The cryptocurrency market is like life, a game from 0 to 10; every trade and failure is an accumulation of experience. As the saying goes, 'You learn as long as you live.' Only by recognizing your own shortcomings can you go further. I, Lao Chen, am willing to share the detours and experiences I've taken, just hoping that everyone can take fewer detours!
As usual, these ten iron laws will be shared below for everyone's convenience to save and understand!
Investing in cryptocurrencies should only be within your range of understanding! Be patient! Take profit when it's good! Never go all in! These seven iron laws are all very important. If they provide you with direction or help in the investment market, or inspire you!
Three things you must not do in crypto trading:
1. Don't chase prices; learn to operate in reverse.
Many people always think about 'chasing hot spots', rushing in when they see prices rising, and end up getting stuck. Remember: be fearful when others are greedy, and be greedy when others are fearful. A price drop might actually be a good opportunity to pick up bargains, so develop the habit of buying at low points.
2. Leverage is a double-edged sword, use it with caution!
Leverage can amplify returns but can also lead to instant liquidation. For example: using 10x leverage to buy 10,000, if the price drops by 10%, it goes directly to zero. Instead of thinking about 'getting rich overnight', it's better to practice with your own funds first, and once you have experience, then use leverage cautiously.
3. Never go all-in.
Putting all your funds on a single trade leaves no escape once the direction is wrong. The market will always present new opportunities, and the cost of going all-in may be much higher than you think—like missing out on other potential profit points.
What is the biggest detour you've taken in trading?
After so many years of trading, if I were to say what my biggest detour was, it would be that when I first started learning trading, I focused on studying fundamentals. At that time, I would follow news hotspots and check company financial reports, and the result was continuous losses until I lost about the price of a Xiaomi SU7 and could no longer bear it, slowly starting to learn technical analysis, gradually recovering my losses and making a profit.
Of course, I'm not suggesting that technical analysis is better than fundamentals, but after losing so much, I found that as a retail investor, I am more suited to focus on technical analysis.
1: Disadvantages of fundamentals.
1. For those without a formal finance background, it's too difficult; the areas to research and study are too broad.
Because focusing on fundamentals requires a lot of effort to research! We all know that the rise and fall of a stock depends on the development of the company and the industry outlook, so how do we understand these? Through financial statements.
How should we look at this? We need to look at net profit attributable to the parent company, net profit after deducting fees, return on equity...
However, just because you're making money now doesn't mean you will always make money in the future, so we need to consider what the company's business model is, right? Is it profit-driven or leverage-driven...
If all this data looks good, can we buy with peace of mind? Not necessarily, because who knows if it's regular income or not? So we also need to consider macro information like national policy and international situation.
Of course, what I've said above is just the tip of the iceberg, so fundamentals are too difficult for ordinary people. The areas that need to be researched and learned are too broad, and even if you are trained in finance, without several years of industry experience, you wouldn’t dare claim to have fully understood fundamentals.
2. It's impossible to closely understand insider information and resources.
However, if the fundamentals are just a lot of things to learn and are messy, then it wouldn't be the biggest detour in my trading career. It was only after getting to know a friend in a private equity fund that I realized the essence of fundamentals. Wanting to make money through fundamentals, simply put, is about exploiting information asymmetry, but the essence of information asymmetry is that the more people who know, the less useful it is, so truly firsthand information is something ordinary people simply can't access, and don't fantasize about a blind cat stumbling upon a dead mouse.
Our ancestors had a saying: 'Make money quietly', and the West has a similar saying: 'Be smarter than them, but don't let them know.' You ponder that.
If you really knew of an opportunity to make a lot of money, would you come and tell me? Would you announce it to the world? No, at most you'd only tell your closest relatives, friends who you have a deep bond with, or simply keep it to yourself. It's not just you who would do this; I would too, everyone would. So why would you believe the information you see in a free WeChat group?
3. It is impossible to experience all the products of every promising stock company.
Don't always bring up Buffett when talking about stock trading, saying how Buffett does this and that. Buffett said: he only invests in what he understands. What does it mean to understand?
Just because I believe in SpaceX doesn't mean I should go buy a rocket, right? Just because I believe in the semiconductor industry doesn't mean I should buy a pile of semiconductors to throw in my house, right? Just because I believe in the sanitary napkin industry, a big guy like me wouldn't buy sanitary napkins for personal use, right? ...
Moreover, the research I conducted myself is completely minor compared to that of institutions. They started using satellite maps early on to analyze parking lot traffic to estimate supermarket profit reports, and can deploy drones to photograph oil tank inventories daily to predict oil prices. These are resources only people like Buffett can mobilize, so it's not very meaningful for ordinary people to reference his words for investment.
What Buffett says is only correct for Buffett. The same goes for value investing. I want to be a friend of time, and I want to be a friend of value, but how many small investors in the market have the ability to go all-in with a large sum of money and just let it sit for years without a care, let alone bear the consequences of investment failure?
So fundamentally, the practical application of fundamentals is too weak for ordinary people. Please remember this: fundamentals should not be used for trading, only to set direction!
This is why I gave up on fundamentals and chose technical analysis.
2: Advantages and disadvantages of technical analysis.
Because technical analysis is very practical for ordinary people, I don't care what battles are happening in the east or fires are breaking out in the west, I don't care if there's a meeting today or a fight tomorrow, I don't care if there's a tweet today or a divorce tomorrow... Who cares!
No matter what causes the market changes, it will definitely be displayed on the K-line chart immediately, and what I need to do is enhance my ability to read K-lines and understand the secrets behind K-lines.
The technical aspect can tell me that when a certain engulfing pattern appears, I can immediately profit after entering the market. Can the fundamentals do that?
The technical aspect can tell me that when the price breaks below the engulfing pattern's bottom, I can immediately stop loss and exit. What does it matter where it drops next? What 3000-point defense line, what national team entering the market, I’m done! Who cares!
The technical aspect can tell me what patterns indicate the main force is accumulating, what patterns indicate the main force is unloading; can fundamentals do that?
......
So is technical analysis 100% better than fundamentals? Of course not!
To give an extreme example, in the current environment, although AI is trending positively, if you don't engage with AI and instead rely on your technical analysis skills, insisting on focusing your trading on the real estate sector, that's not a matter of whether it can be done or not, it's a matter of whether it's foolish or not. Do you think you can find good real estate stocks? Maybe, but there's no need to! We don't have to twist our arms to make things happen! There's no need to go against the odds like using eggs to hit stones!
So, adults don't differentiate between right and wrong, good and bad, but discuss pros and cons. Since fundamentals and technical analysis solve different problems in trading, we shouldn't argue like children about who is better, but rather find ways to complement each other. Fundamentals determine the big direction, while technical analysis handles specific trades. For example, I currently focus on technical analysis, but I still look at macro information that significantly impacts the market to determine the big direction of trading. This is what is meant by 'focusing on fundamentals for direction, applying technical analysis for action'. So how do we focus on fundamentals? Do we need to learn how to read financial reports? What’s the P/E ratio? Net profit attributable to the parent company, net profit after deducting fees, return on equity... Actually, it's not necessary at all!
I am Ah Yue, focusing on analysis and teaching, a mentor and friend on your investment journey! I hope everyone investing in the market can have a smooth journey. As an analyst, the most basic duty is to help everyone make money. I will help you with confusion, position management, and operational advice, and let my abilities speak for themselves. When you lose your direction and don't know what to do, look to Ah Yue (homepage) for guidance.
