02-22-2021, 07:39 AM
Profit Taking Strategies
<table> <tr><td> <a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/"> <img src="https://b.thumbs.redditmedia.com/vPbObTebZ4k0L6HJoSnM6BTvajNf_I79Igb37aKXl1A.jpg" alt="Profit Taking Strategies" title="Profit Taking Strategies" /> </a> </td><td> <!-- SC_OFF --><div class="md"><p>DISCLAMIER: This is not financial advice. I am not a economist, mathematician or anyone who does these kind of calculations professionally, therefore I cannot guarantee that the numbers are 100% correct. Please take these numbers with a gain of salt, and check the numbers yourself. I'm just an average investor trying my best to figure stuff out.</p> <p>​</p> <p>I've been holding onto some crypto for a while now, but never thought about a good way to take profits. So here's my first attempt to try to figure it out a <strong>systematic way to take profits</strong>.</p> <p><strong>Description of Methodology:</strong></p> <p>The profit taking method I chose is to <strong>"take X% of profits for every Y% increase in price".</strong> Simple spreadsheet function were used.</p> <p>I made five hypothetical "profit taking" portfolios where 0%, 1%, 2%, 5% and 10% profits are taken for every 20% increase in price, and tracked the net value of each of those scenarios until the "0% profit taking" portfolio (i.e. holding) hit ~1000% profit (this ended up being 14 cycles of 20% growth, you can think of these as somewhat related to time, as prices take time to grow).</p> <p>Then, I simulated a 30%, 50% and 80% market crash at each point of the cycles of all 5 portfolios to get how much value you would have left.</p> <p>Finally, I calculated the % Performance of taking each 4 profit taking strategy relative to not taking profit at all.</p> <p>​</p> <p><strong>Results:</strong></p> <p>Below is the plot for a simulated 30% correction. Each colored line represents a profit taking strategy (1%, 2%, 5%, 10% profit taking for every 20% increase in price). Vertical (Y) axis is the Performance of the profit taking strategy relative to not taking profits at all. Horizontal (X) axis is the hypothetical growth of a portfolio:</p> <p><a href="https://preview.redd.it/p5dn76z6avi61.png?width=904&format=png&auto=webp&s=36e37d48e10f802e1c15cfc10e681afcb912649a">https://preview.redd.it/p5dn76z6avi61.png?width=904&format=png&auto=webp&s=36e37d48e10f802e1c15cfc10e681afcb912649a</a></p> <p>Note that a <strong>Performance higher than 0% indicates that this strategy worked better than not taking profits.</strong> They way I interpret this is that IF my asset can only increase ~200% in value, and I expect a ~30% crash, then taking more profits will be beneficial. However if the assets grows past ~300% then I sill start losing money by taking profits.</p> <p>​</p> <p>Below is the same calculations for a 50% and 80% simulated correction.</p> <p><a href="https://preview.redd.it/nvah5hdmbvi61.png?width=923&format=png&auto=webp&s=dba66dbb263e81aa990b11212e9ae99ea82a2453">https://preview.redd.it/nvah5hdmbvi61.png?width=923&format=png&auto=webp&s=dba66dbb263e81aa990b11212e9ae99ea82a2453</a></p> <p>​</p> <p><a href="https://preview.redd.it/qrlctc7obvi61.png?width=926&format=png&auto=webp&s=ebce3354a47947fb7275500b505047d3bd367fb1">https://preview.redd.it/qrlctc7obvi61.png?width=926&format=png&auto=webp&s=ebce3354a47947fb7275500b505047d3bd367fb1</a></p> <p>You can see that the higher the correction, the more profit taking is beneficial. At an 80% correction (not unheard of in crypto), profit taking is almost always beneficial in up to 1100% growth.</p> <p>​</p> <p>Examples:</p> <p>- Highly risky investment (80% potential correction): can be applicable to many small cap alt coins. In this case I expect a high risk of a large (80%) correction. Here, I think one conclusion is that profit taking ALWAYS helps, assuming the assets corrects. I may even choose to take the more aggressive 10% profit taking strategy if I don't expect to get more than 1000% returns on my investment.</p> <p>- Lower risk investment (30% correction): Let's say BTC is a 'lower risk' investment with 30% correction potential in my timeframe of investment. Here it is tricky, because you can see that if BTC grows more than ~300%, no amount of profit taking will beat not taking any profits. This may be a case for everyone to HODL. However, if for some reason BTC won't grow more than 300% in your investment timeframe, you the plots indicate that taking some profits will benefit you in case of a crash.</p> <p>​</p> <p>Unfortunately I don't have a perfect formula for profit taking. However, I think I learned the following from this exercise:</p> <ol> <li>Set expectations on the growth potential within a desired timeframe for investments.</li> <li>Estimate potential risks (size of correction).</li> <li>Disciplined profit taking can help you increase performance assuming you can estimate the above 2.</li> </ol> <p>​</p> <p>EDIT 1: Based on the comments, I just wanted to point out that this analysis <strong>does not account for timeframe</strong>. If you'd like to hold for 50 years, or hold for future generations, that's a perfectly good strategy. In such long timeframes, your expected returns may be way above 10000% in which case profit taking is less likely to benefit. Added more sections.</p> <p>Let me know what you think, and happy to have anyone with more expertise in this area to chime in.</p> <p>​</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ykliu"> /u/ykliu </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/">[comments]</a></span> </td></tr></table>Kind Regards R
