$BTC
We have wiped OI of this whole 2 month range. Altcoins OI took even nastier hit.
Excessive leverage was completely cleared out of the system. The path of least resistance is up.
@coinalyzetool
*Taking Profit in a Bull run*
There are multiple cries for taking profit in a bull run, and usually people get chastised for making those calls when market rips +20% higher in the following days. Typically because this process boils down to emotion and seeing a red 5m candle.
There's no perfect answer, it depends on a whole range of factors that are personal to you.
But we know we have to take profit. We have to turn that unrealised green number into cold hard cash.
Typically people think like this:
At the end of a bull run "man if only i'd taken profits more regularly"
During the bull run "may as well just remove my stops and let it ride"
I believe the best approach in a bull market is to instead view things slightly differently. These will be to do with your expectations, the market conditions and the nature of your portfolio/trading style.
Let's cover the non-negotiable take profit signal.
1. Your own personal financial situation has changed dramatically -> Take profit.
Doesn't matter about any other situation here, you take the profit off and you make the change. There is no debate on this one.
The rest is then about your approach and the conditions.
I do not believe a blanket "take profit" is correct.
My approach (mainly for perps) is:
- Consider the funding rates (we expect significantly higher funding rates for longs in strong trends but there comes a point where we have to acknowledge the ability for a wipeout)
- When was the last time we had a correction/flush? The longer we go on, with climbing funding rates, narrows the time until we see a flush.
These two factors are more important when it comes to perp positions than spot positions but it may have some impact there too.
Therefore the way we can begin to think about taking profit or monitoring our positions instead becomes about the following:
1. Check your leverage and make sure you don't have a snowball effect of margin reduction if the market drops violently and you have multiple positions open.
2. Check your entry, are you comfy, do you have distance from your entry to current prices. Then think about your plan for the position.
3. Assess what your plans are. Do you want to hold through, swing trade style, or are you looking to bounce into momentum and then run away and secure the profit? If you're playing into momentum then realise that taking profit is key to your success and not pushing things too hard.
4. Remember dips and corrections will be opportunity and therefore you want to make sure that you're in a position to rebuy and reposition once they happen. Realising gains and having access to a larger capital pool is a great way to snowball an account.
5. We have a tendency to think we're "safe" when the market can do unexpected things and make our "comfy" positions a little less comfortable, so I'd always side with caution.
6. There is and always will be opportunity, if you close something down, don't worry, you've secured profit, which means you're now in an advantageous position when it comes to positioning for the next market correction.
You can then use some of this thought process to start forming your own calculations/risk discussions:
- Funding is absurdly high
- My position is 6% below current price
- I planned to play this to a fresh high (which has been achieved)
- I did not plan to hold this position for a swing trade
= Maybe time to reduce the position
For spot positions it can be something else:
- Funding is irrelevant to me but I still note it's high
- My position is 30% below current price
- I plan on staying in this position until new ATHs
- I have ammunition to rebuy on a dip until my plan is hit
- I am aware we may be moving closer towards a dip opportunity and I am prepared for it happening
- I need to be aware that my unrealised PnL may dip, I need to acknowledge the emotion that goes with that
Taking profit is a difficult skill, it's something that you look back on and wish you did more, but in the moment it's the last thing on your mind as the green $ piles up on screen and positions seem untouchable.
I'm not in the game of trying to call tops on the market, I'm just here to maximise returns, lock in profit and continue to play the conditions as long as they allow me to do so.
You don't need to follow advice letter by letter but I hope this has given you some thought process to better assess take profit conditions.
Bull market regrets take 2 main forms:
1. Not betting enough
2. Not keeping enough
To fix (1), you size up and bet more (including more overall portfolio leverage, less liquid bets, and holding through ‘unreasonable’ price moves + valuations). The cost is higher portfolio volatility, higher risk of ruin, and likely a significant haircut to your portfolio ATH. If done well, you make a lot more but keep less.
To fix (2), you take profit on the way up and generally become more conservative the longer the trend continues (fewer illiquid bets, less leverage, more TPing and trade management). The cost is less upside and potentially ‘wasting’ a cycle of opportunities. If done well, you make a lot less but keep more.
Crucially: you are unlikely to fix both at the same time.
Pick your poison.
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