Managing a Loss – To Sell or Not to Sell?

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  • We all endure losses from time to time, but when should you hold and when should you sell?
  • You should analyze various factors before making your mind up
  • There’s no need to hold a loss-making coin when others have more chance of recouping your loss

What should you do when you’re holding a loss? Conventional crypto wisdom says that you should continue holding because the chances are it will eventually rebound, but this is not true in all situations. There are circumstances where you should hold and circumstances where you should sell, and this guide explains how you should analyze your position to decide whether a hold or sell is the best option.

Bull or Bear Market?

The first thing to consider when your trade turns sour is what state the market is in. Has the trade gone bad because of a wholesale market shift in sentiment or, as we are now, is a full on bull mode still the order of the day? Enduring a temporary loss is easier in a bull market because the chances are that the loss will evaporate almost as quickly as it hit and you will be whole again in no time at all.

If however it’s clear that the entire market has topped out and is set for a long term reversal (e.g. late January 2018) then selling to preserve capital is the most sensible move.

Where Has the Coin Been?

As well as the stage in the overall cycle it is also worth looking at the situation with the coin itself. Have you just bought the top of a parabolic run where the coin has put in thousands of percent gains in the previous weeks? If so then the coin’s cycle may be over and you may be looking at weeks or months before it hits those heights again, even in a raging bull market.

In such situations there is no reason why you shouldn’t swap for a coin that is on the verge of a breakout. No one says you are duty bound to hold the same coin and see it back into the green – if you are confident that another coin is going to recoup your losses quicker then there’s no reason not to sell your loss making coin and swap for the more promising one. This is especially true if the lossmaking coin is coming off the top of a cycle and the potential replacement is just beginning its next cycle.

A good example is LINK. Those who bought LINK at the top of its mammoth run in August 2020 had to wait five months to be made whole again, during which time Bitcoin and then a whole range of alts went crazy. In this situation it would have made much more sense selling LINK and moving to another coin than holding LINK and waiting.

Stellar Coin or Shitcoin?

The next thing to consider is the prestige of the project whose coin you are holding. Holding a loss in a top coin such as Bitcoin or Ethereum is likely not a big deal as it will be around for many years to come, presenting much more opportunity for you to recoup your loss. If you’ve bought the top of the parabolic run of the latest Binance Smart Chain shitcoin however, there is much less chance that you are going to get your money back, so getting back what you can and investing elsewhere to make it back is a sounder strategy.

Don’t Make a Temporary Loss a Permanent One

The key with trading is to remember that, as long as you’re not being liquidated on a bad margin trade, all losses are temporary and can be recouped just as quickly. Don’t stick with a coin out of blind loyalty or in the hope it will rebound – analyze the factors above and make a call.