The Reasons behind the Popularity of Meme Coins
In this bull market, meme tokens continue to attract a lot of attention as retail investors see them as their only chance for success in this cycle. Despite the potential for huge returns, the corresponding risks should not be ignored.
This article aims to help you develop trading rules and profit strategies to increase the likelihood of making profits without completely giving back all the paper gains and expecting the next 100x return.
Reasons Why Meme Coins Are So Popular
Meme coins are the most genuine and straightforward representation of cryptocurrencies. Traditionally, memes have been closely associated with retail traders, but this cycle hasn’t seen a full comeback of retail traders. Nevertheless, the attention on meme coins is higher in the early stages of this cycle compared to previous cycles.
Currently, the market is dominated by experienced cryptocurrency traders, many of whom are in their second or subsequent cycles. Current market participants typically:
Focus on maximizing profits.
Realize that over 90% of “legitimate” projects are actually memes, lacking real value and destined to fail.
We have seen many examples that demonstrate:
– The significant wealth creation potential of memes.
– Examples of “legitimate” projects with billion-dollar market caps, supported by venture capital, experiencing slow declines due to long unlocking periods.
Considering these factors, it’s understandable why many people choose to invest in memes. They have proven to be powerful wealth creators without the false facade of “innovative technology”.
The rebounds of PEPE and WIF after the pullback in May last year highlight the changing perception of memes in this cycle. Unlike in the past, where the strength of memes usually signaled market tops and peaks in trader confidence, today’s memes show resilience during market retracements and periods of low confidence.
Meme coins with larger market caps like $PEPE and $WIF have become havens for users during uncertain times. The Meme supercycle is clearly underway.
Risk Management: Position Sizing Relative to the Investment 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)
Trading with a portfolio size below 4 digits
The million-dollar question is, “How can I be successful in shitcoin/Memecoin with a small capital?” The honest answer is that the chances are very slim, especially for beginners. But here are some guiding principles to increase your chances of success:
– Firm conviction: Allocate a significant portion of your investment portfolio to investments you strongly believe in and have reasonable reasons for.
– Quick exits: Aim for 2-4x returns and exit quickly. Avoid holding for too long when the majority of your investments are concentrated in one position.
– Selective investment: Focus on logic and rationality rather than charts and candlestick patterns. Allocate 20-25% of your funds to one investment, taking enough risk to potentially break out of this stage.
– Bull market opportunities: Strong bull markets with high risk appetite can provide the momentum for successful investments.
Step 1: Accept Reality
Understand that it’s not possible to achieve overnight success with small amounts of capital like $100. Do not rely solely on cryptocurrencies to cover your living expenses. Treat cryptocurrencies as a secret project, a skill you possess behind the scenes.
Step 2: Master a Specific Area
In the case of limited capital, focus on improving your trading skills rather than just making money. Accumulate capital until you become proficient at identifying opportunities. Choose a niche area (such as swing trading, small-cap, mid-cap, large-cap) and dive deep into research. Practice through simulated trading and accumulate capital through Web3 side hustles like web development, community management, or graphic design.
Step 3: Start Trading with Savings Capital
Once you have confidence in your trading skills and have accumulated some capital, start investing gradually. On Ethereum, one ETH is enough if you can accurately spot opportunities. Be selective in your trades, strictly aim for profits, and set quick stop losses.
Step 4: Engage in Long-Term Investments
After building a solid investment portfolio, allocate a considerable portion of your funds to long-term projects you believe in. Hold onto these projects until your conviction weakens. Even achieving 3-5x returns on a significant portion of your portfolio is substantial. While small investments in high-risk projects can bring significant returns, the goal is to follow rational principles.
Trading with a portfolio size below 5 digits
If you have a portfolio size below five digits, follow the same strategy as a portfolio below four digits but reduce the position size for each trade to 10-15%. Be extremely selective. With this capital, you can comfortably engage in chart trading, buying at support levels and selling at resistance levels for major upward-moving coins. As you approach a higher five-digit portfolio, focus more on chart trading and closely monitor trading volumes.
Trading with a portfolio size below 6 digits
Maintaining and expanding a six-digit portfolio is challenging. Your goal is to protect profits and deploy capital in valuable opportunities. The journey to a seven-digit portfolio will be slow and requires commitment to the long-term process. If you can get in early, consider investing in new major upward-moving coins. Compare holder count/market cap with recent outperforming coins and see if most people on Twitter are paying attention to it.
