When to Buy and Sell Crypto: Timing Strategies Explained
Buying and selling cryptocurrency later for a higher price can be mentally and financially rewarding. However, the big question is: how do you know when to buy and when to sell?
Timing strategies aren’t advised when it comes to cryptocurrency investing, but there are some tactics traders swear by. Read on to learn all about when to buy and sell crypto and whether or not you should consider trying timing strategies.
What Are Market Timing Strategies?
Timing strategies are investment strategies where you buy and sell at certain times in the hope of making a profit. When trading fiat stocks, many investors watch for certain indicators in market performance and use these to time the market.
While many of these strategies are well researched and often perform well for fiat stocks, we never recommend them when investing in cryptocurrency. This is because cryptocurrency assets rarely fluctuate in the same way as fiat stocks, and they can often react in ways we still don’t understand even when the indicators are a “sure thing.” With cryptocurrency, we recommend DCA, or dollar-cost-averaging, above all else when it comes to trading crypto.
That being said, we know there are naysayers who will argue with us, so below are some of the timing strategies you can consider using to trade cryptocurrency. Just remember that trading crypto is always a risk, and you should never trade any crypto you aren’t fully prepared to lose.
Cryptocurrency Market Timing Trading Strategies
1. 2x Rule
This is one of the simpler investment strategies, and it basically means you will enter the market at X number and sell when your investment is worth 2X. So, if you buy 1 BTC for $30,000, you would sell when that same BTC is worth $60,000.
While this strategy isn’t one of the worst ones out there, it doesn’t work for all cryptocurrencies because not all of them double in value. Additionally, sometimes doubling in value is just the beginning of a cryptocurrency, and a hard rule of selling at 2x can cause you to sell short in the long run.
But if you want a super simple indicator of when you should sell, this is the one.
2. Taking Profits
An even easier version of the 2X rule is the ‘taking profits’ strategy, where you will sell any token the moment you have made a profit. Of course, this strategy suffers from the same flaws as the 2X rule, plus you may find yourself trading away an asset just for a few pennies of profit.
That being said, if you have a token you were using the 2X rule and doubt the token will ever make it to double what you bought it for, we recommend downgrading to the ‘taking profit’ rule and selling before you end up in the asset for longer than you planned.
Be aware this tactic can sometimes be called “scalping” depending on how quickly you turn around and invest in something else.
3. Play With House Money
Honestly, of the market timing strategies out there, this isn’t the worst one. Playing with house money basically means you make an initial investment, and once that investment is recouped, you pull it out and only continue to invest with any profit beyond your initial investment. For example, if you invested $50 and it becomes $75, you would withdraw $50 but leave the remaining $25 in that asset, or move it to a new one.
The idea behind this strategy is that you are only “playing” or investing with money you didn’t have in the first place, and therefore you are “playing” or investing for “free.” This is a good tactic with crypto because the market is so volatile that it can help you feel that less is at risk when you invest.
Of course, like any strategy, it has its downsides, mainly that you may never surpass your initial investment, or that after you withdraw the initial investment, the asset may crash, losing all your house money before you can use it to invest in something else. Meaning you may find yourself constantly starting over, or losing your initial investment without profit. All of that said, we do think this is a good tactic for a nervous investor or someone with little capital to invest.
4. Automate Your Exit
With this investment strategy, when you buy your assets, you will simultaneously place several stop-loss orders, which will automatically sell your asset at a certain pre-determined point. While this strategy does require a lot of decisions made in advance, it can help to protect your assets long term.
Stop-loss orders execute when certain conditions are met. You do need to understand investing, as well as market indicators and fluctuations, in order to accurately use stop-loss orders. But if you have the knowledge, you can know immediately when you buy when you will eventually exit the market.
The problem with stop-loss orders in crypto is that often they execute much sooner than they would in the fiat market. For example, if you set your asset to sell when there is a 10% drop in price, that would be a rare day on the stock market floor for that to happen, but that is a normal day for most cryptocurrencies, even Bitcoin. This means you may find yourself buying a token, only for it to automatically sell the next day, even when you don’t want it to.
In general, we don’t advise placing stop-loss orders when you buy crypto because we have never seen them work for a cryptocurrency investor. But again, it’s your money, and your time, so you do you. Just know you might find your stop-loss orders activating much sooner than you would expect.
Overall, we still recommend that if you want to invest in cryptocurrency, you take advantage of the low-stress method of dollar cost averaging. But if that isn’t your style, you can try one of these four market timing strategies and hope for the best!
