Crypto Swing Trading Summary (C4): Exit Strategies

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Money is made on the exit.

But it is also where a lot of money is lost.

You may think you are making money while your money is in an investment, but until you actually withdraw it, it could all get taken away.

Before you begin any trade, you must set a profit target.

There are several ways to do this.

One way is to use resistance levels. Look for where the price has struggled to break through.

Another option is to use Fibonacci extensions.

A Fibonacci extension is using Fibonacci numbers to predict future price movements.

The best ones to look at are: 0, 0.382, 0.618, 1, 0.5 (not technically a Fibonacci level but widely used in trading).

An even better approach would be to find where they meet. If there is a Fibonacci extension that coincides with a resistance level then it’s a stronger signal.

A stop-loss is a safeguard for when a trade doesn’t go your way. It is a price that you set so if the price drops to that amount, then your position will automatically be sold.

When setting your stop-loss, consider when your trading strategy will become invalid.

For example, if you are trading on a breakout, then setting the stop-loss just below the breakout would make sense.

If you are range trading, then you might set it just below the support level.

A common mistake is to set the stop-loss too tightly. Doing this might take you out of the trade when it is just a temporary pullback. This is true in the stock market, but even more true with crypto due to the increased volatility.

As the price of your asset increases you can adjust your stop-loss higher also.

This way, if the price drops, you will lock in profits while still being able to stay in the market while it is rising.

Your potential gain should at least double your risk; your risk/reward ratio should be 1:2+.

That means if you risk $10 on a trade, then your target profit should be at least $20.

Let’s do some math.

Placing limit orders at crucial levels can help you get in at the right time.

After finding a possible trade at $10 a share you decide that the stop-loss should be at $9 a share. For $100 you can buy 10 shares (10 x $10). If your stop-loss is $9 then you are risking $1 per share, or $10 in total.

For this to be a good trade, you should expect the share price to rise to at least $12.

In other words, for each share, you are risking $1 for the hopeful gain of $2 or more.

So to set this trade you would place a buy order at $10, a stop-loss at $9 and a sell order (to take profits) for at least $12.

Scaling out is when you set several profit targets.

This can help with FOMO.

For example, take one third of the profits at your first profit target. This locks in some gains. Take another third at your second target, and let the remaining third ride with a trailing stop.

You need to adapt your exit strategy depending on market conditions.

In a bull market, it makes sense to allow winners to run longer. In a bear market, you will want to take your profits sooner.

Also, keep an eye on overall market conditions. Bitcoin movement often affects altcoins, so if you see bitcoin fall you may want to tighten up your stop-losses.

Fundamental analysis helps too. Major news events can change things overnight.

The stock market moves on the emotion of the traders, primarily fear and greed.

You need to keep a level head to make a profit, because fear can cause you to exit too early, while greed can cause you to stay too long.

To combat this, write out a detailed trading plan and define your exit strategy before you set the trade.

You must commit to your plan. Play the long game. Taking losses is normal. By sticking to your plan, you will ensure those losses are limited so you are profitable in the long run.

Learn from both your losses and wins and use those lessons to refine your strategies.

Read the next chapter here.

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