Risk Management: How to Manage Trading Risks
1. Set stop-loss conditions for each trade:
Identify and mark major support levels on charts. If the price touches these levels, exit the trade promptly and move on.
Avoid assets depreciating to zero. If the trade doesn’t go as expected, exit in a timely manner.
Invalid conditions can occur due to various factors such as declining trading volume, loss of major support levels, or reasonable FUD (fear, uncertainty, doubt).
2. Plan exits in advance:
Before entering a trade, determine in advance where you will exit if the trade doesn’t go according to plan.
Consider setting stop losses for old coins based on your goals and risk tolerance. For new and highly volatile coins, you can adopt a “10x or bust” strategy.
3. Monitor hype and sentiment:
For meme tokens, pay attention to hype and market sentiment on Telegram and Twitter.
Evaluate the overall market sentiment, especially for major coins and their derivatives. If major coins experience a downturn, related coins may experience even sharper declines.
4. Evaluate utility coins:
For utility coins, monitor the dynamics of the development team and ensure they continue to release updates.
Look for upcoming catalysts that the market hasn’t priced in yet.
Examples of Poor Risk Management:
Holding assets without taking profits in a timely manner, resulting in a significant paper gain turning into a loss.
Here are some specific examples:
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Loss of $4 million in gains.
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A whale selling $JUP for $BODEN at a peak, losing 98% and turning $8 million into $85,000.
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Taking a step back can give you a more comprehensive view.
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Turning $9 into $40,000 and then dropping to around $1,600.
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Elon Musk temporarily changing his Twitter profile picture to lasers. Although it was a powerful catalyst, the price quickly dropped when he changed his profile picture again. Things change very quickly, and often, if you don’t take profits beforehand, you can’t hedge at the optimal time.
Psychological Framework and Self-Questioning
1. Reduce risk during significant price volatility:
Take profits in significant price fluctuations to reduce overall risk.
Ask yourself if the coin is known for pump and dump schemes when people talk about it.
2. Identify the reasons for the coin’s rise:
Identify the reasons behind the coin’s rise. Is it purely speculative, or is it related to developers of previously successful projects?
Recognize that peaks are often marked by widespread hype or significant events like listing on Binance.
If you feel excited and start taking screenshots, it may be a signal to sell.
3. Incremental profits:
Regularly taking profits is crucial. It’s important to focus on the actual retained profits, not just paper gains.
Sample strategy: Sell 25% when you have gained 3-4x to cover your initial investment, then sell another 25% at every 2-3x gain.
Keep 10-20% as a “moon bag” to maintain an investment and avoid regrets after selling.
Useful Principles
1. Learn from mistakes:
Firsthand experience is the best teacher in trading. Lessons learned from losses are invaluable.
Advice about taking profits or checking contract addresses may not resonate fully until you make mistakes.
The pain from mistakes will serve as powerful warnings in the future.
2. Value in simplicity:
Simple things are often overlooked because they don’t seem complex enough.
Observe the largest fluctuations during market rebounds to understand the most attention-grabbing directions.
For example, dollar-cost averaging into the outperforming $MOG in June and July 2024 showed consistent excellent performance.
Identify holdings that underperform during market rebounds to adjust your focus.
3. Avoid overtrading:
Overtrading slowly depletes your investment portfolio. Frequent position changes reduce clarity of thought.
Maintain discipline: Do your research, establish beliefs, choose positions, and stick to them.
4. Learn to love selling:
Selling is psychologically harder than buying because you fear missing out on significant gains.
Consistent profits often provide more returns than expecting unlikely 100x returns.
Every day you hold one position, you actually choose it over other potential opportunities.
5. Stable returns triumph big wins:
Strive for multiple 3-5x returns instead of expecting 100x returns.
Scenario #1: Holding out for 10-100x returns often leads to missing out on smaller but more stable profits.
Scenario #2: Consistent 3-5x returns over time can compound significantly.
6. Avoid re-entering profitable trades:
After gaining 2-4x returns, close the position and wait for a pullback before considering re-entry.
The excitement after a win can lead to overconfidence and confirmation bias, increasing the risk of losses.
Removing the trade from your watchlist after closing helps avoid emotional re-entry.
7. Be cautious of trusting your emotions:
In cryptocurrency, the right decisions often feel wrong. Selling during hype phases or buying during pullbacks may be counterintuitive but can be profitable.
Recognize that emotions like excitement and fear can mislead you, so make decisions based on rational analysis.
This article is a collaborative reprint from:
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