<table> <tr><td> <a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/"> <img src="https://b.thumbs.redditmedia.com/vPbObTebZ4k0L6HJoSnM6BTvajNf_I79Igb37aKXl1A.jpg" alt="Profit Taking Strategies" title="Profit Taking Strategies" /> </a> </td><td> <!-- SC_OFF --><div class="md"><p>DISCLAMIER: This is not financial advice. I am not a economist, mathematician or anyone who does these kind of calculations professionally, therefore I cannot guarantee that the numbers are 100% correct. Please take these numbers with a gain of salt, and check the numbers yourself. I'm just an average investor trying my best to figure stuff out.</p> <p>​</p> <p>I've been holding onto some crypto for a while now, but never thought about a good way to take profits. So here's my first attempt to try to figure it out a <strong>systematic way to take profits</strong>.</p> <p><strong>Description of Methodology:</strong></p> <p>The profit taking method I chose is to <strong>"take X% of profits for every Y% increase in price".</strong> Simple spreadsheet function were used.</p> <p>I made five hypothetical "profit taking" portfolios where 0%, 1%, 2%, 5% and 10% profits are taken for every 20% increase in price, and tracked the net value of each of those scenarios until the "0% profit taking" portfolio (i.e. holding) hit ~1000% profit (this ended up being 14 cycles of 20% growth, you can think of these as somewhat related to time, as prices take time to grow).</p> <p>Then, I simulated a 30%, 50% and 80% market crash at each point of the cycles of all 5 portfolios to get how much value you would have left.</p> <p>Finally, I calculated the % Performance of taking each 4 profit taking strategy relative to not taking profit at all.</p> <p>​</p> <p><strong>Results:</strong></p> <p>Below is the plot for a simulated 30% correction. Each colored line represents a profit taking strategy (1%, 2%, 5%, 10% profit taking for every 20% increase in price). Vertical (Y) axis is the Performance of the profit taking strategy relative to not taking profits at all. Horizontal (X) axis is the hypothetical growth of a portfolio:</p> <p><a href="https://preview.redd.it/p5dn76z6avi61.png?width=904&format=png&auto=webp&s=36e37d48e10f802e1c15cfc10e681afcb912649a">https://preview.redd.it/p5dn76z6avi61.png?width=904&format=png&auto=webp&s=36e37d48e10f802e1c15cfc10e681afcb912649a</a></p> <p>Note that a <strong>Performance higher than 0% indicates that this strategy worked better than not taking profits.</strong> They way I interpret this is that IF my asset can only increase ~200% in value, and I expect a ~30% crash, then taking more profits will be beneficial. However if the assets grows past ~300% then I sill start losing money by taking profits.</p> <p>​</p> <p>Below is the same calculations for a 50% and 80% simulated correction.</p> <p><a href="https://preview.redd.it/nvah5hdmbvi61.png?width=923&format=png&auto=webp&s=dba66dbb263e81aa990b11212e9ae99ea82a2453">https://preview.redd.it/nvah5hdmbvi61.png?width=923&format=png&auto=webp&s=dba66dbb263e81aa990b11212e9ae99ea82a2453</a></p> <p>​</p> <p><a href="https://preview.redd.it/qrlctc7obvi61.png?width=926&format=png&auto=webp&s=ebce3354a47947fb7275500b505047d3bd367fb1">https://preview.redd.it/qrlctc7obvi61.png?width=926&format=png&auto=webp&s=ebce3354a47947fb7275500b505047d3bd367fb1</a></p> <p>You can see that the higher the correction, the more profit taking is beneficial. At an 80% correction (not unheard of in crypto), profit taking is almost always beneficial in up to 1100% growth.</p> <p>​</p> <p>Examples:</p> <p>- Highly risky investment (80% potential correction): can be applicable to many small cap alt coins. In this case I expect a high risk of a large (80%) correction. Here, I think one conclusion is that profit taking ALWAYS helps, assuming the assets corrects. I may even choose to take the more aggressive 10% profit taking strategy if I don't expect to get more than 1000% returns on my investment.</p> <p>- Lower risk investment (30% correction): Let's say BTC is a 'lower risk' investment with 30% correction potential in my timeframe of investment. Here it is tricky, because you can see that if BTC grows more than ~300%, no amount of profit taking will beat not taking any profits. This may be a case for everyone to HODL. However, if for some reason BTC won't grow more than 300% in your investment timeframe, you the plots indicate that taking some profits will benefit you in case of a crash.</p> <p>​</p> <p>Unfortunately I don't have a perfect formula for profit taking. However, I think I learned the following from this exercise:</p> <ol> <li>Set expectations on the growth potential within a desired timeframe for investments.</li> <li>Estimate potential risks (size of correction).</li> <li>Disciplined profit taking can help you increase performance assuming you can estimate the above 2.</li> </ol> <p>​</p> <p>EDIT 1: Based on the comments, I just wanted to point out that this analysis <strong>does not account for timeframe</strong>. If you'd like to hold for 50 years, or hold for future generations, that's a perfectly good strategy. In such long timeframes, your expected returns may be way above 10000% in which case profit taking is less likely to benefit. Added more sections.</p> <p>Let me know what you think, and happy to have anyone with more expertise in this area to chime in.</p> <p>​</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/ykliu"> /u/ykliu </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/lp2g1h/profit_taking_strategies/">[comments]</a></span> </td></tr></table>Kind Regards R