Many traders fall into a common trap: after deciding to buy a token, they only think about how much its price will increase, neglecting the chance it might drop. For instance, someone might buy a token for $1 and start dreaming about it reaching $10, $20, or even $100. This unrealistic optimism creates a false sense of happiness, which impairs their ability to think rationally. When the token’s price begins to fall, they panic and sell at a loss, depleting their capital through repeated unrealistic expectations. To trade successfully, it’s crucial to eliminate this kind of wishful thinking. So, how can you do that

1. Set Take-Profit and Stop-Loss Targets

Accurately predicting market highs and lows is impossible, especially for short-term trades. Therefore, it’s crucial to set strict take-profit and stop-loss targets. This is a fundamental trading strategy we’ve previously discussed. For instance, if you buy a token at $10, you should have two plans in place: First, a take-profit plan, where you set a target price, say $12, to secure your profit. Second, a stop-loss plan, where you set a price, like $9, to limit your losses. By doing this, you gain a clearer understanding of your trade, rather than just fantasizing about making money. You must consider both the potential profits and the risks. If you’re comfortable with the possible loss, then proceed with the trade; otherwise, refrain and keep observing and learning. The above example is a straightforward logic from a typical perspective. Expanding on this, it can be divided into two different scenarios:

One key factor is the amount of money you invest. For instance, the risk associated with investing $1,000 in a trade is very different from investing $100,000 in the same trade.

Another factor is your investment portfolio. If you invest $1,000 in a trade but this only represents 1% of your total investments, the risk is relatively low for you. In my view, if you have at least 50% of your portfolio in major assets like Bitcoin or Ethereum, allocating 1-10% to high-risk trades seeking Alpha opportunities keeps your overall risk manageable. However, while this approach is easy to understand, it’s challenging to strictly follow. Many people tend to justify their risky behaviors. For example, some go all-in on various small, speculative coins, aiming for a 10x return without considering stop-loss measures. They argue that with a small principal, high-risk trades are their only chance to make significant gains. In previous articles, we discussed different types of market operations: gambling typically involves investing in highly speculative MemeCoins, hoping for a quick surge. Speculation, while often seen negatively, is present in all financial markets and involves taking advantage of short-term opportunities. Trading requires executing specific strategies and understanding market trends. Investing is about having long-term confidence in the fundamentals of a project. If you’re into gambling, my advice may not resonate with you, and you’ll likely end up losing money. However, if you’re serious about trading and not gambling, you must rigorously set and adhere to take-profit and stop-loss targets.

2. Position Risk Management

A common mistake traders make is falling into two patterns when they favor a token: First, they keep buying more as the price rises, believing it will continue to go up. Second, they buy more as the price falls, trying to lower their average cost. Both strategies increase trading risk. For buying more as prices rise, I recommend strictly following the take-profit and stop-loss targets mentioned earlier. If you have strong confidence in the project’s long-term potential, consider setting wider take-profit and stop-loss ranges that you can tolerate and extend your holding period. In other words, hold the token longer and don’t consider it a long-term hold if it hasn’t been at least two weeks. Clearly define your long-term, medium-term, and short-term strategies. If you’ve already taken profits (either all at once or in multiple batches), don’t rush to buy at higher prices. If the project is truly worthwhile, you don’t need to hurry; the market will provide many opportunities to buy low, especially during bear markets. For buying more as prices drop, besides setting strict take-profit and stop-loss targets, if you still believe in the position, I suggest rationally adding to it. Use Fibonacci retracement levels, buying at points like 38.2%, 50%, and 61.8% during pullbacks. In summary, buying/selling in batches is a sound strategy, but it does not mean buying more as prices rise or fall indiscriminately. Consider the potential risks. The core principle of position risk management is to take on more risk at the beginning of the trade and reduce it as the trade progresses.

