Weekly Nugget of Wisdom #3

Welcome to another Nugget of Wisdom, a new weekly post I am sending out every Thursday. These are designed to be short and sweet, a quick read to (hopefully) impart some sort of wisdom, or at the very least to get you thinking about something interesting.

This is something that took me way way way too long to learn, with many tough lessons in the form of roundtripped bags: you don’t get paid for entering good trades, you get paid for exiting them at the right time.

Most traders spend most of their time obsessing over their entry. They’re looking for the next token to buy, looking for gems, and trying to be early. Instead, they’d probably do a lot better focusing on the tokens they already hold.

The right exit is the difference between a return of +300% and -30%.

It truly doesn’t matter if you time the bottom absolutely perfectly and have the best possible entry price if you can’t exit well.

So. Selling, good. Selling, important. How do you determine when to sell?

You can obviously sell for any reason you want, but I believe there are only five good reasons to sell.

You should sell a position when:

Your Thesis Is Invalidated

This is the cleanest exit signal. You entered a position because you had a reason — some combination of fundamentals, price structure, momentum, narrative, etc.

If that reason no longer exists? Unless some other significant reason has appeared, you should sell.

Some examples:

Team delayed an anticipated launch and you lose confidence in them
Key support level broke and hasn’t recovered
You expected the token to get attention from so-and-so or such-and-such, and that didn’t happen
The tokenomics changed for the worse, or you found new information about the tokenomics

Whatever your thesis for buying a token, should also become your thesis for selling if and when it becomes invalidated. This includes when something unexpected happens as well. Invalidation doesn’t mean you can only sell when your thesis is invalidated, it is simply one indicator. Your thesis can change as well based on new information or market conditions, and if that happens, you should exit.

Sell, log the loss or reduced gain, move on.

You hit your target

You had a plan. You aimed for 3x. It got there. Sell.

It sounds easy, but this is where greed kicks in. You start saying “I’ll just let it run…” and the next thing you know, that 3x turns into a 1.2x because you didn’t take the win.

This is how winners round-trip. Don’t be one of them.

This applies to fully exiting a position as well as partially exiting. Your plan could be “when the token does a 3x, I will sell 50% of my position”. Same idea. If it gets there, sell. This requires discipline of course and it is easier said than done, but you will rarely regret selling a position in a situation like this.

You need to rebalance risk

Maybe your position blew up (in a good way) and now it’s overweight. Your original 2% trade is now 25% of your portfolio. This happens more often than you think in crypto, where the gains can get very silly.

Even if your thesis for buying and holding the coin is still valid, you now have too much exposure for a portfolio your size. Take some off. It doesn’t mean you’re bearish, it’s just a sensible thing to do.

Strategies such as “selling half whenever a coin does a 2x” or “taking 10% profit whenever a coin hits a new all time high” fit in this category, as they are doing the same thing – rebalancing and reducing your risk profile.

You have a better opportunity

You only have so much capital and liquidity. If you’re holding something that you don’t have a lot of conviction in while something you have high conviction in shows up, have no qualms in rotating.

But try not to make this a habit. Jumping around too much and chasing shiny objects just leads to overtrading, and a slow death by a thousand cuts.

Selling could change your life

This is the best reason. I’m a firm believer that if your portfolio ever reaches a point where the funds would significantly improve your life, you sell. I’ve seen far too many people roundtrip life changing gains for whatever reason to not feel this way.

Your life changing money could pay off your mortgage, your student loans, your hospital bills. It could pay for your house outright. It could retire your parents. It could allow you to quit your day job. It could allow your partner to quit their day job.

There are many reasons and only you can know whether or not some amount of money would change your life, but it is very much worth thinking about this and then if you are ever fortunate enough to reach such a point: sell.

So, think about selling more than you think about buying. Selling is what really matters. Try and sell for good reasons. There might be other good reasons than what I thought up — if you think of any, let me know in the comments.

Part of selling well also means avoiding selling for bad reasons. There are an infinite number of bad reasons: you’re bored, you’re scared, you read fud on twitter, you want to fomo into something else, and so on.

Try to sell for good reasons, and try not to sell for bad reasons, and never forget:

You don’t get paid for entering good trades, you get paid for exiting them at the right time.

I’ll be back with another Nugget of Wisdom next week! Also keep an eye out for next week’s premium issue, in it I will be doing a deep dive on Stablecoins, one of the most exciting sectors in the entire crypto world at the moment.

Last week I spoke about the NFT bull market and shared 5 projects I felt were undervalued, read more here if you’d like: