Preface
Meme tokens are still attracting a lot of attention during this bull market, with average investors thinking this is their only chance of success in this cycle. While the potential rewards are huge, the corresponding risks cannot be ignored.
This article is intended to help you develop trading rules and profit-making strategies to increase the likelihood of profits, rather than completely giving up all paper gains in anticipation of the next 100x return.
Why Meme Tokens Are So Popular
Memes are the truest and simplest expression of cryptocurrencies. Meme has traditionally been closely associated with retail traders, but this cycle has not seen a full return of retail traders. Still, in this early stage of the cycle, Meme is gaining more attention 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 destined to fail.
We see many examples showing:
Meme’s remarkable wealth creation potential.
There are multiple examples of billion-dollar, venture-backed “essential” projects slowly declining due to long unlock periods.
Given these factors, it's understandable that many people gravitate toward Meme. They have proven to be powerful wealth creators and do not need the false trappings of “innovative technology.”
PEPE and WIF rallied strongly after pulling back last May, highlighting the changing perception of Meme this cycle. Unlike in the past, where the strength of memes often heralded market tops and peaks in trader confidence, today's memes are showing resilience during overall market pullbacks and periods of low confidence.
Memes with larger market caps like $PEPE and $WIF have almost become safe havens for users during uncertain times. The meme supercycle is clearly on.
Risk Management: Position Size Relative to Portfolio
We divide it into the following four categories:
4 digits (1,000 to 9,000)
5 digits (10,000 to 100,000)
6 digits (100,000 to 900,000)
7 digits (1,000,000 to 9,000,000)
Trade with a Sub-4 Figure Portfolio
The million dollar question is: “How do I succeed in shitcoin/Memecoin with little capital?”
The honest answer is, the chances are very slim, especially for newbies. But here are some guidelines to improve your chances of success:
Conviction Investing: Investing a large portion of your portfolio in investments for which you have strong convictions and sound reasons.
Exit quickly: Aim for 2-4x returns and exit quickly. Avoid holding on to one investment for too long when most of it is concentrated in one.
Selective Investing: Focus on logic and rationality, not charts and candlesticks. Put 20-25% of your money into one investment and risk enough to possibly get out of this phase.
Bull Market Opportunities: In strong bull markets where risk appetite is high, narrative can power successful investments.
Step one: accept reality
Understand that you can’t become successful overnight with a small amount of money like $100. Don’t rely solely on cryptocurrencies to cover your living expenses. Think of cryptocurrency as a secret project, a skill you master behind the scenes.
Step 2: Master a specific area
When capital is limited, focus on improving your trading skills rather than simply making money. Build capital until you become adept at identifying opportunities. Pick a niche (e.g. swing trading, small cap, mid cap, large cap) and dive into it. Practice by paper trading and build capital with a Web3 side hustle like web development, community management, or graphic design.
Step 3: Start trading with saved capital
Once you are confident in your trading skills and have accumulated some capital, start investing slowly. On Ethereum, one ETH is enough if you spot the opportunity accurately. Be picky when trading, strictly grasp profits, and stop losses quickly.
Step 4: Make long-term investments
Once you have a solid investment portfolio, invest a considerable portion of your capital in projects that you believe are promising in the long term. Hold the item until belief weakens. Even a 3-5x return on a significant portion of a portfolio is very impressive. While small investments in high-risk projects may lead to large returns, the goal is to follow rational principles.
Sub-5 Figure Portfolio
If you have funds in the low five figures, follow the same strategy as the low four figure portfolio, but reduce your position per trade to 10-15%. Stay extremely picky. With this capital, you can comfortably chart trade, buying at support levels and selling at resistance levels on major rising coins. As you get closer to the high five figures, focus more on chart trading and keep a close eye on volume.
Sub-6 Figure Portfolio
Maintaining and growing a six-figure portfolio is challenging. Your goal is to protect earnings and deploy capital in valuable opportunities. The journey to seven figures will be slow and requires a commitment to the long-term process. If you can get in early, consider investing in the new major rising coins. Compare the number of holders/market cap to coins that have performed well recently and see if it is followed by the most people on Twitter.
Risk Management: How to Manage Trading Risks
Set stop loss conditions for each trade:
Identify and mark major support levels on the chart. If the price hits these levels, cut your losses and move on.
Prevent assets from depreciating to zero. If the transaction does not go as expected, exit immediately.
Invalid conditions can occur due to a variety of factors, such as slowing volume, loss of major support levels, or legitimate FUD.
Pre-plan your exit:
Before entering a trade, determine in advance 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 major currencies fall, related currencies may fall even more sharply.
Evaluate utility coins:
For utility coins, monitor the development team to ensure they continue to roll out updates.
Look for upcoming catalysts that the market is not pricing in yet.
Examples of poor risk management:
Holding assets without profiting in a timely manner results in huge paper gains turning into losses.
Here are some specific examples:
$4 million in lost revenue.
Whale sold $JUP for $BODEN at its peak for $8 million, losing 98%, turning its $8 million into $85,000.
Zooming out can help you get a more complete view.
It turned $9 into $40,000 before falling back to about $1600.
Elon Musk temporarily changed his Twitter avatar to laser eyes. While this was a powerful catalyst, when he changed his avatar again, the price dropped quickly. Things change very quickly, and often you won't be able to hedge at the best time if you don't take profits ahead of time.
Mental frameworks and self-questioning
Reduce risk when prices fluctuate wildly:
Profit promptly from significant price movements to reduce overall risk.
Ask yourself if the person talking about this coin is known for pumping and selling.
Find out why the coin is rising:
Identify the reasons why the coin is rising. Is it pure speculation, or is it related to developers of previous successful projects?
Recognize that peaks are often marked by widespread hype from influencers or important events such as listing on Binance.
If you get excited and start taking screenshots, that could be a signal to sell.
Earn profits step by step:
Taking profits regularly is crucial. What matters is the earnings you actually keep, not just the earnings on paper.
Example strategy: Sell 25% at 3-4x earnings to cover initial cost, then sell an additional 25% at 2-3x earnings each time.
Keep 10-20% of your "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.
Before you make a mistake, advice about taking profits or checking contract addresses may not entirely resonate.
The pain of mistakes will serve as a powerful warning for the future.
2. The value in simplicity:
Simple stuff is often overlooked because it doesn't look complex enough.
Watch the biggest moves during market rallies to get a sense of which direction is most interesting.
For example, placing a bet on outperforming $MOG in June and July 2024 shows continued outperformance.
Identify positions that underperform during market rallies to adjust your focus.
3. Avoid over-trading:
Overtrading can slowly drain your portfolio. Changing positions frequently reduces mental clarity.
Stay disciplined: do your research, build belief, pick a position and stick with it.
Learn to love selling:
Selling is psychologically harder than buying because you are afraid of missing out on big gains.
Making consistent profits is often more rewarding than hoping for unlikely returns.
When you hold a position every day, you are essentially selecting it over other potential opportunities.
4. Stable profits are better than big wins:
Go for multiple 3-5x returns rather than expecting 100x returns.
Scenario #1: Persevering in the pursuit of 10-100x returns often misses out on smaller but more stable profits.
Scenario #2: Sustained 3-5x returns can compound significantly over time.
5. Avoid re-entering profitable trades:
After 2-4x gains, close the position and wait for a pullback before considering re-entering.
The excitement after a victory can lead to overconfidence and positivity bias, increasing the risk of losses.
Removing the trade from your watch list after closing it will help avoid an emotional re-entry.
6. Be careful to trust your emotions:
In cryptocurrency, the right decision often feels like the wrong one. Selling during the hype phase or buying during the pullback may be contrarian thinking, but it can indeed lead to profits.
Recognize that emotions like excitement and fear can mislead you, so make decisions based on rational analysis.
