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8 things to think about in crypto to improve your probability of making money
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1. Crypto is a game of probabilities, but most people treat it as gambling.
Let’s do a very simplified excersize to illustrate how you can get +EV (positive expected value) on your bets.
Let’s do a very simplified excersize to illustrate how you can get +EV (positive expected value) on your bets.
Think about $BTC long-term and let’s make 4 scenarios:
I. $BTC will reach new ATH this year
II. $BTC will continue sideways in 2022, but make ATH in 2023
III. $BTC has played it’s role, it will go down and stay there
IV. $BTC will go lower this year, but make ATH in 2023
I. $BTC will reach new ATH this year
II. $BTC will continue sideways in 2022, but make ATH in 2023
III. $BTC has played it’s role, it will go down and stay there
IV. $BTC will go lower this year, but make ATH in 2023
Now, let’s make some probabilities for each outcome:
I. Probability: 20%
II. Probability: 40%
III. Probability: 20%
III. Probability: 20%
I. Probability: 20%
II. Probability: 40%
III. Probability: 20%
III. Probability: 20%
$BTC is sitting at $42K at the moment.
What would be the best trade right now given the 4 scenarios?
I. Buy
II. Buy
III. Sell
IV. Buy
Buying is the best outcome in 80% of the scenarios.
What would be the best trade right now given the 4 scenarios?
I. Buy
II. Buy
III. Sell
IV. Buy
Buying is the best outcome in 80% of the scenarios.
I. 20% probability for a 65%+ upside
II. 40% probability for more than 65% upside long-term
III. 20% probability that $BTC will never come back
IV. 20% probability that we will lose money short-term, 65%+ upside for making money long-term.
II. 40% probability for more than 65% upside long-term
III. 20% probability that $BTC will never come back
IV. 20% probability that we will lose money short-term, 65%+ upside for making money long-term.
For III you could make an invalidation point of let’s say 30%. In other words, you sell if $BTC goes below $29,5K
Summarized, you have a 80% probability of a 65%+ outcome, and a 20% probability of a 30% loss.
Worth the risk, right?
This was a very simplified example.
Summarized, you have a 80% probability of a 65%+ outcome, and a 20% probability of a 30% loss.
Worth the risk, right?
This was a very simplified example.
You might disagree with the scenarios and the probabilities, I just wanted to show how you could think in bets.
If you want to learn more about this, check out this great Substack-article by @cobie which inspired me: https://cobie.substack.com/p/probabilistic-thinking?s=r
If you want to learn more about this, check out this great Substack-article by @cobie which inspired me: https://cobie.substack.com/p/probabilistic-thinking?s=r
2. How can you use probabilistic thinking?
Remember that the market can stay irrational longer than you can stay solvent. And in crypto anything can happen.
That’s why you want to have hard rules with yourself.
An example on some hard rules for when to trade $LUNA (long):
Remember that the market can stay irrational longer than you can stay solvent. And in crypto anything can happen.
That’s why you want to have hard rules with yourself.
An example on some hard rules for when to trade $LUNA (long):
- $BTC trending sideways/upwards
- $UST market cap is increasing
- Anchor yield reserve positive
- Anchor Protocol TVL increasing (in general track everything going on with Anchor because over 70% of $UST mcap sits there)
- Momentum (new protocols, more users, bullish news etc.)
- $UST market cap is increasing
- Anchor yield reserve positive
- Anchor Protocol TVL increasing (in general track everything going on with Anchor because over 70% of $UST mcap sits there)
- Momentum (new protocols, more users, bullish news etc.)
-Techincal analysis looks good on higher timeframes (4H, 1D, 1W)
Personally I think as long as the 6 factors above is in place, $LUNA has a good risk/reward.
In simple terms: $UST mcap up = $LUNA price up. https://twitter.com/Route2FI/status/1502267325805957125?s=20
Personally I think as long as the 6 factors above is in place, $LUNA has a good risk/reward.
In simple terms: $UST mcap up = $LUNA price up. https://twitter.com/Route2FI/status/1502267325805957125?s=20
3. Position size - don’t bet more than you can lose
You want to bet when you have the odds in your favor. But even +EV bets can end up losing.
It’s all about survival.
That’s why you should stop loss and never risk more than 1-3% on each trade.
You want to bet when you have the odds in your favor. But even +EV bets can end up losing.
It’s all about survival.
That’s why you should stop loss and never risk more than 1-3% on each trade.
Example:
Total portfolio: $10,000
2% risk per trade. 7% stop loss.
Position size: (10,000 x 0.02) / 0.07 = $2,857
This bet equals 28,5% of your portfolio, but since you have a stop loss on 7%, it means that you can’t lose more than $200, which is 2% of your total portfolio.
Total portfolio: $10,000
2% risk per trade. 7% stop loss.
Position size: (10,000 x 0.02) / 0.07 = $2,857
This bet equals 28,5% of your portfolio, but since you have a stop loss on 7%, it means that you can’t lose more than $200, which is 2% of your total portfolio.
Position size and stop loss is so important in trading. If you overbet your bankroll, there is sooner or later a moment where you’ll blow up your account.
You can learn more about risk management by watching this video from @cryptocred:
You can learn more about risk management by watching this video from @cryptocred:
4. What’s your advantage?
If you try to be a master of everything, you will be the master of nothing.
You need to find your niche.
-What are you mostly interested in? Trading, NFTs or DeFi?
If you try to be a master of everything, you will be the master of nothing.
You need to find your niche.
-What are you mostly interested in? Trading, NFTs or DeFi?
