8 Things You Can Do to Increase Your Chances of Making Money in Crypto

This article sorts out the views of self-encryption researcher Route 2 FI on his personal social media platform. BlockBeats has compiled and translated them as follows:

1. Crypto is a game of probability, but most people see it as gambling

Let's do a very simple excercise to illustrate how to achieve positive expected value (+EV) in your investments.

First, let’s consider long-term investment in BTC. Let’s set up the following four scenarios:

1. BTC will create a new high this year

2. BTC will continue to move sideways in 2022, but will reach a new high in 2023

3.BTC has completed its historical role and will fall and remain in one position

4. BTC will go down this year, but will reach a new high in 2023

Now, let's do some probability analysis for each outcome:

1. Probability: 20%

2. Probability: 40%

3. Probability: 20%

4. Probability: 20%

Currently, the price of BTC is $42,000, what is the best trade right now considering these 4 scenarios?

1. Buy

2. Buy

3. Sell

4. Buy

In 80% of cases, buying is the best outcome.

1.20% probability of rising 65%+

2. The probability of a long-term rise of more than 65% is 40%

3. There is a 20% chance that BTC will never return to ATH

There is a 4.20% probability that we will lose money in the short term, and a probability of more than 65% that we will make a profit in the long term.

For point 3, you can set your stop loss to 30%. In other words, if BTC drops below $29,000, you sell. All in all, you have an 80% chance of getting a +65% return and only a 20% chance of losing 30%. Pretty worth the risk, isn't it?

Of course this is a very simple example and you may not agree with the scenarios and probabilities, but I just want to show you how to think in investing.

2. How to use probabilistic thinking?

Remember, the market can remain irrational longer than you can remain solvent. In Crypto, anything can happen. That’s why you have to set strict rules for yourself.

For example, here are some examples of hard and fast rules for when to invest in LUNA:

1. When BTC has a sideways/upward trend

2. When UST market value is increasing

3. When momentum is strong (new protocol, more users, bullish news, etc.)

4. When Anchor savings generate positive returns

5. When Anchor TVL increases (usually, you can track everything that happens in Anchor, since more than 70% of UST market cap is locked there)

6. When technical analysis on the 4-hour, 1-day, 1-month timeframe looks good

I personally believe that as long as the above 6 factors are met, LUNA will have a good risk/reward ratio. Simply put, an increase in UST market value is equivalent to an increase in LUNA price.

3. Pay attention to the size of your position and never exceed what you can afford

You will of course be tempted to bet big when the odds are in your favor, but even investments with positive expected values ​​can eventually fail. Remember, it’s all about survival, which is why you should cut your losses and never risk more than 1-3% on each trade.

For another example, suppose:

1. Total portfolio value: $10,000

2. Risk 2% on each trade and stop loss at 7%.

3. Position size: (10,000 x 0.02) / 0.07 = $2,857

This position is equivalent to 28.5% of your portfolio, but because you set a stop loss at 7%, it means that your loss will not exceed $200, which is 2% of your total portfolio. Position sizing and stop losses are very important in trading. If you over-expose yourself, sooner or later you will lose your account.

4. Figure out what your strengths are?

If you try to be a master of everything, you will be a master of nothing. You have to find your niche.

You can think first, what are you most interested in? Trading, NFT or DeFi? But even trading is too big. Micro-caps, small-caps, L1, top 100 by market cap, not to mention time frames, swing trading, scalper trading, etc.

Which ecosystem do you focus on for NFT? I did spend a few days researching the floor price on the http://rarity.tools website. What is your expertise in DeFi? After all, it is too difficult to keep up with the latest status on various L1 public chains.

You have to figure out, are you a smart money observer, a low-market-cap treasure finder, someone who can see the NFT trend earlier than others, or a wool expert or DeFi yield farmer? After figuring this out, you can double your efforts instead of learning everything.

5. Be able to admit you are wrong and stop

This is an important factor in success in the crypto industry. Whether it is trading, NFT or DeFi, before you buy, you need a thesis and an invalidation point.

Ask yourself, "What if I'm wrong?"

Continuing with the example:

Buying AVAX at $79, the failure point may be a fundamental change in the ecosystem, and the stop loss point should be around 10%.

The reason I wrote this article is because gambling is harder to do emotionally than you think. How many times have you not forced yourself to sell at a certain price, but said, "If it drops another 5%, then I will sell." Then after losing another 5%...

So, respect your rules.

6. Find the echo chamber

If you spend enough time in the crypto Twitter space, you’ll notice there are a lot of sub-communities like ETH maxis, LUNAtics, FTM degen, ATOM believers, and more.

While you should definitely join one or more of these communities, you should also always keep a critical eye. Don’t just blindly absorb information without making your own judgement.

At the end of the day, this is a PvP game (player versus player), and even if you feel like you’re part of a large community on Crypto Twitter, you’re still alone, and don’t assume that others are looking out for your best interest.

7. Be patient

You don’t have to keep your position full all the time. You can also choose to use stablecoins for DeFi farming or hold a certain amount of cash. You don’t have to trade all the time, but let the trade come to you.

Try waiting for the big crash and generational buying opportunity to help you achieve your ideal goals (easier said than done).

The point I want to make is to learn to wait for good trading opportunities. In a downtrend, don't try to oversell. Remember, most of the top 100 projects in terms of market value will disappear in 4 years.

8. Some DeFi tips

1. Check the earnings on http://coindix.com. Any missing information can be supplemented on http://defiLlama.com.

2. Unless you are very experienced (micro-cap hunter), stick to staking or yield-farm opportunities with high TVL.

3. If you use leverage, always monitor your position.

4. Try to reach out to influencers on Twitter. Many of them have information that most people don’t know.

5. The higher the APR, the higher the likelihood that you will become a source of income.

6. Try to avoid the BNB chain, as many projects on it will pull the rug out.

7. Turn on notifications for important Twitter accounts, such as Peck Shield, which provides some good shorting opportunities. Or when Andre Cronje announced that he would "retire" in March, it was an easy shorting opportunity. Now, I think that as soon as the news comes out, the news that USN is stable will affect the market in the NEAR ecosystem.

8. Never put all your money on one DeFi protocol

9. Keep costs low when trying a new platform for the first time

10. Try to focus on one or two ecosystems to capture the biggest opportunities

11. Observe where the money of top wallets goes (you can check DeBank)

Original author: Route 2 FI, crypto researcher