back, I’d have never envisaged coins like Ripple and NEM having the multi-billion dollar valuations they have today. But they do, and neither of those coins are close to mass adoption. This space has already proven virtually anything can happen, incredibly quickly. The SSS system allows me to take profit yet still have a substantial amount of skin in the game should another parabolic rise happen.
Example 2
Here is another STEEM example. If back in March, you had the foresight to buy $5,000 worth of STEEM at 10 cents, you’d have racked up 50,000 STEEM.
Your plan could look like (with a 10% rake):
| Price | Sold | Out | Left | Acc Value | Tot Out |
|---|---|---|---|---|---|
| $0.2 | 5000 | $1000 | 45000 | $9000 | $1000 |
| $0.4 | 4500 | $1800 | 40500 | $16200 | $2800 |
| $0.8 | 4050 | $3240 | 36450 | $29160 | $5040 |
| $1.6 | 3645 | $5832 | 32805 | $52488 | $9072 |
| $3.2 | 3281 | $10498 | 29525 | $94478 | $16330 |
| $6.4 | 2952 | $18896 | 26572 | $170061 | $29393 |
| $12.8 | 2657 | $34012 | 23915 | $306110 | $52908 |
| $25.6 | 2391 | $61222 | 21523 | $550998 | $95234 |
| $51.2 | 2152 | $110200 | 19371 | $991796 | $171422 |
| $102.4 | 1937 | $198359 | 17434 | $1785236 | $308559 |
You’d have made back your initial $5k investment when STEEM hit 80 cents at the beginning of May. This example also assumes you’re passively holding STEEM. Not further increasing your holdings by converting to STEEM Power and earning through interest, curating and posting.
Obviously this approach is not limited to STEEM and can be applied to any cryptocurrency. I like the approach because it is not unusual to see coins increase 1000% in value in a very short period of time and crash even more quickly. Having a 'simple and sane' strategy helps keep my feet ground when there is chaos in the markets.
Simplified
I’ve kept the examples simple just to give you a flavour of an approach I find useful.
In practice, you may want to price up your coin in BTC rather than dollars. You may adjust the rake in line with your risk tolerance levels. You may incorporate a ‘buy-back’ strategy should the market dip. You may want to ride some pumps a little.
The beauty of this approach is it allows perspective. I can step away from the daily trading volatility and dip in the market on a price scale of my choosing.
As Rpietila states in his article Bitcoin is a disruptive technology. For me this extends to a number of good cryptocurrencies. If they succeed in shaping the future of finance and money, the gains could be astronomical. Or the value of your coins can dwindle to next to nothing. The SSS system is the best method I’ve found of keeping a balance between the two extremes.
Common Sense
There is no substitute for common sense though. If your bag holding a coin that has no development, little community and liquidity, which then suddenly pumps - you may be best advised to get out of dodge and be thankful for small mercies! Equally, if you have bailiffs beating down your front door and a small fortune in crypto online, you may want to re-balance your finances!
However if you believe cryptocurrencies are the future, and that the coins you hold will have a big role to play, then you can do far worse than devising a SSS system for yourself.
Some great advise here. I find it difficult when to exit a positition and take profits. I found that HODL is the most effectiveway, at least for me. As long as you don't care about price fluctuations just buy, put them aside and enjoy the profits after few months/years.
Thanks for the great post!
I understand the hodl sentiment, however I find without defining how I will take profit and at what price point I act emotionally.
For example, if I'ved waited 12 long months for a coin to x2. It's easy to think, "phew let me unload my bag for a profit." Rather than thinking where the coin can go from this point.
Equally, if a coin goes x10 in a few days. It's easy to think that it will hit the moon in a year or so. When in reality most of the time it spikes then retraces for a prolonged period. And I'm left kicking myself that I didn't take some profit on the way up. After a long year's decline... I see a x2 profit and cash out early.
For me having a simple saving plan helps me stay focused on the fundamentals and bigger crypto picture... but yes everyone needs to find the most effective method for themselves!!
that sounds so familiar it hurts :))
I am one of the broken pieces left along the road of life..I am trying to pay attention..
I have been following Bitcoin for about 3? years since it was at $175-$200. I started using faucets to get in on this trend(?).. it took me close to a year to save enough for a pack of cig's...$5.
well last year I was up to about $50, so I took $10(?) and put it in to Dash coin, Dash was in the $5.50 -$6.50 range...I got 1.57 Dash, when I was done I had .11 cents left in Bitcoin, that is now .64 cents, and the Dash is over $200. I have a savings account that has had $10 in it for ten years,I make about a penny (?)a year...
So you do the math! pennys on the thousand $ in Fed Reserve Debt. , or hundreds of $'s for cripto-currencies!... the chose is your!
My only regret is that I do not have $ to invest in these crypto coins!,but I am always trying to share my experience,and tell people about them.... the looks I get and the number of friends and family that are missing the bout baffle me! how can you not see the obvious! ... I guess this is just another sign of my insanity... if so.. keep your sanity and give me crazy!!!!
namaste
Just NEVER have your wealth allocated in US Dollar toilet paper, and you will be fine.
Thanks for the great post.
Bought my first crypto 2 weeks ago and made my first Steemit post 2 days ago (I think) and I've already gotten some big mistakes out of the way. I knew I needed to HODL but, like so many others, didn't have a clue as to how to capitalize on growth.
A 10% rake is a great start and relatively easy to calculate.
Thanks again.
So you talk about "parking the buy" here at the top, I have to ask, when do you think another period like that will occur in crypto? Right now things have been going to such crazy ATH's. If BTC goes down, what will be the new $200? Is this the new normal?
What do you feel in your experience? I recognize that no-one is clairvoyant, but your experience and feelings do count.
Thanks as well for your strategy for profit taking over time.
Fantastic post, very good examples. I send it to my friends for their mandatory reading.
Seems to be wise to take out once the profit hits 2x. I'm relatively new to trading, very new, and I find it very chaotic what's going on on the markets right now. Very hard to get a grip.
Thanks for posting. Gives me things to think about, how to trade more wisely.
Logical and informative post, @nanzo-scoop!
I personally like the SSS strategy (The rake) as it gives you a chance to enjoy some of the fruits of your labour. But some people, especially in steem, wanna hold and wait for the price to go to the heights I see it going. That's all good too as my belief in the platform and community has never been stronger.
I'll probably use this article as a useful reference guide to anyone wondering how to best diversify or spend what they've accumulated in crypto.
Great post by you as is the norm. Simply loving it! :)
What a great info !! @nanzo-scoop keep it up !
Amazing article, my friend! Why don't you write more?
This is eloquent, informative, to the point and easy to read.
I love it!
Great info vs usual hodl methods.
First things first for me, is there a difference between keeping steem dollars or STEEM? If STEEM goes up like crazy it won't really make a difference if all I has is steem dollars, right?
It shouldn't make a difference - a Steem Dollar is designed to be always worth a dollar. Whoever holds a Steem Dollar can (at anytime) convert it for 1 dollars worth of Steem using their wallet. It's designed to offer holders protection against crypto volatility should they wish it.
However in the open market people are not necessarily rational. All coins are getting pumped, included Steem Dollars. This means holders of Steem Dollars can sell at a premium.
But if the price of STEEM goes up, the steem dollar will still be worth one dollar, while the STEEM would be really valuable, no?
Correct....and if STEEM goes down the Steem dollar will still be worth a dollar.
As per the whitepaper
The idea is that people can choose to trade in (or hold) Steem dollars with a greater certainty of what it will be worth over time.
an excellent post. i wished i could have known such information before my big loss at trading.
Thanks
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