Figure out whose money you are making.
Author: Lin Chuan, dappOS Research Director
Preface
My output in Web3 has always been mainly investment research and long research articles. Although I made money on some Memes before October this year, I generally regarded it as a hot spot for sector rotation and did not systematically study how to play Memes. But on the one hand, I am increasingly aware of the status of Memes as a new type of attention economy in this cycle, and on the other hand, the intention exchange that my project dappOS will launch in the next stage is also related to Memes and transactions.
So about two months ago, I started to study how to do Meme trading in depth and systematically. It happened to catch up with the bull market of BTC and Meme, and I gained a lot. From the initial 10SOL that I just wanted to play with, I rolled it all the way to 1000+SOL, which is more than 100 times. Recently, while the popularity of Meme has subsided, I also sorted out my trading experience some time ago as follows, and share it with you.
Summary: What kind of money are you making?
There are many ways to make money in the market, but to achieve long-term stable profits, you must understand the logic behind each of your transactions, that is, figure out whose money you are making. If you rush in before thinking this through, you are likely to be the one who loses money in the market.
In fact, different traders have different styles. In summary, I am good at making money from two types of logic:
1. Money for new hot emotions;
2. Money from the bottom explosion of excellent narrative targets;
Since the underlying logic of the two transactions is different, the target selection, entry timing, and exit timing are all different, which will be shared in detail below. Even for the "VC coins" in the exchange, some trading logic is applicable in the current context where the price increase is more based on sentiment rather than fundamentals.
1. Trading logic of hot sentiment
1. How to choose the target?
In a bull market, if a new hot topic or new concept emerges and begins to spread in a fission-like manner, the price of the corresponding Meme will form a continuous surge trend.
The typical characteristics of this stage are: the price of the currency has been rising sharply, with basically no callback or even if there is a short-term callback, the amplitude does not exceed 30%; Twitter KOL, WeChat/TG groups, and news media began to publish a large number of articles to discuss this hot concept, mainly shouting orders at the beginning, and as time goes by, some neutral/negative comments will gradually appear. The appearance of these comments is a sign of fission propagation, indicating that these people saw other people shouting orders and discussed, and they were not optimistic about it and did not get on board, but felt that this was a hot topic and needed to comment on it.
There are two ways to seize this opportunity:
a. Frequently check Twitter and GMGN for hot topics, and have a certain ability to judge the strength of narrative dissemination. For example, the narratives of $BAN, $RIF, and $LUCE all have their own angles and novelties, and $DOGE, Eagle, etc. are also powerful from a dissemination perspective;
b. If you don’t pay attention to it immediately, you can also analyze and judge which stage of fission propagation the project is in when you see some Twitter KOLs posting or some group friends talking. If you think the project is in the early stage of fission propagation, it is also a good time to enter the market;
Generally speaking, according to my coin selection preferences, when I decide to enter the market, the market value of the coin is generally between 5M and 50M. Coins below 5M are often called by people who have already joined the market, which are very fragile, and there may not be strong dealers behind them, and it is easy for a wave of flow to directly return to zero; the odds of coins above 50M are not high enough, and even if you want to enter the market, you have to control your position. For popular coins above 50M, I prefer to earn shallow bottom explosions after the callback.
2. How to enter?
When you decide to buy such a target, you need to enter the market as soon as possible. Because you make money from hot emotions, you are betting that this narrative can be spread, or that you are at the upstream of this spread. If you wait for a callback, it is easy to wait for the price you want, and then watch the price rise all the way, and various KOLs analyze this Meme from various angles, and then regret it, chase the high and enter the market, and finally get trapped.
However, in practice, in order to have a relatively low average cost, if the target is rising rapidly, I will consider buying 40% of the planned position, and then buy the remaining 60% when there is a 20-30% correction. If there is no small correction, I will not cover the position. If the target is currently in a sideways/falling state, I will fill all the positions at once and will not consider the issue of covering the position afterwards.
If the position is relatively large when entering the market, I will learn Sister Hui’s three-wallet method and divide the funds into three new wallets of 20%, 30%, and 50% to buy. This will reduce the risk of being monitored at a certain point to a certain extent, and make it easier to control the position when leaving the market later.
3. How to exit?
If it goes up: The 15-minute trend line profit-taking method recommended by Brother Dayu @BTCdayu is more effective in practice, because what we make is emotional money. If the 15-minute trend line falls below, it is easy to have a continuous stampede decline. At this time This is the time to take profits in stages. Generally speaking, I will sell 30%-50%-20% when the price falls below the 15-minute trend line after three rises. However, if there is a significant rise and then falls back to the cost line, I will generally consider selling all remaining positions to prevent profits from turning into losses after further corrections;
(Attached: Video link of Brother Dayu’s explanation of the 15-minute trend line profit-taking method)
If it falls directly: If the coin never rises above the cost price after purchase, it means that there is something wrong with the logic of selecting the target. In this case, I usually consider stop loss at about half of the cost price; if the target is indeed a good target and the narrative has room for a second outbreak, there will generally be a chance to enter the market again at a lower cost.
2. Trading logic of excellent narrative bottom outbreak
1. How to choose the target?
Even some excellent narrative coins whose market value exceeded 50M or even 100M in the first wave of outbreak often experience a deep correction of about 70-80%. For example, $MOODENG, $AI16Z, $BAN, and $LUCE, which later stabilized their market value at 100M+, all had moments of deep correction after the first wave of outbreak.
