Should we change positions at this stage? Three basic steps for reasonable position adjustment

Recently, I've received some new messages, and one type of question that comes up frequently is: seeing the altcoins in your portfolio continuously decline, should you consider switching your holdings?

As for myself, I have been strictly adhering to my trading discipline. Aside from the 80% position in Bitcoin that I haven't touched, I have already taken profit on the remaining altcoins like FET, SOL, AVAX, etc., which are now essentially at zero cost, so I won't be making any further moves for the time being.

However, if you are not satisfied with your current position management, it is necessary to reassess your positions at this stage to try to rebalance your portfolio. Given the current overall market situation, many altcoins have experienced a 50%-70% retracement after a previous rally, and some have even reached historical lows. The market is currently in a bleeding phase, but there seem to be signs of a new recovery. Therefore, conducting a comprehensive assessment of your positions at this stage is worth considering.

Switching positions, simply put, means replacing underperforming projects with those that are performing well to compensate for past poor investments. Specifically, there are several benefits to switching positions:

First, adjusting risk levels. This means maintaining your acceptable risk level through position switching.

Second, optimizing the R/R ratio. This involves reallocating your altcoin portfolio for a better risk/reward ratio. The R/R ratio refers to the risk-reward ratio, which is an indicator that compares the potential profit of a trade to its potential loss.

Third, seizing new opportunities. This means reinvesting in new projects (new potential opportunities) to capture possible narratives/trends ahead.

However, it is crucial to avoid thoughtlessly switching positions frequently; otherwise, your principal may disappear without you realizing it. A comprehensive assessment of your existing positions is also necessary before switching. So how should you proceed?

1. Reassess the altcoins you hold

Although you may be dissatisfied with the altcoins you currently hold, the fact that you have them indicates that you recognized their value at some point; otherwise, you wouldn't have chosen to buy them among thousands of projects. Therefore, even if you are not satisfied, you should always treat each altcoin you hold as a serious investment.

Based on this attitude, what you need to do now is to review each altcoin:

• List 3 reasons why you bought that altcoin (DYOR)

• List 3 reasons why you would sell that altcoin now (DYOR)

If your reasons for selling can easily negate your original reasons for buying, then you can start considering switching positions. It is also important to clarify that selling for a switch may mainly target two situations: one is selling at a loss (cutting losses), and the other is selling at the original price (break-even).

At the same time, you should consider the current value of the altcoin as the principal for new investments. For example, if the altcoin A you hold is currently worth $500, this means that theoretically, you could use this $500 to purchase a new altcoin B, and try not to count the lost principal from A against B. When investing in A, you need to accept the potential success or failure that A may bring; when investing in B, you need to accept the potential success or failure that B may bring. Do not mix the two investments together.

2. Evaluate new altcoins you plan to buy

Once you have clarified the situation with your existing altcoins, the next main question is how to replace them with those that have greater upside potential.

If you currently have no clue or ideas about selecting new altcoins and are simply dissatisfied with your existing positions, I suggest you refrain from making any moves for now. If you blindly switch positions (or casually trust someone else's recommendation), even if you buy new altcoins, you may face a situation similar to the current one later on.

However, if you have realized that another altcoin may have greater upside potential, then on a conscious level (preliminary level), you have already entered the process of rebalancing your positions. The next step is the specific position-switching operation:

Step 1: Reset comparison between tokens A and B

Assuming A represents the altcoin you currently hold, and B represents the new altcoin you plan to switch to after selling A. Next, you can pose a choice:

If you consider from scratch (without being influenced by your existing positions), meaning you do not currently hold A and B, then:

• Invest $500 in token A

• Invest $500 in token B

Which would you choose?

If after the reset comparison you still choose A, then there is no need to switch positions. If you choose B, then please continue to provide your specific reasons for choosing B.

Step 2: Conduct necessary research on token B

You don't need too many reasons; if you can quickly list 3 reasons for buying B within 10 minutes, then go ahead with the switching operation, and I support you. But if you cannot quickly list 3 reasons in that time, it only indicates that you haven't done the necessary research or understanding of B; perhaps you just heard others say B is good.

At this point, to increase the success rate of the switch, my suggestion is to continue doing some necessary research on B:

Regarding project research, previous articles have covered this topic extensively. If you have the time and energy, you can directly use the "Project Research Template" we previously outlined. If you don't have that much time or energy, you can refer to our article from a few days ago (July 16) about quickly selecting potential projects. As shown in the image below.

In summary, you need to verify why B is better than A through the following basic dimensions:

• Does B have greater favorable factors or catalysts coming up soon (media coverage, project development roadmap, etc.)?

• Is B's chart (candlestick) performing well? (For candlestick analysis, you can refer to our article on basic technical analysis indicators from July 3.)

• Does B align with popular narratives? (In a market with limited liquidity, funds will definitely prioritize popular narratives like AI, RWA, etc.)

• How is B's ecosystem and community development? (Is there potential for continued growth?)

• What is B's funding situation and tokenomics?

3. Reallocate funds from A to B

If after the basic comparisons above, you still believe B may have greater upside potential than A, then proceed with the switching operation and reallocate the funds from A to B.

At the same time, since your overall positions have changed, you need to recalculate your total positions. For example, if your original position ratio was 3:3:3:1 (i.e., 30% Bitcoin, 30% Ethereum, 30% altcoins, 10% cash), then because you have switched altcoins, you need to update your investment record accordingly, which may change to 4:4:1:1.

As your positions change, your unrealized losses will also change, and the risk of your positions will adjust as well; just make sure to keep appropriate records of these changes.

4. The issue of MemeCoins needs to be addressed separately

We mainly discussed altcoins above. Although MemeCoins (including various "shitcoins") also fall under the category of altcoins, I prefer to treat them as a separate category.

While MemeCoins can continuously generate wealth stories, our attitude towards them remains unchanged. We recommend playing with MemeCoins in small amounts within various DEXs, with the invested position suggested to be controlled between 1%-10%, depending on your risk preference. In short, MemeCoins are a high-risk, high-reward gambling game, and the proportion of funds you invest should be the amount you can afford to lose.

Under this basic premise, there is actually no need to consider whether to switch positions with MemeCoins. Before deciding to buy a MemeCoin, you should be mentally prepared: either it goes to zero, or it yields several times the return (or doubles your principal, and the rest is up to you).

Currently, there are a vast number of MemeCoins in the market. According to data from the dextools platform, as of the writing of this article, there are over 5.4 million MemeCoins available for trading on-chain, as shown in the image below.

However, the vast majority of MemeCoins have no real value (many are RUG projects, and many have almost no liquidity). The only thing these coins can leverage is so-called emotional drives, which can easily trigger FOMO among people. Among the massive number of MemeCoins, only a very few with good backgrounds or community foundations may achieve sustained existence and development (even reaching top-tier CEXs).

In summary, when investing in MemeCoins, remember not to go all in casually, and do not become too obsessed or addicted to a particular MemeCoin. If you categorize MemeCoins into different classifications (fields/tracks), then focus on buying the leading and secondary ones, which will lower your risk somewhat.

As for ways to find MemeCoins, previous articles have already outlined some basic aspects, including joining relevant discussion groups (X/DC/TG, etc.), using on-chain tools for discovery, tracking smart wallets, monitoring through bot tools, etc. We won't elaborate further here; interested friends can refer to our historical articles by searching for MemeCoins.

That's all for this issue. This is also the 488th article updated by Huali Huawai.