Clarify risk tolerance
The cryptocurrency market is filled with uncertainty and high volatility, and it is crucial to clarify one's risk tolerance.
It is not uncommon for prices to double or be cut in half within a day.
If investors do not have a clear understanding of their risk tolerance and invest large amounts of capital, and the market suddenly deteriorates, such as panic in the market due to negative news leading to a price drop, investors may suffer heavy losses, even becoming despondent and exiting the market.
Clarifying risk tolerance helps investors formulate investment strategies that match their own circumstances.
Investors with strong risk tolerance can allocate a higher proportion of high-risk cryptocurrency assets in their investment portfolio for higher returns.
Investors with low risk tolerance should focus on conservative strategies or control the overall investment scale to protect asset safety.
Use funds wisely
Do not concentrate all funds in the cryptocurrency market,
Also do not use essential living funds,
Also, do not use credit borrowing to obtain principal.
It is recommended to invest a certain percentage of idle funds, such as 10% - 20%, into the cryptocurrency market based on one's financial situation.
There is no need to concentrate investments in one asset; diversify investments across different types and market capitalizations of trading assets, for example, 60% in mainstream coins and 40% in potentially promising emerging coins.
For different trading markets, such as cryptocurrency spot, perpetual contracts (be mindful of risks), and derivatives (options, futures), one can also formulate a suitable fund allocation strategy.
Make a plan
Before trading,
A detailed trading plan needs to be established, clearly defining the conditions for trading decisions (buying, selling) in advance.
Specifically, it means,
Within a certain price range, plan how many trades to make, how much capital to spend on each trade, and the specific points at which to buy. After purchasing, what is the overall holding cost point, at which points can it be sold, how much quantity to sell, and what profit is expected.
For example, plan to spend 10,000 U in the price range of BTC 90,000 ~ 110,000.
When the price drops to support levels of 92,000, 96,000, 98,000, and 99,000, buy in with 500 U for each trade. After each purchase, sell when overall profit reaches 20% of the cost, and repeat this process.
Control profits and losses
Stop-loss is key to controlling losses, while profit-taking can lock in earnings.
The cryptocurrency market is highly volatile and changes rapidly, with investors often facing extreme price fluctuations and emotional disturbances. Controlling profits and losses is not only a tool for avoiding risks but also an important factor in maintaining rational decision-making.
Many investors tend to exit too early or chase high prices due to changes in short-term profits and losses during market fluctuations, ultimately deviating from their original strategies.
Setting clear stop-loss and target profit levels helps define a reasonable profit and loss range in advance, avoiding impulsive decisions.
Controlling profits and losses is also an important way to optimize trading psychology.
Once the profit and loss boundaries are clearly defined for each trade, there is no need to hesitate or regret repeatedly. This rational operation reduces psychological pressure, allowing investors to focus on executing strategies and analyzing the market.
Multiple channels, multiple types of information
Single-channel information is relatively one-sided, while multiple channels can comprehensively assess project potential. Different channels have their own advantages and disadvantages; combining them can balance real-time hotspots and macro trends. For example:
Authoritative reports: Industry analysis reports published by professional institutions or media (e.g., CoinDesk, The Block, CryptoSlate).
On-chain data analysis: changes in the number of active addresses, abnormal trading frequency, large transactions, whale dynamics, holding distribution, etc.;
Fundamental information: project team, financing amount, roadmap, token economics, competitive landscape, ecological distribution, etc.;
Derivatives data: the number of open contracts for futures and options, long-short ratios, large option expirations, etc.;
Macroeconomic dynamics: inflation data, Federal Reserve interest rate hike expectations, political elections, geopolitical factors, etc.
Verify information
The cryptocurrency market is full of mixed information that is difficult to distinguish between true and false. For news heard, it should be verified through multiple reliable channels.
For example, for favorable news about a particular asset, one should not only rely on content published by the project’s official website or a single social media platform but also consult authoritative industry media, professional forum discussions, and regulatory agency dynamics.
Taking the recent $BARRON as an example, many people bought 'fake' $BARRON, resulting in the asset dropping to zero in a second, causing losses. If the contract address had been verified before purchase, such situations could have been avoided.
At the same time, many projects exaggerate their technology, application scenarios, and development prospects. Rational analysis is necessary to avoid being misled by overly high promises and exaggerated promotions. For instance, some projects claim to achieve extremely high returns with no risks; such promotions that obviously violate market rules should be approached with caution.
Rationality > Greed/Fear
Do not act impulsively due to short-term market fluctuations or the trading behavior of others. Avoid making impulsive decisions based on the 'herd effect', and instead act based on one's own analysis and trading plan.
Greed may lead investors to have overly high expectations during price increases,
Thus missing out on profit-taking opportunities. Fear may cause panic during price drops, leading to incorrect sell decisions.
