A different approach to selling cryptocurrency
Which strategy should I choose?
There are different approaches to the way cryptocurrency is handled.
Hodl means you keep your coins in your wallet, hoping that one day they will increase in value so much that you can make a good profit out of it when you choose to sell.
Withdraw the invested capital
That is, you wait for your coin to increase 100% in value, and then you sell half of your coins. You have thereby managed to get the invested capital out, and the rest can now wait to increase even more in value.
Sell when the price is high
You can also choose to follow the prices and sell when the price is high. This may require a little ice in the stomach, as the price of the coins you have invested in may rise or fall faster than you have expected. It is therefore always a question of whether to sell now, or wait for the price to rise further, with the risk of the price falling instead.
There are many different opinions on which way is the best, and I will therefore try to give my bid on an alternative strategy, namely what I call an Exit Strategy.
What is an Exit Strategy?
It is not uncommon for people to invest in crypto, and then choose the approach to selling when the price reaches the top, it is just the few who manage to sell at that time, you either sell too early, or do not get to selling at all, as the exchange rate can drop sharply before anything can be done about it.
When we look at the illustration above, we can see that we buy when the price is at the bottom.
When the price peaks for the first time, there are many who sell, because now it is starting to go backwards.
Others again remain calm, expecting a further increase. Some of these then fall off when the price drops drastically after peak 2, and never reach the top.
The last ones are the ones that have enough ice in their stomachs to keep up, all the way to the top. A large part of these never get to sell, as the price probably rises a little more. In return, they get part of the slide down again, and unless they choose to sell on the way down, they may end up at a starting point that may be worse than what they first started with.
To counter this You can use an exit strategy.
An Exit Strategy is a strategy where you have a plan for when you want to sell your coins - how many you want to sell at a given time, and at what rate.
An example might be that every time the value has increased 50%, you choose to sell 20% of your coins.
Obviously, you can not get the same dividend in this way compared to holding your coins, but your invested capital will also not stand forever, waiting for the value to increase. Furthermore, you get capital free, which can be used to invest in new coins.
Most exchanges are designed so that you can put your coins up for sale so that they are sold when a given price is achieved. By having a plan for this, you can let the stock market do the work for you as long as you have made your numbers ready.
To work with this, I made an Excel spreadsheet where I by entering the number of coins, as well as the rate at which they were purchased, get all the necessary numbers served on a silver platter. There is not much rocketscience in this, but it does provide a more digestible overview.
First enter the values:
In this case, I have bought 15 fictitious coins at the rate of 50 and my market value is therefore 750.
Once these values have been entered, I get the following information:
Based on the fact that I want a price increase of 50%, and when this is achieved will sell 20% of my stock, I can see that at target 1, I have to sell 3 coins when the price hits 75. Then I can see that at target 2 I have to sell 2.4 cois at price 112.5.
Target 2 is calculated on the basis of Target 1, and is therefore not a 100% increase in value of the starting price. The same is true with the calculation of coins to be sold. In this case, 20% of 12 coins must be sold, as 3 pieces have already been sold.
The percentages can be changed to reflect the same expectations for the coin in question.
If, for example. you hold a coin where you do not expect a tremendous increase in value in the foreseeable future, it will make sense to change the percentages so that they reflect this. It could, for example. be selling 40% at a price increase of 25%. The percentage can be changed for the individual sub-goals, so that it is possible to differentiate how much is sold when.
The next thing will be to see how much we actually have out of this, and we can find out by looking at the following:
Here I can see both the profit I take out per. target, but also the accumulated profit.
The combined value is the value of the remaining amount of coins, as well as the accumulated profit.
By including the value if I had chosen to hodl, I can thereby calculate how much I have "lost" compared to if I had kept my coins in my wallet. On target 2, I can therefore see that by selling my coins this way, I have 7% less profit, compared to if I hodl.
That being said, the 7% is only a ratio between selling in this way and to hodl, but it is possible that the real profit is greater if the value of the coins sold has been reinvested and has achieved an increase in the value of these.
There are many who choose to sell 50% of their stock when the price has risen by 100%, so they get their invested amount out, and to illustrate what this looks like if you use this in this strategy, then we can see that the accumulated profit increases in the beginning, but the profit margin in relation to hodl decreases more over time.
Strategy for buying
When talking about cryptocurrency, it is difficult to say anything about what the future holds for the individual coin. It is still a young market and prices can be extremely volatile.
Therefore, there may also be an idea in having a buying strategy so that one does not just buy when one thinks it makes sense. Therefore, I have also added how much I intend to buy if a given price drop is present.
Here it can be added that if both percentages are the same, it will correspond to investing the amount needed for one's market value to be the same as the starting point.
By following this simple approach to things, You can maintain your portfolio, as well as have an even better starting point when the price rises again.
You can find a copy of the spreadsheet on Google Sheets by clicking here: Exit Strategy
The spreadsheet can be used freely.
If you have suggestions for improvements / changes, you are welcome to share your thoughts on these so that they can benefit everyone.