In cryptocurrency trading, an exit strategy is a plan for selling or liquidating a position to achieve the best possible financial outcome. This strategy is crucial for managing risk and securing profits, and involves setting predetermined price levels at which to sell to lock in profits.
For example, a trader may decide to sell when the price of a cryptocurrency reaches a certain percentage gain, such as 20% or 50%, in hopes of catching a profit in case the price declines. Establishing a price to sell helps to limit the amount of loss on a trade.
Deciding to exit a position after a specific period, regardless of the price, may be useful for traders who have a time-based goal for their investments. Traders also exit based on broader market trends or signals, such as significant news events, changes in market sentiment, or technical indicators showing overbought or oversold conditions.
Additional exit strategies include selling portions of holdings to maintain a balanced portfolio, particularly if a cryptocurrency’s value has significantly increased, as well as exiting based on changes in the underlying fundamentals of the cryptocurrency.
