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The Significance of Capital Allocation.
Undoubtedly, many of you must have heard experienced traders advising to allocate capital to only 4–5 projects during an uptrend, with the amusing rationale being that it’s a better way to manage funds. 😂
According to my perspective, the uptrend of capital flow will be injected into each narrative. If you only hold onto 4–5 projects, in the worst-case scenario, by the end of the season, your projects might just start gaining momentum. Will you have the patience to hold on, or will you succumb to the temptation of buying and selling as others showcase their profits?
2. Effective Capital Allocation Strategy.
There are two optimal and secure ways to allocate capital:
Research and identify trends and narratives that will be pumped during the uptrend season.
After determining the trends and narratives that will be pumped during the cycle, research and allocate 1–2 quality projects for each category (the allocation percentage will depend on your assessment of the size and potential of that category and the market size).
=> After capital allocation, you just need to stay put and wait for money to flow into the category you are holding. Projects within the same category will experience a sudden surge compared to other categories (for example, if money flows into GameFi, GameFi projects will all experience a surge). When you identify a project reaching overvalue, you can optimize by selling (partially or entirely, depending on your preference) to move funds to categories that have not yet surged, optimizing both cash flow and profits. X100 might be challenging, but 2 times X10 isn’t too bad! 😂
According to my perspective, optimizing according to cash flow is more effective than optimizing based on technical analysis. In an uptrend market, indicators are pulled up to super FOMO levels along with extended bearish divergence sequences, and just one long wick candle can make you lose your position.
3. Experience needed to avoid missing waves in a new cycle.
If you allocate too little capital to a category, it poses a significant risk. I observes that many people only hold 3–5 projects, such as ARB, OP, SUI, and APT, resulting in only L1 + L2 in their portfolio. If the market pumps other categories first, such as AI, RWA, and GameFi, projects in these categories could increase by 30–50 times while the projects you hold may only double. When communities start flaunting their accounts multiplied by several tens, will you still hold or succumb to FOMO and buy new projects that may later result in rug pulls or money flowing to other categories?
In summary, according to my perspective, it’s not advisable to hold too few projects, especially if they are all in the same category. In the worst-case scenario, the category you hold may only be pumped at the end of the downtrend. So, do you have the confidence to hold until the end of the season? 😂 Ultimately, it’s still recommended to allocate capital across multiple categories to avoid getting burned during the uptrend season.
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Good luck!