During the pandemic, many people and businesses turned to crypto investment to generate extra money. It was definitely a great decision because it requires very little investment and a lot of profits. When you see the prices spike and decline every other day, it is easy to get lured and consider making some money off it. But the market is volatile – you never know when you could encounter a loss suddenly while making profits consistently.
To avoid high losses in the crypto market, it is vital to stay updated with the ever-changing rules, policies, and regulations as no official institution is backing it.
Since investing in cryptocurrencies has become so common these days, you can find several exchanges where it is possible to make such investments. While some of them are genuine, some are not as good as they market themselves. Click on the go URL to find a reliable app to begin crypto trading.
But if nothing is working out for you in the crypto world, it is vital to have a plan B. Here are a few ways to help you formulate an effective exit strategy that you can follow whenever needed.
1. Cease Loss Strategy
When safety breaches the very technical purpose you took to trade, it means that it is time to impose the limits. Setting stops when you enter the trade is the best way to keep your emotions in control. Prior to joining the trade, traders must analyze the chance they are willing to take and set a limit while determining a target.
Traders are often advised to put limits on the basis of random values below the entry cost. Still, doing so is baseless as they do not line up with the features and instability of a certain instrument. Instead, one can use breaching of features to form the innate stop-loss cost, which comprises trendlines, round-off numbers, and operating averages.
Under this method, if the trader is wrong, the trade will automatically shut down at an acceptable level of risk. Even if they are right and the price hits the target, the transaction will stop. Whatever be the outcome, the traders can exit the market.
2. Volatility Approach
The volatility-based approach uses the Average True Range (ATR) to measure market volatility. It takes the average range between the high and low for the past two weeks to inform the trader how the market is behaving and thus helps them set limits for each trade.
ATR is a universal indicator that is adaptable to any time setting. You just need to set your stop slightly above 100% of ATR and determine the point at least the same distance from the entry end. The greater the ATR, the wider the stop.
3. Market Timing
Before joining a market, form the practice of determining reward and risk points. But for this to happen, you need to look for the resistance level within the time constraints of the holding period. It will make for your reward target. Then determine the price that will prove you wrong in case it turns and hits it. It will make for your risk target.
Now find out the reward-risk ratio, which should ideally be 2:1; anything below means you should quit the trade and move forward to another chance.
4. Scaling Strategy
To effectively follow the scaling plan, you must elevate your end to breakeven as soon as a market gains. It will build your confidence to relax and wait till the price is 75% of the distance that lies between the risk and reward points. It will also give you the choice of exiting the market at once or in bits.
The method tracks the position size and the plan being used. For instance, it is useless to break an already minor trade into even minor pieces. It is much more convenient to find the right time to get rid of the whole stake or use the stop-at-reward scheme.
For more prominent positions, you may exit ⅓ at 75% of the distance between the targets. Next, you may leave ⅔ at the target. After the third part exceeds the limit, you may place a trailing end beyond it, using it as an exit. With time, you will realize that it is the third piece that helps you make substantial profits.
5. Moving Average
It is an effective tool to determine the way in which a coin is moving. It is built on the idea that traders look for a buying opportunity when the price is above the average, and they look for selling when the price is beneath it. But one can also use this method as a trailing end.
If the average cuts the price, it means that the trend is shifting – an indication for the traders to close the positions. So, placing your stop-loss on the basis of moving average is an effective plan.
6. What is a Holding Period?
It is not possible to talk about the exit plan without taking the holding period into consideration. If your time frame does not align with your exit plan, you have to choose the time that lines up with it. It will help you determine how long you need to book your profit or loss.
To follow this method, you must have discipline because there are certain positions that perform so well that you might want to keep them beyond time constraints. While it is OK to stretch or squeeze the period, it is equally vital to exit within the parameters to build confidence, skills, and profitability.
The Crypto world is undoubtedly a volatile market. Traders here often put a lot of energy in fine-tuning the perfect time to enter it, but they blow out by taking poor exits. This fact applies to the traders and all of us as we all lack effective exit planning. I hope the above tips can help you remedy this crucial oversight and enhance your profitability in the future.