Selling Rules You Should Write Before You Need Them
Every rule I have written during a drawdown has been bad. The ones written in calm months have all held up.
The worst time to decide when to sell is while you are deciding whether to sell. That is obvious and almost nobody acts on it, including me for several years.
What follows is the structure I use now. The specific numbers are mine and not a recommendation. The structure is the transferable part.
Rule one: a maximum position size
If a single asset exceeds a set share of my total investable assets, I trim it back to target. On a schedule, at the end of a quarter, regardless of what the chart looks like.
This rule does almost all the work. Positions that grow through appreciation are the main way people end up holding more risk than they ever agreed to, and trimming is the only mechanical fix.
The important detail: the threshold is set in a calm month, written down, and not renegotiated during an exciting one.
Rule two: a defined reason the thesis is broken
Write, in advance, what would have to be true for you to exit entirely. Specific and checkable.
Mine include: a successful attack on the network’s consensus, a change in the issuance schedule, or a legal change that makes the asset unholdable in my jurisdiction.
Notice what is not on that list. Price is not a thesis. A sixty percent decline is not evidence about the network. It is evidence about the market’s mood, which was never part of the reason I bought.
Rule three: a schedule for taking profit, if you want one
Some people sell a fixed fraction at defined multiples. Others sell nothing until a life event requires it. Both work. What does not work is deciding mid-rally.
If you want a profit-taking rule, write it during a flat period, express it as a fraction rather than a target price, and then execute it without looking for reasons to defer.
Rule four: a liquidity floor
Hold enough outside the volatile asset that you are never a forced seller. Forced selling happens at the worst possible price by definition, and it is the mechanism by which ordinary drawdowns turn into permanent losses.
This rule is about the rest of your finances rather than about crypto, which is why it gets skipped.
Rule five: how you will execute
Decide in advance where you will sell, on what timescale, and how the proceeds get handled. I use somewhere with a withdrawal process that works because a venue that delays withdrawals during volatility turns a plan into a hope.
Splitting a sale across several days is the mirror of averaging in and carries the same benefit.
What to do with the document
Write it once. Date it. Reread it at the start of each quarter and change it only in a month when nothing dramatic is happening.
The rereading is the important part. During my last significant drawdown I opened the document and found that the situation I was panicking about was explicitly covered, with a decision I had already made when I was thinking clearly.
I followed my own instruction. It was not satisfying. It was right.
The uncomfortable truth about rules
You will want to break them, and you will construct an excellent argument for why this particular case is different. It will be articulate and it will feel like analysis.
The only defence is having written the rule down at a time when you had no position in the answer. That is why the timing of the writing matters more than the content of it.
This is a personal account of holding through market cycles. It describes what one person did and why. It is not a recommendation, and past cycles do not predict future ones.