How to better capture Alpha in cryptocurrency trading?

Original Title: On Alpha and Edges in Crypto

Original Author: Tyrogue

Original Compiler: Luccy, BlockBeats

Crypto researcher Tyrogue starts with the types of crypto Alpha and explores how to gain an edge and Alpha in cryptocurrency trading, which should be very relevant for those trading cryptocurrencies on-chain and on centralized exchanges.

By reading this article, you will understand:

• The difference between Alpha and Edge
• What Alpha is and how to leverage it
• How to cultivate Edge and build your intuition in the crypto space
• When to buy the dip
• When to short the pump (haram)

In the CT (crypto community), the terms Alpha and Edge are often mentioned, but what do they actually mean?

In simple terms, Alpha is information that you can use to make money. There are different types of Alpha and different Edges needed to profit from it. Edge refers to the ability to profit from the market, which is due to a set of understandings or skills that participants have that others do not. Edge and Alpha are two sides of the same coin.

Alpha = actionable information

Edge = the ability to leverage that information

There are many variations, so let's break it down.

3 Basic Types of "Alpha"

Time-sensitive Alpha

This would be news trading and speculative behavior, where one can take risky positions with a high probability of success. Examples in this regard include shorting Cronje when leaving crypto in 2022 or going long on the recently surging FTT.

Psychological Alpha

Whether it's being familiar with technical analysis like chart patterns or knowing certain fractals related to airdrops, these are good examples. Buying hacked or bankrupt projects can be profitable despite poor fundamentals; SOL, FTT, CEL, and SRM are good examples.

Look, LUNC provided great returns in the last bear market. This can also extend to GCR making large purchases at the bottom of 10 SOL, 1,000 ETH, and 15,700 BTC. The crowd psychology screams contagion, and worse is coming, but it still hasn't arrived (at least not yet).

Intuition

The ability to know, feel, and accurately predict what will happen. This is the hardest to develop, and many people lack it. I've seen this in several CT members, such as @outpxce and his understanding of games; @0xJezza and his low-risk ability to accumulate, sell, and enter on-chain trades; @smileycapital's predictions of prices, surges, and market trends ahead of the crowd; @ZoomerOracle discovering new standout coins outperforming the market (TIA, ZETA, BEAM); and @GCRClassic with killer insights and predictions about the market.

Analyzing GCR's views on the market, you can start to understand how his intuition is formed: he combines Schelling points with unit bias and market and human psychology to reach a genius level. He has an intuition built from a background in political forecasting, and most importantly, it comes easily to him.

If you have the right intuition, making money should be easy. If you've been in this game long enough, the best strategies might just be the simplest ones. Whether it's buying FTT when the market starts to rise in 2023, buying APT when SOL begins to recover, or buying when BEAM rebrands, nodemonke lists, and PANDORA starts to gain escape velocity, being able to quickly change strong beliefs to win is the right approach. Let's illustrate with examples:

Example 1: Buy any hacks or exploits when they don't deal a fatal blow to the protocol - a whale was exploited for $4 million on GMX, which is a bullish sell signal.

Example 2: Short or long based on market trends and profit from it. Undoubtedly, the easiest trade last year was the announcement of the Blackrock ETF and noticing the market's reaction to the intern's false tweet (may his soul rest in peace).

Example 3: Wait for team-driven pumps or scams (not all projects are scams, but you get my point). If you can find projects that won't go to zero and simply spot buy when volume decreases and selling slows down, the team will use announcements and driving factors to stimulate positive price action when market conditions are right.

Research AVAX before it announced cultural incentive funding, study Pengus and how they slowly became the preferred pfp, study MC rebranding to BEAM, and many more examples.

However, the most important principle behind all this is to be flexible, adapt to everything the market offers, and participate in the currently thriving market sectors. NFTs, leverage, Onchain, and DeFi, just get into where the money is. Know how to short/long on CEX, where funds are ready to capitalize, and have an ETH or a few bands on every semi-qualified chain and L2 to seize new opportunities as they arise. Have a close friend to invest for you when you're not at your computer, etc.

Summary of the post so far:

• Alpha is the information that makes you money
• Edge is your ability to leverage that information to make money
• Alpha can be found in many ways, and everyone has different advantages in this market. Find your advantage, solidify it, and win
• Successful methods will change with the seasons. Therefore, the key to winning is to always adapt and never forget to turn off your intermediate brain; either become a stupid ape or a giant brain. There are no second places in the market.

