Original author: INSIGHTFUL
Original translation: TechFlow
Preface
In this bull market, Meme tokens still attract a lot of attention, and ordinary investors believe that this is their only chance to succeed in this cycle. Although the potential rewards are huge, the corresponding risks cannot be ignored.
This article is designed to help you develop trading rules and profit strategies to increase the possibility of making profits, rather than completely giving back all of your paper gains in the hope of the next 100x return.
Why Meme Tokens are so popular
Memes are the most authentic and simple manifestation of cryptocurrencies. Traditionally, memes are closely associated with retail traders, but this cycle has not seen a full return of retail traders. Nevertheless, in the early stages of this cycle, memes are more popular than ever before.
Currently, the market is dominated by experienced crypto traders, many of whom are in their second or subsequent cycles. Current market participants typically:
Focus on maximizing profits.
Realize that over 90% of “basic” projects are actually memes, lack real value, and are doomed to fail.
We have seen many examples of:
Meme has significant wealth creation potential.
There are multiple examples of multi-billion dollar, venture-backed “essential” projects slowly decaying due to long unlocking periods.
With these factors in mind, it is understandable that many people gravitate toward memes. They have proven to be powerful wealth creators that don’t require the false veneer of “innovative technology.”
The strong rebound of PEPE and WIF after the pullback in May last year highlights the change in the perception of memes in this cycle. Unlike in the past, when the strength of memes often signaled market tops and peaks in trader confidence, today's memes have shown resilience during overall market pullbacks and periods of low confidence.
Memes with larger market caps like $PEPE and $WIF have become a safe haven for users during uncertain times. The meme supercycle has clearly begun.
Risk Management: Position Sizing Relative to the Portfolio
We divide them into the following four categories:
4 digits (1,000 to 9,000)
5-digit number (10,000 to 100,000)
6 digits (100,000 to 900,000)
7 digits (1,000,000 to 9,000,000)
Trading with a sub-4-digit portfolio
The million dollar question is: “How do I succeed in shitcoin/Memecoin with little capital?”
The honest answer is that the chances are very slim, especially for a beginner. But here are some guidelines to increase your chances of success:
Conviction investing: Invest a large portion of your portfolio in investments for which you have strong conviction and sound reasoning.
Quick exit: Strive for a 2-4x return and exit quickly. Avoid holding on to one investment for too long when most of your investments are concentrated in one investment.
Invest selectively: Focus on logic and rationality, not charts and candlesticks. Put 20-25% of your money into one investment, risking enough to possibly get out of this phase.
Bull Market Opportunities: In a strong bull market where risk appetite is high, narratives can power successful investing.
Step 1: Accept the reality
Understand that you can’t become successful overnight with a small amount of money like $100. Don’t rely solely on crypto to pay for your living expenses. Think of crypto as a secret project, a skill you’ve developed behind the scenes.
Step 2: Master a Specific Field
With limited capital, focus on improving your trading skills rather than simply making money. Build capital until you are proficient in identifying opportunities. Choose a niche (such as swing trading, small-cap, mid-cap, large-cap) and study it in depth. Practice with simulated trading and build capital through a side hustle in Web3 (such as web development, community management, or graphic design).
Step 3: Start trading with your savings capital
Once you are confident in your trading skills and have accumulated some capital, start investing slowly. On Ethereum, if you can accurately spot opportunities, one ETH is enough. Be picky when trading, strictly grasp profits, and stop losses quickly.
Step 4: Invest for the long term
Once you have a solid portfolio, invest a significant portion of your money in a long-term project. Hold the project until your conviction wanes. Even a 3-5x return on a significant portion of your portfolio is very impressive. While a small investment in a high-risk project may bring big gains, the goal is to follow rational principles.
Below 5-digit portfolio
If you have a low five-figure fund, follow the same strategy as a low four-figure portfolio, but reduce your position size to 10-15% per trade. Be extremely selective. With this fund, you can comfortably trade charts, buying at support and selling at resistance on major upticks. As you get closer to high five figures, focus more on chart trading, keeping a close eye on volume.
Sub-6-figure portfolio
Maintaining and growing a six-figure portfolio is challenging. Your goal is to protect gains and deploy capital in worthy opportunities. The journey to seven figures will be slow and require commitment to the long term process. If you can get in early, consider investing in the new major upside coins. Compare the number of holders/market cap to recent outperformers and check if most people on Twitter are already following it.
