(OK Wallet shows APR 1000% + earnings, actual tested earnings are less than 5%, there are images later as proof)
Before discussing this, let me share my LP. Yesterday I saw many people hotly debating about OK providing liquidity to Binance Alpha, and even conspiracy theories arose. I couldn't help but chuckle. In fact, Pancake has always had an LP pool for the Alpha currency, and those who know how to play have been doing so for a while.
Let me briefly explain what this liquidity pool is about, and I'll also write down the most important points at the end of the article to educate friends who have not used it or have no trading background (this article will not discuss impermanent loss IL, those who understand know, those who don't can search casually), to avoid pitfalls.
Simply put: An LP pool is a trading pair consisting of two currencies, selecting a price range, continuously selling to buyers and buying from sellers, thereby earning transaction fees. The principle is very similar to grid orders on exchanges. Therefore, if you do not manage your orders well (yes, it is the same as making contracts, both are about placing orders), you not only won't make money, but you may also lose your principal (if the currency goes to zero, you will lose all your principal, remember).
There are many ways to play LP, today I will just talk about the viewpoint of forming LP with Alpha currency:
We who trade Alpha rarely buy and hold Alpha for the long term, so most people when forming LP will first exchange USDT, USDC, BNB for counterpart assets like ZKJ, B, MERL, etc., and then form LP waiting for annualized returns.
In fact, this is you making a spot purchase action. Therefore, if your buying position is incorrect, you may very likely watch your account incur losses for a long time.
The correct (or relatively correct) approach is to first determine the price range. If you are using OK Wallet, you can have clearer charts to observe. After determining this price range, then reduce the time price to look for entry positions (for example, support areas on the 4-hour level, key moving average breakouts and retests on the 15-minute level) to find low-risk betting positions. Buy spot on the level pullback, and then immediately form an LP to start working.
Currency selection: Choose popular currencies, do not select obscure assets, and do not randomly buy just because their annualized return is high; this is likely to cause problems. We should choose assets with high trading volume, volatility, and in an upward trend (at least you can see higher lows and higher highs) to trade.
Fee selection and slippage settings: The logic of opening LP on OK Wallet and Pancake is the same, but the interface on OK looks simpler. I have marked below where the actual approximate annualized return of this order is. 'Do not look at the homepage that says 1000%+'!!! The so-called approximate annualized return you enjoy is determined by the price range you set, the fee rate of this LP pool, and the hourly trading volume. For example, for this ZKJ, you might think it has a large trading volume, but just look at the chart below to see what its annualized return really is.
Comparing the two images, you can roughly understand that this so-called annualized return depends on how large your risk exposure is. The narrower the range, the higher the profit, of course, as long as it falls out of or rises out of your range, your LP becomes invalid, yielding 0 profit.
I will use my opened order as an explanation. First, I believe B is in an upward process. Today it retraced and tested the 4-hour EMA21, showing signs of stabilizing. So I take this as my entry position, buying spot. The lower edge of my defined price range is the vacuum area after the last consolidation zone rises, and the upper edge is the previous high. The purchase was made at the red circle position. What will happen next, I do not know, but I know the market is either 📈 or 📉.
So my strategy is: 1. If the price continues to consolidate and oscillate within this range, earn transaction fees, 2. If it breaks above the range, take profit and exit, 3. If it falls below the 4-hour EMA21, cut losses and exit, it's that simple.
To summarize, what we need to do when forming LP is: First, find a suitable LP pool with appropriate fees, second, analyze to find a reasonable price range, third, buy at relatively low-risk and high win-rate positions to start the strategy, fourth, strictly implement profit-taking and stop-loss.
Lastly, forming a pool requires monitoring; you cannot just throw money in without care. At the very least, you should look at the 4-hour chart to judge the major trend!
(Personal opinion, it's subjective, everyone is welcome to discuss and write down their own methods 🙏)