Some quick thoughts on cycles, phases, beliefs, and profiting from the market

Now, most people in the crypto space have various small coins and mainstream coins on hand, with future values reaching six to seven figures, but due to a lack of cyclical belief, they will sell too early.

If you don't have a belief that some form of crazy peak is coming (possibly distribution, double tops, single tops, etc.), you will sell too early. To capture the crazy multiples only found in crypto, you must be able to:

• Know when to take risks
• Know when to take profits to buy back at a lower price
• Know when to hold firm, expecting massive upward volatility
• And know when to escape

Imagine buying ETH at single-digit prices and then selling after the DAO hack event because you had no belief in ETH at the time, or hearing about Vitalik's false death rumors. Imagine buying AVAX at a low double-digit price and then selling before the second FTX and 3AC double top in 2021. Or selling LUNA at single-digit prices after the first crazy peak, while it exceeded $100 at its peak.

I know a guy who sold 20 bored apes for a few ETH before the NFT season really kicked off in 2021.

The simplest way to get truly wrecked in this space is to borrow someone else's belief and not understand what you're doing here. When you buy a token, you should know:

• What its potential appreciation space is, i.e., how high it can go, its tokenomics, FDV, and what factors can drive it up significantly.
• How good the technology really is? Good technology can become a good meme, it could be a new L1 tech, or a new consensus, but try to understand it after entering, so you know what you have in hand.
• Are you an early participant in the story or a late one? If you are early, you can go all in, holding a lot of spot or leveraged positions, just monitoring your positions. If late, you might only catch the downside. If you come early, you might be able to go all in before the crowd arrives, but exiting will be much earlier than you think.

You should also understand the competitors and holders of the token, who are:

• Followers who will never sell due to true belief? Like TAO, KAS.
• Meme coin traders who will sell during -70% candles to invest in other tokens? Like the recent meme coin sell-off.
• Institutions and VCs waiting to dump on retail investors after unlocking, or pushing the price up before that? Like TIA, SOL before the previous cycle.
• Retail investors who will keep bidding until they have no savings left?

Tokenomics, holders, and storylines, study the combination of these three to understand whether the token you've just discovered can make money. What is the market cap of this token? How does it compare to other tokens? What could be the upper market cap of this token?

Some tokens will never exceed $100 million. Others are destined to become billion-dollar tokens. Some, despite having good PMF, are destined to only reach $10 million because people will only bid on the storyline. You must remain realistic about the multiples your token can provide while being optimistic enough about whether it can outperform. This is a tricky balance.

Next, what is the liquidity and buying process of this token? When RLB was just a few cents, SOL seemed dead, but as long as you saw the product's revenue and users, then held on like diamond hands, ignoring panic and volatility, you could capture the sweet 20-50x returns of this token. Generally, the earlier you buy a token, the harder it is to purchase.

TAO was trading OTC between $10 and $25, and the buying process was quite complex, only true believers could enter. Now, it trades at several times its initial price, rewarding early buyers.

In a bull market, there are countless ways to achieve massive returns, and countless ways to get wrecked when the market declines. Your task is to follow the bull market, observe the timing when almost everyone has entered, and then quickly start to exit to avoid liquidity drying up, charts turning red, and people attacking each other like hungry demons, desperate to get their money back.

Stop thinking about how to win in the next market move, and start thinking about how to succeed throughout the entire cycle. There will be countless tokens to invest in the crypto market, countless NFTs, and new innovations will emerge; all you need to do is listen to the market and pay close attention. Even now, the next unicorn in the crypto space is being born, and when their tokens launch, you must be ready. But you must deeply understand yourself and your perception of the market to take the right actions to win. Some will make millions through leveraged trading, some through holding tokens on-chain, and some just need the right spot tokens, the right NFT mints, and so on. Find the path that suits you, but also know how to leverage other paths in the market to succeed.

If history repeats itself, we are now entering about an 18-month bull market, but it will be difficult. You may want to sell early, or at the peak, you might believe this time is different, and we have finally created the future of finance. You will want to exit before the party ends, but you may not squeeze enough juice from this orange before it ends.

No cycle is truly different. The drivers of bubbles may differ from inflation, apocalypse, and modernization, but the behavior is the same. A group of people believes a new asset, stock, or commodity is the next big event, credit expansion drives prices higher and higher until the bubble bursts, transferring funds from the hands of many to a few. Just as there will be another bull market cycle, there will be another bear market.

There will always be a moment to call everything an illusion again, but at this current moment, for the crypto natives still here, everything is a shiny new object.

You must be prepared, you must believe.