3. Position Balance

Let’s continue with a hypothetical situation. Suppose you participated in trading two tokens, A and B, each with an investment of $1,000. A few months later, token A has risen to $5,000, while token B has dropped to $10. Faced with this situation, what would you do? There are several possible actions: First, continue to wait and do nothing. Second, keep token A unchanged and continue buying token B to lower the average price of B, hoping it will recover later. Third, sell both tokens A and B all at once, making a direct profit of about $3,000. Fourth, balance your risk by selling part of the rising token, thereby offsetting the loss of the other token with the corresponding profit. The benefit of this approach is that the token that has risen fivefold already faces a certain risk of correction, so taking partial profits at this time is reasonable, and it can also cover the loss of the other token. Meanwhile, you still hold a certain amount of token A, and you should feel no psychological pressure holding it moving forward. The above is just a simple assumption. Similarly, position balancing also needs to consider the size of your funds and your investment portfolio. For instance, the analysis and considerations of investing in two tokens, A and B, differ from those of investing in five tokens, A through E.

In the stock market, “R” is a term used to describe the range of market fluctuations. We can apply this concept to the crypto market to describe token price changes. Let’s consider a hypothetical scenario: Suppose you invest $10,000 in a token, aiming to earn $10,000. This means you’re taking on a risk of 1R. Now, if you invest $1,000 in a token, hoping to earn $5,000, you’re taking on a 4R trade with a $1,000 risk. From a risk perspective, the 4R trade is less risky. While a 1R trade seems to offer higher potential earnings, it also comes with the possibility of losing $10,000. This risk can be mitigated if most of your investment is in major tokens like Bitcoin or Ethereum. In the long run, regardless of the number of Rs, such trades are generally low-risk. Investment is not gambling. Some people believe in the adage “heavy positions create miracles,” but this only holds true if you’re mentally prepared for the possibility of losing all your funds.

4. Diversification of Portfolio

We previously mentioned that the analysis and considerations for investing in two tokens, A and B, differ from those for investing in a broader range like tokens A to E. From an investment strategy perspective, having a larger and well-diversified portfolio is beneficial. However, moderation is key. Many new investors tend to buy a dozen or more tokens initially, which can be excessive. Don’t adopt a scattergun approach to investing unless you have the extensive capital and global vision like The Vanguard Group (which essentially buys everything). During the 2022-2023 bear market, our advice has been to allocate at least 50% of your portfolio to major tokens like Bitcoin and Ethereum (for dollar-cost averaging), 40% to promising altcoin projects in key sectors, and keep 10% in cash (stablecoins) to manage potential black swan events. Ideally, limit the number of altcoins to five. Each investor’s situation is different, and the amount of capital varies, so diversification strategies may differ. Additionally, diversification considerations change with market conditions. For newcomers at this stage, my suggestion is: Allocate 30% of your portfolio to building positions in Bitcoin and Ethereum (buy in batches), 20% to blue-chip projects in promising sectors (altcoins), and keep the remaining 50% in cash (stablecoins). Whether and how to use this 50% cash depends on your risk tolerance. If you prefer low risk, hold onto it (and consider dollar-cost averaging into Bitcoin and Ethereum in the next bear market). If you’re willing to take risks and are prepared for potential losses, invest in mid to low market cap projects (do your own research and consider the narrative and market conditions). These suggestions are merely for reference. Ultimately, it’s your money, and you need to take responsibility for your investment decisions.

5. Using Trend Indicators

Beyond the trading strategies and disciplines we’ve discussed, using trend indicators can significantly improve your trading decisions. Rather than trading based on gut feelings, what others say, or news headlines, rely on solid trend indicators. In the crypto market, there are numerous on-chain indicators you can use. For instance, when analyzing BTC, there are at least a dozen commonly used indicators, illustrated in the chart below.

In addition to some common on-chain indicators, there are also many technical indicators in the K-line, as shown in the figure below.

At the same time, different indicators may have different applicable cycle ranges. For example, some indicators may be more suitable for long-term trading (such as AHR999, MVRV, Rainbow Price Chart, etc.), while some indicators may be more suitable for mid-term trading (such as EMA200, Fibonacci, VPVR, etc.) ), some indicators may be more suitable for short-term trading (such as EMA9, MACD, etc.).

But in fact, we don’t need to master all the indicators. We just need to choose the indicators that suit us best and pay attention to them. Which indicators you choose will largely depend on your own investment portfolio and trading style. In addition, the core purpose of the corresponding indicators is only to provide necessary assistance in your decision-making, so that you can better increase or partially close your position. Indicators do not mean everything, but all your operations can be based on some specific indicators to provide necessary assistance.

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