On the one hand, this is the natural result of the ebb and flow of emotions (you can see the K-line trend of $SLERF when it just opened at the beginning of the year. At that time, it was impossible for anyone to pre-sell $SLERF in the early stage. That K-line is the most classic natural K-line of pure retail PVP). On the other hand, the dealer needs to make a big correction to sell the goods for profit, so that more people have the opportunity to get on board and raise the average cost of everyone to prepare for the next outbreak. Therefore, to make money from this logic, you need to first determine whether this narrative has endurance and whether there is a possibility of a second outbreak.
How to judge whether a narrative will have a second outbreak is also something that requires experience accumulation. Sometimes this is related to the trading logic of the dealer behind it. We can only try to increase the winning rate but it is impossible to achieve 100% victory. Generally speaking, I think narratives with a high probability of a second outbreak will have one or more of the following characteristics:
1. Communities with strong and unique culture, not limited to the Chinese-speaking world (e.g. $NEIRO, $ACT, $ELIZA);
2. The concept itself is related to a certain major event that is certain to happen in the future (such as $BAN, $LUCE);
3. It has certain technological fundamentals, will continue to grow, and benefit from the outbreak of related tracks (such as $GOAL, $RIF);
The following narratives are more likely to appear in a wave:
1. The concept itself is related to an event that has already happened, and the probability of subsequent events is low (because the event has already happened, and people's attention will slowly shift to new events);
2. Celebrity calls, such as Musk concept, Trump concept, Vitalik concept, CZ concept (Celebrities will continue to post new concepts, which will distract attention. In addition, the Meme coins of celebrity concepts are usually temporarily generated + wild dealers enter. You will see a large number of orders with the same name at the same time. It is possible that after the first wave, the dealer will run away and play with new concepts);
3. Non-leading stocks in similar narrative concepts (after a wave of explosion + correction, funds tend to enter the leading stocks rather than the second, third, fourth and fifth stocks);
2. How to enter
For this type of target, you must wait until there is a deep correction before entering the market. You must believe that there will be a big correction. If there is really a Meme that has risen from 10M to 1B without a correction of more than 50%, then we will not make the money. Generally speaking, I am used to looking for opportunities to enter the market after seeing that the coin has a deep correction of at least 70% and the bottom has been sideways for more than 2 days. The entry point is at the middle bottom of the sideways range. For some coins with a less deep correction, such as about 50%, if I really want to get on board, I generally consider entering a 40% position.
Note that since this is an ambush and burst logic, the target may remain in a sideways range for quite a period of time (such as 1-2 weeks) and suffer a slight loss, which will occupy the liquidity of funds. Therefore, when ambushing, you should also pay attention to position control to avoid a situation where you have a heavy position in an ambush project and can only sell it to get funds after seeing a new opportunity.
Let's also talk about the issue of swing trading. Although I may enter/exit the same coin multiple times, the logic of each entry or exit belongs to one of the two trading logics. When entering the market, I know what kind of money I am making and how to exit. If you just look at the K-line and buy high and sell low, it is easy to sell at high prices/get trapped, so I don't recommend it here. I have never seen any expert who can make money for a long time by doing Meme swing trading.
3. How to exit?
If it goes up: Since the money earned is from the narrative explosion, the expected odds of this kind of transaction are relatively high, so generally no profit is taken when the first breakout of the sideways range and then falls back. After the target has risen by at least 50%, consider using the 15-minute trend line profit-taking method to take profits in batches. Since the narrative of the second outbreak is generally stronger, it is best to keep 20% of the tail position for a while, looking forward to big opportunities such as Binance.
If it falls directly: If it does not rise, and confirms that it has fallen below the bottom of the sideways range (for example, it has not risen after a period of time, or it falls very quickly and is 20% lower than the previous bottom), the on-chain target must resolutely stop loss. Although it is said that in the altcoins in large exchanges, the dealers often make a false break before pulling the market to absorb more chips and let people get off the train, but because the on-chain Meme pool is generally not deep, once it falls below the key support level formed by sideways trading for more than 2 days, it often leads to a series of stampede-style declines, so don't imagine that this is "the dealer is testing the market". If it is a target in a large exchange such as Binance/OK, due to good liquidity and the dealer's tendency to operate in this way, it is indeed very likely to have a "false break", and you can wait and see for a while as appropriate.
Recommended KOLs to follow
There are also many excellent KOLs in the meme trading field of T9witter. Among them, there are four that I highly recommend everyone to follow. I have also learned a lot from them:
Wizard (@0xcryptowizard): $ACT became famous overnight. He has a deep understanding of Meme trading. The beginner tutorials and some benchmark reviews he wrote are very valuable. The Meme tutorials that Wizard pinned are very suitable for beginners.
Hui Jie (@0xmagnolia): A KOL who shares her real-life experiences. $MOODENG and $BAN are both her famous battles. Some of her content on how to trade in real time has even been compiled into Hui Jing, which is worth learning. The interpretation of different time periods in $BAN’s long review and the interaction in the comment section are also very interesting.
Dayu (@BTCdayu): He is very sensitive to hot topics. He can capture many new narratives when they appear or when old narratives are about to explode and post them in the group, such as $PNUT, $LUCE, $RIF, etc. There are also many other experts in the group to communicate and share. Even if you only read the public tweets, it is very helpful to understand hot topics and emotions.
Mr. Mai (@Michael_Liu93): With an institutional background, he has a very advanced understanding of Meme as the new era of attention economy. If you are a VC, researcher, or technical person who still looks down on Meme, I recommend you read some of Mr. Mai’s long articles; some interpretations from the perspectives of dev and market makers are also very helpful.