But even trading is too big. Microcaps, small caps, L1, top 100 only etc., what about time frames? Swing-trading, scalper…
For NFTs, which ecosystem will you focus on? I literally spent days on http://rarity.tools checking floor prices and making analysis.
For NFTs, which ecosystem will you focus on? I literally spent days on http://rarity.tools checking floor prices and making analysis.
For DeFi, what are your specialities? It’s too much to stay up to date on all L1’s
Are you a smart money wallet watcher, low cap gem finder, seeing trends in NFTs before others, scalping specialist, a yield farmooor?
Double down on your strengths instead of learning everything
Are you a smart money wallet watcher, low cap gem finder, seeing trends in NFTs before others, scalping specialist, a yield farmooor?
Double down on your strengths instead of learning everything
5. Being able to admit you are wrong, and stop, is a huge part of being succesfull in crypto.
Doesn’t matter if it’s trading, NFTs or DeFi, before you buy you need a thesis and an invalidation point.
Ask yourself, “What if I’m wrong?”
Doesn’t matter if it’s trading, NFTs or DeFi, before you buy you need a thesis and an invalidation point.
Ask yourself, “What if I’m wrong?”
Example:
Buying $AVAX at $79.
Invalidation thesis could be if something fundamental changes with the ecosystem, and a price invalidation could be eg. a 10% stop loss.
Buying $AVAX at $79.
Invalidation thesis could be if something fundamental changes with the ecosystem, and a price invalidation could be eg. a 10% stop loss.
The reason why I write this is because it’s way harder to get emotional about a bet than you think.
How often haven’t you told yourself to sell at a certain price, but then said: “If it falls 5% more, then I will sell”. And then 5%...
Respect your rules.
How often haven’t you told yourself to sell at a certain price, but then said: “If it falls 5% more, then I will sell”. And then 5%...
Respect your rules.
6. Echo chambers
If you spend long enough time on crypto Twitter you will see that there are lots of sub-communities.
$ETH-maxis, $LUNA-tics, $FTM-degens, $ATOM-believers, etc.
While I definitely think you should join one or several of the 100s of communities, always...
If you spend long enough time on crypto Twitter you will see that there are lots of sub-communities.
$ETH-maxis, $LUNA-tics, $FTM-degens, $ATOM-believers, etc.
While I definitely think you should join one or several of the 100s of communities, always...
be critical.
Don’t swallow information without making up your own opinion.
In the end it’s always PvP (player vs. player).
Even if you feel like you're a part of a big community on crypto Twitter, you're all alone.
Don’t assume anyone has your best interests in mind.
Don’t swallow information without making up your own opinion.
In the end it’s always PvP (player vs. player).
Even if you feel like you're a part of a big community on crypto Twitter, you're all alone.
Don’t assume anyone has your best interests in mind.
7. Patience
You don’t have to be in the market at all times. You can farm stables or sit in cash.
Instead of always having to be in a trade, let the trade come to you.
Try to wait for the big crashes and the generational buying opportunities...
You don’t have to be in the market at all times. You can farm stables or sit in cash.
Instead of always having to be in a trade, let the trade come to you.
Try to wait for the big crashes and the generational buying opportunities...
to swing for the fences (easier said than done).
My point here is, wait for a good setup for the trade.
During a downtrend don’t try to catch every knife.
Remember, most of the top 100 coins will not be here in 4 years.
My point here is, wait for a good setup for the trade.
During a downtrend don’t try to catch every knife.
Remember, most of the top 100 coins will not be here in 4 years.
8. Some DeFi-tips
-Check http://coindix.com for yield (they don’t have everything there), supplement with http://defiLlama.com
-Unless you’re very experienced (micro-cap huntooors), stick with staking/yield-farms with high TVL
-Check http://coindix.com for yield (they don’t have everything there), supplement with http://defiLlama.com
-Unless you’re very experienced (micro-cap huntooors), stick with staking/yield-farms with high TVL
-If you use leverage, monitor your position daily/several times a day
-Try to reach out to big brains in the ecosystem on CT, a lot of them have information that most people don’t know about.
-The higher the APR, the higher the likelihood that you are the source of the yield
-Try to reach out to big brains in the ecosystem on CT, a lot of them have information that most people don’t know about.
-The higher the APR, the higher the likelihood that you are the source of the yield
-Try to avoid BSC (Binance Smart Chain). There has been a lot of rug-pulls.
-Have notifications on for important Twitter-accounts. @peckshield have given some good shorting opportunities. Or when Andre Cronje posted that he “retired” in March, that was 3-4 easy shorting...
-Have notifications on for important Twitter-accounts. @peckshield have given some good shorting opportunities. Or when Andre Cronje posted that he “retired” in March, that was 3-4 easy shorting...
opportunities. Right now I think the $USN-rumors can move markets in the $NEAR eco whenever the news arrive.
-Never have all your money in one DeFi protocol
-Small amounts the first time you try a new platform
-Never have all your money in one DeFi protocol
-Small amounts the first time you try a new platform
-Try to specialize in one or two ecosystems to catch the biggest opportunities
-Watch where the top wallets put their money (Check eg. DeBank)
-Watch where the top wallets put their money (Check eg. DeBank)
That was it!
Follow @route2fi for more threads like this.
I also have a free newsletter you can subscribe to.
My goal is to break down DeFi and crypto in a simple way. https://www.getrevue.co/profile/route2fi
Follow @route2fi for more threads like this.
I also have a free newsletter you can subscribe to.
My goal is to break down DeFi and crypto in a simple way. https://www.getrevue.co/profile/route2fi
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