The Art of Profit-Taking: 5 Strategies for 2025

A Look at the Markets: Bitcoin

Bitcoin experienced a volatile couple of weeks, dropping from its all-time high of 108,000$ to just above 92,000$. While this may cause concern for some investors, I accept and even embrace it. I believe that Bitcoin and cryptocurrencies in general have been overdue for a correction since the US election in early November. The Federal Reserve’s policy statement last week caused a correction in financial markets generally and Bitcoin was no exception.

Where will the price go from here?

We don’t do predictions in these newsletters, but I can say with certainty either up or down! This is not meant to be a facetious remark but financial commentators use it to demonstrate the unpredictable nature of market movements.

That said, using technical analysis we can make the argument that price action has bounced off support around 92,000$, as shown by the top yellow shaded box. However, if this support breaks, we can make the argument that the price could drop to the second area of support at around 72,000$. Neither scenario would surprise me.

Embrace the Volatility

I have learnt to embrace the volatility. Large price corrections with cryptocurrencies are to be expected. In addition, they can provide buying opportunities, depending on your existing allocation.

The Art of Profit-Taking: 5 Smart Strategies for 2025

Building on last week's discussion of SMART investing goals for 2025, let's tackle an equally crucial challenge: knowing when to take profits. This fundamental aspect of investing often proves challenging, even for experienced investors.

Market psychology plays a significant role in profit-taking decisions. During bull markets, optimism can lead to holding positions too long; during downturns, fear might trigger premature or unnecessary selling. The key to overcoming these emotional hurdles lies in establishing clear strategies before market movements influence our judgment.

Let's explore five methods for making disciplined profit-taking decisions:

1. Time-Based Profit-Taking

Time provides a reliable framework for systematic profit-taking. Consider these approaches:

For retirement-focused ETFs, a straightforward rule applies—hold until income is needed. This simple strategy helps resist short-term market noise and maintains focus on long-term wealth building.

For cyclical assets like cryptocurrencies, consider evaluating positions during the business cycle or the crypto cycle. For this reason, I will be monitoring my crypto holding, in particular, during 2025.

2. Price Action

Technical indicators can offer objective profit-taking signals. Support and resistance levels - key price points where assets historically reverse direction - provide useful guidance. Let’s demonstrate with an example.

Rolls Royce Holdings

One of my best trades in the last few years was buying Rolls Royce Holdings near the market lows in 2021 and 2022.

I used the previous areas of support and resistance to sell part of my allocation as the price recovered.

Was this the right decision?

Arguably, not. The market has continued upwards for two years without any major pullbacks. However, we only know this in hindsight.

More importantly, it was the right decision. Why? Because I followed my strategy!

With more volatile investments like cryptocurrencies, consider implementing a percentage-based strategy. Selling half your position when prices double allows you to maintain market exposure while securing initial capital.

3. Tax-Efficient Profit-Taking

Strategic tax planning enhances overall returns. Balance profitable trades with strategic loss harvesting to optimise tax efficiency. This approach helps manage your tax liability while maintaining desired market exposure.

Consider timing significant trades around your tax jurisdiction's financial calendar to maximize tax advantages and maintain consistent cash flow.

4. Portfolio Rebalancing 

When asset allocations move from target percentages, strategic rebalancing maintains risk management.

Strategic investors may sell outperforming assets to reinvest in undervalued sectors, maintaining balanced portfolio exposure. This disciplined approach helps capture gains while preparing for future opportunities.

5. Integrated Approach

Successful profit-taking often combines multiple strategies.

During significant market moves, consider how rebalancing needs, tax implications, and technical indicators align. This comprehensive view helps inform timing and position sizing for profit-taking decisions.

Creating Your Profit-Taking Framework

Consider writing down your profit-taking strategy now, before market movements trigger emotional decisions. A written plan serves as a valuable reference during periods of market volatility.

Remember, no investor ever makes every decision perfectly. Adopting a systematic process can help you achieve consistent profits over time.

Will there be a Santa Rally this Year?

What is a Santa Rally?

The Santa Rally is a stock market phenomenon where stock prices tend to rise during the last week of December and the first few trading days of January. For financial markets, this period typically starts around December 24th (Christmas Eve) and can extend through the first few trading days of the new year, usually ending around January 5th. This seasonal trend is often attributed to factors like holiday optimism, year-end bonuses being invested, tax-related trading, and reduced market activity leading to fewer sell-offs.

Will there be a Santa Rally this Year?

A Santa Rally might have commenced on December 20th, as indicated by the blue arrow above. However, this could be interpreted as a rebound following the Federal Reserve’s policy statement two days prior.

Let’s see if this price movement continues and surpasses all-time highs.

Word of the Day: Facetious

Facetious - adjective - not serious about a serious subject, in an attempt to be funny or appear clever

Thank You and All the Best for 2025

Thank you for your support this year, whether by reading our newsletters or taking Business or Cambridge English lessons.

I hope you had a wonderful Christmas and wish you a successful and prosperous 2025!