With most of the cryptocurrencies on the defensive for the past several days, there are growing concerns among long-term crypto holders that this might be the start of a corrective period for the market. As a result, selling some of their holdings might be appropriate, to cash in some of the profits resulted after several months of positive developments. However, timing the moment to sell is very difficult and there are several important aspects to take into account.
# Finding market tops
There are many skills required to find and profit from a market topping formation. The upside potential for any given asset, be it crypto or anything else, is unlimited and as a result, we can end up in a situation when we sell only to see the price continuing higher. Crypto enthusiasts make a lot of mistakes when venturing in this field, but they can design a rules-based process to adjust their investments based on market developments.
# Understanding technical analysis principles
Firstly, to find out ideal times to reduce market exposure, it is imperative to know how to use technical analysis in your favor. “The trend is your friend until it isn’t” and there are signs shown into the price before a topping formation occurs. It happened with Bitcoin recently and at the same time, multiple times over the past several years.
When buyers lose appetite or selling gain more strength, the market trend enters a period of instability marked by choppier moves and uneven performance as compared to multiple indicators (moving averages, Fibonacci levels, oscillators, etc.). When patterns are broken, then it is time to expect a market turn.
# Having a contrarian approach
Selling at the point of high optimism and buyers when pessimism is the rule of the game had been the best approach to make investments in crypto over the past decade. In March, after the selloff, everybody was depressed and expecting more pain. The exact opposite had happened, and cryptocurrencies entered a strong bull run. A contrarian approach, at the right time, can pay high dividends in the long run.
# Working in probabilities, not certainties
As much as we try to optimize our trading/investing methods, the bottom line is that it would be difficult to always sell crypto at the highest market valuations. Sometimes we will need to wait for confirmation to make sure a top is confirmed and that would mean sacrificing a share of the profit. This is how professionals operate and you should also think in probabilities when it comes to making such decisions.