Definition

An exit strategy is a structured plan to manage risk by either minimising potential losses or securing gains when the value of an asset fluctuates.

Understanding Crypto Exit Strategies

“When should I adjust my holdings?” is a common question during bull markets—and for good reason.

Watching portfolio values increase during a bull run can be exciting, but market conditions are unpredictable. Without a structured plan, some individuals hold assets through both price surges and downturns without making adjustments.

Historically, some market participants have experienced significant gains, only to see their portfolios decline later without having secured any of those gains.

Why Do People Use Exit Strategies?

A structured exit strategy can help manage market fluctuations by:

• Securing gains when prices are rising.
• Minimising exposure to volatility when prices are falling.

By having a clear approach, individuals can make informed decisions rather than reacting emotionally to price movements.

Understanding Your Approach for Each Asset

An exit strategy often depends on individual goals and risk preferences. Some market participants choose to establish a general plan for each asset based on factors such as:

• Long-term potential – Some individuals hold assets they believe have strong fundamentals or technological innovation.
• Short-term market trends – Others may adjust holdings based on upcoming developments, news events, or short-term price movements.

Having a structured approach can help individuals make informed decisions rather than reacting to sudden market changes.

Adjusting Holdings Over Time

Some market participants choose to adjust their holdings incrementally as asset prices fluctuate. This approach may involve selling portions of an asset at different price points rather than attempting to time the market perfectly.

Because cryptocurrency markets can be highly volatile, gradual adjustments can help manage exposure to market swings. While it can be tempting to assume prices will continue rising indefinitely, market conditions often shift unexpectedly.

Managing Downside Risk

Having a structured approach for handling market downturns can be just as important as planning for favorable market conditions. Cryptocurrency markets are known for volatility, and maintaining a clear approach to risk management can help individuals navigate uncertain price movements.

Considerations for Managing Market Fluctuations

• Emotional detachment – The ability to assess market conditions objectively can help in making informed decisions about holding or adjusting positions.
• Market volatility is normal – Cryptocurrency markets experience fluctuations, and price corrections are common. Historical data shows that Bitcoin and other assets have undergone cycles of declines followed by recoveries.
• Reassessing asset fundamentals – If new developments or external events impact a project’s long-term outlook, some individuals evaluate whether to continue holding a particular asset.

Key Takeaways

• Planning ahead can help during market cycles. Waiting until a bull market is at its peak to make exit decisions can be challenging. Having a strategy in advance may provide clarity.
• Taking profits is a personal decision. While some assets have long-term growth potential, others may experience sharp price fluctuations. Having a framework for assessing assets over time can be helpful.
• Defining goals for each asset can provide guidance on decision-making during different market conditions.
• Using automated tools such as take-profit, stop-loss, or trigger orders can help individuals manage holdings without needing to monitor the market constantly.
• Recognising market cycles can help individuals understand broader trends and make adjustments accordingly.
• Market peaks are difficult to predict. Instead of attempting to time the absolute top of a price surge, some market participants take incremental actions when assets reach predefined price levels.
• Consistency is key. Having a well-thought-out approach and sticking to it can help reduce emotionally driven decisions.

Should My Exit Strategy Be the Same for All My Crypto Assets?

Cryptocurrencies vary significantly in their purpose, technology, and long-term viability. As a result, some market participants consider different approaches for different assets rather than applying a single exit strategy across their entire portfolio.

Understanding the Differences Between Cryptocurrencies

Each cryptocurrency serves a different function, and some are more suited for long-term holding, while others may experience short-term price movements based on market trends.

For example:

• Short-Term Market Movements: Some cryptocurrencies, such as meme coins, often experience rapid price surges driven by community hype and social media trends. Due to their speculative nature, some individuals choose to monitor these assets closely and adjust their holdings more frequently.
• Long-Term Utility and Adoption: Other cryptocurrencies, such as blockchain infrastructure projects and utility tokens, may have long-term use cases that support adoption and sustained market presence.

Example: Chainlink’s Role in Blockchain Infrastructure

Some blockchain projects provide essential services that support the broader crypto ecosystem. Chainlink (LINK) is often cited as a leading oracle network that supplies real-world data to blockchains, playing a critical role in decentralized finance (DeFi) and smart contract applications.

If blockchain adoption continues to grow, some market participants speculate that Chainlink, as a widely used oracle service, could play a key role in the expansion of the industry. However, as with all cryptocurrencies, its long-term potential is uncertain.

When is the best time to formulate an exit strategy?

Having a plan in place before market conditions become extreme can help individuals make more structured decisions rather than reacting to price fluctuations in the moment. Some market participants consider technical indicators and overall market sentiment when assessing whether an asset is overbought or oversold.

Oversold Conditions

An asset is considered oversold when its price is significantly lower than previous levels, often due to market overreaction, panic selling, or extreme fear.

