Watch the original explanation
Deciding when to take profits in crypto gets easier when you’ve set a few rules before prices start moving. Your goals, position size and reasons for investing can help you choose those rules. There’s no single price or percentage that works for everyone.
In his November 2024 profit taking video, Lucas encourages viewers to get into the habit of taking some profit while keeping a longer term position. He talks about selling in stages and deciding what he wants to do with the money.
You can turn that idea into a written process you’ll be able to follow when the market gets emotional.
First, separate a paper gain from a completed sale
When your account balance rises, it’s easy to feel as though you’ve already secured the gain. But prices can reverse before you sell. Once you do sell, where you keep or reinvest the proceeds determines the risks you’re still taking.
Keep sale proceeds and profit separate in your records. If you sell $2,000 of an asset, you’ve received $2,000 before costs. To work out the gain, you also need the purchase cost of the units you sold.
Choose a trigger that has a reason behind it
Three possible planning approaches serve different purposes:
|
Trigger |
What it helps you decide |
Tradeoff |
|---|---|---|
|
A financial goal is funded |
Whether to reduce exposure to secure money for that goal |
Selling may mean missing later gains |
|
A holding exceeds your allocation limit |
Whether to rebalance an oversized position |
Rebalancing can create costs and tax consequences |
|
A prewritten price level is reached |
Whether to execute one part of a staged sale |
The price may never reach the next level |
Write down what you’ll do if your reason for owning the asset falls apart. You may need to review or sell a losing position rather than wait for a price that would let you leave with a profit.
How a ladder out plan works
A ladder out plan splits your planned sale into smaller parts at levels you choose in advance. That gives you a process to follow without having to pick the exact top. You might sell some units before prices rise further, while the units you keep can still lose value.
Here’s a hypothetical teaching example we’ve added to show the arithmetic. Imagine you bought 100 units at $10 each, for an initial cost of $1,000 excluding fees. You write down these sale steps:
|
Price reached |
Units sold |
Gross proceeds |
Units left |
|---|---|---|---|
|
$15 |
20 |
$300 |
80 |
|
$20 |
20 |
$400 |
60 |
|
$25 |
20 |
$500 |
40 |
If all three sales execute, gross proceeds total $1,200. The 60 units sold originally cost $600, making the illustrative realized gain $600 before fees and taxes. The remaining 40 units are still exposed to loss.
The example uses made-up price levels. If the price reverses after the first sale, the second and third steps may never happen. Write down how you’ll handle that possibility as well as what you’ll do if prices keep rising.
How much should you sell?
Start with why you’re selling. Do you want to reduce an oversized position, cover an expense or take some money off the table while keeping a long term holding? Your answer will help you decide how much to sell.
Make the measurement explicit. “Sell 20%” could mean 20% of the original position or 20% of what remains after earlier sales. They produce different results. Writing the number of units beside each step helps remove ambiguity.
Choose the amount around your own circumstances. If the decision could materially affect your financial security, a qualified professional can help you work through the tradeoffs.
Decide what happens to the proceeds
Around two minutes into the video, Lucas explains why he keeps some profits available as “dry powder”: he wants the option to act when markets pull back. He describes putting those proceeds into lending platforms while he waits. The useful question for your own plan is how much money you want available and how quickly you need access to it.
Set aside money you’ll need for obligations before deciding what you’re comfortable risking again. If you reinvest everything into another volatile position, you may still have as much market exposure as you did before the sale.
Moving proceeds into a stablecoin or yield product also does not make them risk free. The SEC’s investor bulletin on crypto interest bearing accounts explains that these products are not equivalent to bank deposits and can involve provider failure, illiquidity and other risks. The yields Lucas mentions describe the situation when the video was recorded. They can change, and access to funds can depend on the platform’s conditions.
Check costs and taxes before pressing sell
Trading fees, spreads and transfer costs can affect what you actually retain. Keep records of the units sold, their purchase cost, the transaction date and the proceeds.
For U.S. taxpayers, the IRS treats digital assets as property; selling or exchanging them can create reporting and tax consequences. That can include a crypto to crypto exchange, not just withdrawing to a bank. See the IRS digital assets guidance. If you’re in Europe, check the rules for your country and circumstances. They vary between countries.
Your profit taking checklist
- What is the purpose of this sale?
- What triggers it, and how many units will I sell?
- What happens if the price falls before the next trigger?
- Where will the proceeds go?
- Which fees, taxes and records must I account for?
- What evidence would justify changing the plan?
Can you take profits and still be a long term investor?
Yes. You can keep a long term holding and sell another portion along the way. Lucas describes that approach in the video: he wants to stay involved while making some capital available for later opportunities. Selling can mean missing further gains, and the portion you keep can still fall. Decide which tradeoffs you’re comfortable with before the price is moving quickly.
For ongoing education and discussion, explore the Underdog Investor Group. Bring your plan and questions so you have something concrete to discuss.
Build your knowledge before your next position
New to crypto? Start with the free course. Want ongoing education and a community to learn with? Explore UIG.
Looking for more structured support?
For investors with meaningful capital who want a more personalized educational experience, explore FastTrack coaching and see whether the program fits your needs.
About CryptoLabs Research
CryptoLabs Research helps everyday investors learn about crypto, portfolio planning and digital ownership. Our learning path starts with the foundations and security, then portfolio building, with DeFi as a later stage.
For education only, not personal financial advice. Crypto involves substantial risk, including the loss of your entire investment. No returns are guaranteed.