Review of Short Positions Before and After the Tariff Policy Release

Previously, in (Historical Patterns During U.S. Stock and BTC Declines - Second Quarter Forecast), I set a target range for the decline of U.S. stocks (-12.5%—-16%) along with three main reasons. The decline was primarily due to several factors, and U.S. stocks eventually fell to the third target of -20% in early April due to tariff pullbacks. Originally, it was expected that -20% would only be achieved after a rebound when the negative impact of tariffs was fully realized, but in reality, the market's concerns about recession due to unexpected high tariffs from China led to early safe-haven behavior. After the implementation of tariffs, BTC also showed a phase of strength, with a decline ratio of only 1:2, not reaching 1:3, but the trend direction and the completion level of the short-selling strategy were quite satisfactory.

I generally do not chase tails in trading; extreme over-exuberance or extreme downturns in the face of unexpected events are normal. I focus only on the parts of the strategy that have the highest certainty of profit, usually targeting the first and second profit levels, while the third target level belongs to the category of extreme over-exuberance or extreme downturn, which presents opportunities but also has the nature of 'betting on certain possibilities.'

The reason for the bearish outlook after the new year: The favorable conditions following Trump's election are fully realized. By January 14 to January 20, the U.S. stock market has already reached a new high due to expectations from the inaugural speech policy. After the inaugural speech, the favorable conditions are exhausted, and expectations for tax cuts fall short. At the same time, economic data shows that CPI will start to rise from December 2024, with the unemployment rate rising from 4.25% to 4.36% in December, marking the third consecutive month of increase. At the beginning of 2025, GDP growth will begin to be revised downwards. Due to the increase in CPI, market expectations for interest rate cuts are also starting to be adjusted downwards. Meanwhile, Trump's focus on policy implementation is first on trade and then on tax cuts, raising market concerns about economic recession due to tariffs. Additionally, the U.S. stock market has been in a high oscillation range for two months at the technical monthly cycle target.

The choice of shorting targets mainly includes LTC/ADA/XRP/CAKE/ATOM.

1. The principle for choosing LTC is that the ETF advantages cannot drive up the price + the token's fundamentals are relatively weak: LTC's fundamentals are weak, and the positive response and price increase triggered by the ETF application news are minimal. Under the catalyst of the ETF event, LTC performed relatively poorly compared to other public chains in the sector. At the same time, LTC's technical position has reached its upward target, making the shorting risk-reward ratio very high. Therefore, in early February, I initiated a small exploratory short position before reaching the previous high, and then opened a short position again at the 88.6 position of the golden ratio at the previous high, until the phase target of 97 was reached for profit-taking.

2. The principle for choosing ADA/XRP is the oversold space of overheated tokens in a weak sector: This is based on the big public chain sector led by XRP from November 2024 to January 2025, with ADA, LTC, and EOS taking turns leading the sector, showing stronger growth than all other sectors. In January, apart from the SOL ecosystem due to the narrative of Trump's token issuance, other public chains ranked second in overall growth. However, upon observing the comparison of daily price movements of altcoins and BTC, it was found that this sector began to show significant weaknesses from February 2025, with large market movements not leading to similar movements in this sector. Given the cyclical nature of the market, each sector experienced significant over-exuberance before the next wave of BTC's large cycle decline, indicating a greater certainty of falling trends and spaces. Therefore, after the White House's crypto meeting on March 8 showed no significant positive news, I directly entered short positions on XRP and ADA, as the observed decline space compared to BTC was 1:3. However, since ADA and XRP are large-cap tokens, their declines were limited during this round of BTC's drop to 78,000 at the end of February. Therefore, I adjusted my stop-loss positions and continued the process of opening short positions and moving the stop-loss until April when the corresponding tariff policies were implemented.

3. The principle for choosing CAKE is that the extreme over-exuberance of a token driven by short-term narratives results in significant downside potential after the narrative ends: In the first week of February, all tokens in the sector fell by about -10%, while the BNB sector rose independently, with CAKE having the highest increase at +5.35%. In the second week of February, other tokens in the sector had growth rates between 2%-8%, with the BNB ecosystem remaining the leading sector, and CAKE showing an increase of +58.81%. The narrative surrounding BNB was a short-term advantage that could not be sustained, so I chose to short CAKE, employing a strategy of testing first followed by staged profit-taking, until the corresponding tariff policies were implemented in April.

4. The principle for choosing ATOM is to select the weakest token in a weak sector: The modular public chain sector from September 2024 to January 2025 is considered an overheated sector. SUI has continuously reached new highs with a growth rate of 650%, leading the entire sector to be very strong among all sectors. However, ATOM, being an older token in this sector, performed the weakest when other tokens were rising.