Risk Management: How to Manage Trading Risk
Set stop loss conditions for each trade:
Identify and mark the major support levels on your chart. If the price hits these levels, stop loss and move on.
Avoid asset devaluation to zero. If a trade doesn’t go as expected, exit it immediately.
Invalidation conditions can occur due to a variety of factors, such as slowing volume, loss of major support levels, or justified FUD.
Pre-plan your exit:
Before entering a trade, determine ahead of time where you will exit if the trade does not go as planned.
Depending on your goals and risk tolerance, consider setting a stop loss on older coins. For new and volatile coins, you can adopt a "10x or bust" strategy.
Monitor hype and sentiment:
For Meme tokens, follow the hype and market sentiment on Telegram and Twitter.
Assess overall market sentiment, paying special attention to major currencies and their derivatives. If the major currency falls, related currencies may fall more.
Evaluating Utility Coins:
For utility coins, monitor the development team to ensure they are consistently rolling out updates.
Look for upcoming catalysts that the market has not yet priced in.
Examples of poor risk management:
Holding assets without timely profiting can result in huge paper gains turning into losses.
Here are some specific examples:
Zooming out can help you get a more comprehensive view.
It turned $9 into $40,000 and then fell back to about $1600.
Elon Musk temporarily changed his Twitter profile picture to laser eyes . While this was a strong catalyst, when he changed his profile picture again, the price quickly fell. Things can change very quickly, and often if you don’t take profits ahead of time, you can’t hedge at the best time.
Mental framework and self-questioning
Reduce risk during volatile price movements:
Take advantage of significant price swings to reduce overall risk.
Ask yourself if the people talking about the coin are known for pump and dump.
Find out why the coin is rising:
Identify the reason for the coin's rise. Is it pure speculation, or is it related to the developers of a previously successful project?
Recognize that peaks are usually marked by widespread hype from influencers or a significant event such as listing on Binance.
If you get excited and start taking screenshots, that could be a signal to sell.
Gradual profit:
It is vital to take profits regularly. What matters is the profits you actually keep, not just the profits on paper.
Example strategy: Sell 25% at 3-4x gain to cover initial cost, then sell another 25% at each 2-3x gain.
Keep a 10-20% "moon bag" to stay invested and avoid regret after selling.
Useful principles
1. Learn from your mistakes:
Personal experience is the best teacher in trading. The lessons learned from losses are priceless.
Advice about taking profits or checking contract addresses before you make a mistake may not entirely resonate.
The pain of mistakes will serve as a powerful warning for the future.
2. The value of simplicity:
Simple things are often overlooked because they don't seem complex enough.
Watch the biggest moves during market rallies to see which direction is getting the most attention.
For example, a regular investment in the outperforming $MOG in June and July 2024 showed continued outperformance.
Identify holdings that underperformed during market rallies to adjust your focus.
3. Avoid over-trading:
Overtrading will slowly eat into your portfolio. Frequent position switching will reduce your clarity of thinking.
Stay disciplined: do your research, build conviction, pick your positions and stick with them.
Learn to Love Selling:
Selling is psychologically harder than buying because you are afraid of missing out on huge gains.
Consistent profits are usually more rewarding than expecting unlikely returns.
Every day you hold a position, you are actually choosing it over other potential opportunities.
4. Stable income is better than big wins:
Look for multiple 3-5x returns instead of expecting a 100x return.
Scenario #1: Holding out for a 10-100x gain often means missing out on smaller but more stable profits.
Scenario #2: Sustained 3-5x returns that compound significantly over time.
5. Avoid re-entering profitable trades:
After getting 2-4 times profit, close the position and wait for a pullback before considering re-entering.
The excitement after a win can lead to overconfidence and positivity bias, increasing the risk of losses.
Removing the trade from your watch list after closing it can help avoid emotional re-entry.
6. Be cautious about trusting your emotions:
In crypto, the right decisions often feel like the wrong ones. Selling during the hype phase or buying on the pullback may be contrarian thinking, but it can indeed lead to profits.
Recognize that emotions like excitement and fear can mislead you, and make decisions based on rational analysis.
