8 Things That Can Increase Your Chances of Making Money in Crypto
Original author: Route 2 FI, encryption researcher
Original compilation: 0x137, Rhythm BlockBeats
This article is based on the views of encryption researcher Route 2 FI on his personal social media platform, which is compiled and translated by BlockBeats as follows:
One, Crypto is a probability game, but most people regard it as gambling
Let's do a very simple excercise to illustrate how you can get positive expected value (+EV) in your own investments.
The first is to consider long-term investment in BTC, let us set up the following 4 scenarios:
1. BTC will create a new high this year
2. BTC will continue to trade sideways in 2022, but make new highs in 2023
3.BTC has completed its historical role, it will fall and remain in one position
4. BTC will go lower this year, but make new highs in 2023
Now, let's do some probability analysis for each outcome:
1. Probability: 20%
2. Probability: 40%
3. Probability: 20%
4. Probability: 20%
With BTC currently at $42,000, what's the best deal right now considering these 4 scenarios?
1. Buy
2. Buy
3. Sell
4. Buy
80% of the time a purchase is the best outcome.
1.20% probability up 65%+
2. There is a 40% chance of a long-term upside of more than 65%
3. There is a 20% chance that BTC will never rise back to ATH
There is a 4.20% probability that we will lose money in the short term, and a probability of more than 65% that we will make money in the long term.
For point 3, you can put your stop loss at 30%. In other words, if BTC drops below $29k, you sell. All in all, you have an 80% chance of getting a +65% return and only a 20% chance of losing 30%. It's worth the risk, isn't it?
Of course this is a very simple example and you may disagree with the scenarios and probabilities, but I just wanted to show you how to think in investing.
Second, how to use probability thinking?
Remember that the market can stay irrational longer than you can stay solvent. In Crypto, anything can happen. That's why you make strict rules for yourself.
For example, here are some examples of hard rules about when to invest in LUNA:
1. When BTC has a horizontal/upward trend
2. When the market value of UST is increasing
3. When momentum is clear (new protocol, more users, bullish news, etc.)
4. When Anchor savings generate positive returns
5. When the Anchor TVL increases (normally, everything that happens to the Anchor can be tracked, since over 70% of the UST market cap is locked there)
6. When technical analysis looks good on the 4-hour, 1-day, 1-month time frame
I personally think that as long as the above 6 factors are met, LUNA has a good risk/reward ratio. Simply put, the increase in UST market value is equal to the increase in the price of LUNA.
Third, pay attention to the size of the position, never exceed the range you can bear
Of course you want to bet big when the odds are in your favor, but even investments with positive expected value can end up being fail. Remember, it's all about survival, which is why you should cut your losses promptly and never risk more than 1-3% per trade.
As another example, suppose:
1. Total Portfolio Value: $10,000
2. Risk 2% per trade, stop loss when you lose 7%.
3. Position size: (10,000 x 0.02) / 0.07 = $2,857
This position is equivalent to 28.5% of your portfolio, but since you have a stop loss at 7%, it means you will not lose more than $200, or 2% of your total portfolio. Position sizing and stop losses are very important in trading, if you overexpose your money, sooner or later you will lose your account.
Fourth, figure out what your strengths are?
If you try to be a master of everything, you will end up getting nothing. You have to find the market you are most comfortable with.
You can think about what you are most interested in? Trading, NFT or DeFi? But even the deal is too big. Micro caps, small caps, L1, market cap top 100, not to mention time frames, swing trading, scalping and more...
For NFT, which ecosystem will you pay attention to? I did spend a few days digging up floor rates at http://rarity.tools. For DeFi, what is your specialty? After all, it is too difficult to keep up with the latest status on each L1 public chain.
You have to figure out that you are an observer of smart money, a discoverer of treasures with low market value, and someone who can see the NFT trend earlier than others, Or a wool expert or a DeFi income farmer? After figuring this out, you can double down on it instead of learning everything.
5. Be able to admit that you are wrong and stop
This is an important factor for success in the encryption industry. Whether it's an exchange, NFT, or DeFi, before you can buy, you need an argument and a point of failure.
Ask yourself, "What if I'm wrong?"
Continue to give an example:
Buying AVAX at $79, the failure point may be a fundamental change in the ecosystem, the stop loss should be around 10%.
The reason I wrote this article is because gambling is harder to get emotional than you think. How many times have you not forced yourself to sell at a certain price, but said, "If it falls another 5%, then I will sell". Then continue to lose 5% after...
So, respect your rules.
6. Find the "echo chamber"
If you spend enough time in the Twitter cryptosphere, you will find that there are many sub-communities, such as ETH maxis, LUNAtics, FTM degen, ATOM believers et al.
While you should definitely join one or more of these communities, you should also always keep a critical eye. Don't blindly accept information without making your own judgment.
At the end of the day, this is a PvP game (player versus player) and even if you feel like you are part of a big community on crypto twitter, you still Don't assume everyone else is looking out for your best interests, alone.
7. Be patient
You don’t have to keep your positions full all the time, you can also choose to use stablecoins for DeFi farming, or hold a certain amount of cash. Instead of always making deals, let the deals come to you.
Try to wait for the big crash and intergenerational buying opportunities to appear to help you achieve the ideal goal you have in mind (this is easier said than done).
The point I want to say is to learn to wait for a good trading opportunity. In a downtrend, don't try to sell too much. Remember, most of the current top 100 projects by market capitalization will disappear in 4 years.
8. Some DeFi skills
1. Check the income on http://coindix.com, if you can’t find the information, you can supplement it on http://defiLlama.com.
2. Unless you are very experienced (microcap hunters), stick to staking or yield-farm opportunities with high TVL.
3. If you use leverage, please continuously monitor your positions.
4. Try to reach out to big influencers on twitter, many of them have information that most people don't know.
5. The higher the APR, the higher the possibility of you becoming a source of income.
6. Try to avoid the BNB chain, many projects on it will pull the carpet.
7. Turn on notification alerts for some important Twitter accounts, like Peck Shield provides some good shorting opportunities. Or when Andre Cronje announced that he would "retire" in March, it was an easy short opportunity. Now, I think that as soon as the news comes out, the news that USN is stable will affect the market in the NEAR ecosystem.
8. Never spend all your money on one DeFi protocol
9. Always keep costs low when trying a new platform for the first time
10. Try to focus on one or two ecosystems to capture the greatest opportunity
11. Watch where the top wallet money goes (you can check DeBank)
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