Some traders interpret oversold conditions as a period where selling pressure is excessive, leading to an asset being priced lower than its perceived value. Market recoveries sometimes follow oversold periods, but prices can also remain low for extended periods depending on broader market conditions.

Overbought Conditions

An asset is considered overbought when its price has surged significantly without strong underlying fundamentals supporting the increase. This can happen when market hype, speculation, or FOMO (fear of missing out) drive prices upward.

Periods of overbought conditions sometimes lead to price corrections, as markets tend to adjust over time. However, trends can persist longer than expected, and predicting precise market movements is inherently uncertain.

Why Is It Important to Stick to a Pre-Planned Strategy?

Creating a structured plan for managing assets can help individuals make more deliberate decisions rather than reacting emotionally to market fluctuations.

Market conditions can shift rapidly, and some traders set predefined goals for managing their holdings—only to adjust their approach when emotions take over. During periods of extreme price movement, it’s common for market participants to reconsider their initial strategy, whether due to excitement over rising prices or hesitation during downturns.

While flexibility is important, having a structured approach can help individuals avoid impulsive decisions. Some market participants choose to secure their initial capital once they reach a certain level of return, allowing them to navigate the market with more confidence.

Ultimately, everyone’s approach varies, but maintaining a clear plan can help with long-term decision-making in volatile markets.

How do trigger orders (aka limit/stop loss/take profit orders) work?

Trigger orders are the best way to enact your exit strategy. Their function is to execute a buy or sell order on an asset at a specific price. Not only do they automate the entire process for you, but they’ll make sure you stick to your plan when emotions start running high. Digital Surge offers an easy way to take profits or minimise your losses on an investment through its easy-to-use trigger orders (aka stop loss/take profit orders).

Here’s how they work.

Trigger orders do not lock your funds, so you can create multiple Trigger orders across different assets. Your Trigger orders will execute when the Trigger price is matched, allowing you to setup multiple trading and exit strategies at the same time. Your remaining Trigger orders will stay in place until they match. If your Trigger order exceeds your account balance at the time the Trigger order executes, the order will fail.

Benefits:

By setting Trigger orders, you can specify your trading strategy to enter or exit a position when the price is right without having to continually check the market conditions. You will be notified by email when your Trigger order is executed, allowing you to review your position. Your entire exit strategy can be automated while you sit back and watch the profits pile up without having to do anything.

For example, if you are trading BTC in the short-term, you could set up the following conditions:

Current price of BTC is $60,000

You have a balance of $55,000 AUD and 0 BTC

You set a trigger price of $55,000 to BUY 1 BTC

You also set a trigger price to SELL 1 BTC at $65,000

If during the night the price of Bitcoin suddenly drops down to $55,000 and then spikes up to $65,000 – both of your triggers would be met and you would have automatically purchased 1 BTC at $55,000 and sold it for $65,000 – returning a handy profit.

A Trigger order can have the following statuses:

You just need to ensure that you have enough funds in your account as the order may end up getting triggered but not filled unless the funds are available for the order. Untriggered & Unmatched Triggered orders don’t incur any trading fees – trading fees only apply to successfully completed trades. For more information on our different order types, click here.

How do support and resistance levels influence your exit strategy?

Support & resistance are a fundamental part of analysing a cryptocurrency (or any asset), especially in the short term. SR levels are used by crypto swing & day traders to plan the optimal entry/exit points and predict how a crypto asset’s price will move in the near future.

SR levels refer to important price levels on a chart that indicate the area at which an asset will:

• Fall to a certain price and then bounce back up as there is a sufficient demand from people wanting to buy at that price, thus preventing the price from dropping any lower (support level).
• Rise to a certain price level and be rejected, causing a reversal into a downwards trend as there are enough people willing to sell the asset at that price. This stops the price from going any higher (resistance level).

By having an understanding of where the support and resistance levels are for the price of any given asset you will be able to set your trigger orders in a way that optimises your exit strategy.

For example, if BTC seems to have a strong resistance level at 50k, and the price is currently at 45k, you may want to set a trigger order to sell just below 50k as there is a good chance BTC’s price will hit that resistance level and go back down.

Do I need an exit strategy if I am holding for the long-term?

While long-term HODLers may not focus on short-term exit strategies, having a general approach to managing holdings over time can provide clarity.

Holding assets for the long term is a widely used approach in cryptocurrency, but market conditions can be unpredictable. Some individuals choose to periodically reassess their positions and consider how their holdings align with their financial goals.

Because cryptocurrency markets are known for volatility, some market participants explore different ways to manage risk. This could include adjusting holdings incrementally or securing their initial capital once a certain milestone is reached.

While long-term strategies don’t always require predefined exit points, having a flexible approach to decision-making can help individuals navigate market fluctuations.

Will you be taxed for taking profits?

In Australia, yes. Selling or taking profits from a crypto asset is considered a capital gains event and is subject to Capital Gains Tax (CGT).