When executing a trading plan, remain calm and face market fluctuations with a rational attitude, avoiding emotional factors like FOMO.
When prices rise, do not add to investments out of greed; operate according to the established profit-taking plan.
When prices plummet, do not be swayed by fear; instead, analyze the reasons for the drop and determine if it is a temporary fluctuation or a trend reversal before deciding whether to exit.
Long-term or Short-term
Long-term strategies aim to deeply explore promising cryptocurrency projects, becoming friends with time and patiently accumulating value.
Taking long-term investments in Bitcoin as an example, this strategy is not swayed by short-term price fluctuations and is suitable for those seeking stable asset appreciation with relatively low risk tolerance. They focus on the long-term development trend of the cryptocurrency market, firmly believing that the value of quality projects will ultimately be revealed over time.
Short-term strategies focus on capturing short-term price fluctuations, profiting through quick in-and-out trades. For example, investors closely monitor market news, and once favorable or unfavorable news is released, they quickly analyze its impact on prices and make trading decisions. This requires higher technical analysis skills, market sensitivity, and adaptability from investors, making it more suitable for experienced investors who can bear higher risks and have ample time and energy to monitor the market (or engage in quantitative trading).
When choosing strategies, investors need to comprehensively consider their investment goals and risk tolerance to find the most suitable investment path.
Control trading frequency
Controlling trading frequency is an important principle that investors must adhere to.
Market trends are like turbulent rivers, difficult to predict accurately. If investors trade frequently, they are easily swayed by short-term market fluctuations, making impulsive and erroneous decisions.
Every trade is accompanied by costs such as fees; frequent operations will undoubtedly accumulate these costs, eroding the profits that are already difficult to obtain.
At the same time, over-trading significantly increases investment risks; the more trades executed, the higher the probability of making mistakes.
Investors should strive to restrain the impulse for frequent operations and maintain sufficient patience to wait for genuine trading opportunities.
For example, one could set a daily trading limit, such as restricting daily trades to no more than 3 times, to constrain trading behavior. Thus, only making trades with full confidence can effectively avoid blindly entering and exiting the market frequently, preventing losses and avoiding missing long-term investment benefits due to short-sightedness.
Regular reviews and adjustments
Regular reviews and adjustments are indispensable navigation tools for investors.
Regular reviews are a core part of optimizing trading strategies.
By meticulously reviewing trading records, deeply analyze the entry and exit timing of each trade, as well as the decision-making basis behind them. For example, reflect on a certain trade and consider why the entry was made at a specific price, and whether it was based on a technical indicator's crossover signal or driven by market news.
In successful trades, summarize effective judgment methods and operational techniques, such as accurately capturing rebound signals at key support levels for profit;
In failed trades, reflect on the root causes of errors; perhaps it was ignoring significant policy risks that led to losses.
The market is always changing; when the original strategy no longer aligns with market rhythms and the success rate drops significantly, one can consider adjusting their strategy based on review results. If the overall market trend is clearly downward, one can appropriately reduce positions while optimizing selling points to avoid profit loss.
Avoid excessive leverage
Avoiding excessive leverage is a key point to ensure the safety of investor assets and steady development.
Leverage can amplify returns but is a double-edged sword that also magnifies risks. Investors must have a clear understanding of their risk tolerance and plan the leverage ratio accordingly. If the market trend contradicts expectations, the losses from leverage will far exceed the principal.
For inexperienced novice investors, the complexity and uncertainty of the market are like navigating through waters filled with reefs. Starting with low leverage is a wise move. Even if the market experiences a certain degree of reverse fluctuation, one will not instantly lose everything.
In unclear market trends, where bulls and bears are at a stalemate, one should avoid using leverage as much as possible. At this time, prioritizing the safety of the principal is the path to long-term investment. Do not blindly pursue high profits from high leverage out of momentary greed; otherwise, with a slight misstep, one may suffer losses, fall into investment difficulties, or even lose the capital to continue trading.
Fund safety
Choosing safe and reliable cryptocurrency wallets, CEX (centralized exchanges), and DEX (decentralized exchanges) is fundamental. Quality platforms undergo professional audits and have sound security mechanisms, which can reduce the risk of asset theft.
Set a strong password and enable two-factor authentication to add another layer of security to the account. A strong password should include uppercase and lowercase letters, numbers, and special characters, making it difficult to crack; two-factor authentication requires users to provide a second verification method, such as a mobile verification code or Google Authenticator, making it difficult to steal the account even if the password is leaked.
Regularly back up wallet data, keys, and mnemonics properly to prevent loss due to device damage or loss. Offline storage methods can be used, such as writing on paper and keeping it in a safe place or using hardware wallets for backup.
In addition, do not use projects that require API access with transfer permissions, as such projects may hide risks; once the API is leaked, assets can be easily transferred away, resulting in irreparable losses.