In the ever-changing cryptocurrency industry, how can investors avoid risks and earn substantial returns during a bull market?
This article is about "How to Avoid Risks and Earn Considerable Returns in a Bull Market." It will detail the risk control system in investment through three points: position management, investment allocation, and risk avoidance, enabling you to earn substantial returns from the bull market.
1. Position Management is Crucial, Yet 99% of People Overlook It
First, it is essential to fully identify which stage the current market is in, as we pursue different goals at different stages. "Having grain in hand, one is not anxious" is the first principle.
Never go all-in. Regardless of the stage, the primary principle to follow is to never go all-in, which means always having a certain proportion of cash available for allocation.
Upward cycle: 80% position, with 50% allocated to long-term investments, 30% for short-term trading, and the remaining 20% as cash flow that can be deployed at any time.
Volatile period: 50% position, with the remaining 50% used to adjust strategies in a rapidly changing market.
Downward cycle: 10% position or completely in cash, leaving a small position to observe market changes. Staying in the market with real capital allows one to continuously develop market perception and insight.
In reality, very few people can strictly adhere to different position management strategies for different periods, which leads many to lose money even in a bull market. I find that many friends often go all-in or cut losses entirely at the slightest dip, unable to hold on during small gains or losses. Ultimately, this is due to a lack of strict real-time position management strategies and ignoring market signals, failing to execute strategies rigorously. The noise in the market is overwhelming, and almost no one can ignore it and focus solely on their strategy.
What are the benefits of implementing the above position management?
Having spare cash at any time to deal with emergencies allows for operational space during extreme downturns and the courage to buy at the bottom; it also ensures a good quality of life, preventing a poor mindset that leads to self-sabotage.
2. Investment Allocation: Principal is Not the Most Important; What You Invest and How You Allocate is
First, do not get caught up in value investing versus speculation; do not blindly believe in value investing, as many are forced into it. We should explore the essence beneath the surface of trading. I believe that as long as one earns money in the investment market without breaking the law or doing harm, it is a good investment.
The ranking of timing, price, and value, in my opinion, is timing > price > value. The core of investing is to buy low and sell high.
Investment targets in the spot market can be divided into long-term and short-term.
Long-term means a strategic commitment, indicating a long-term positive outlook on a sector, such as the AI sector.
Short-term refers to a consensus during a specific phase, such as sector rotation, for example, this month GameFi, next month inscriptions, public chains, Layer 1, and Layer 2 alternating sector rotations.
It is advisable to combine long-term and short-term allocations, integrating mainstream and altcoins. Allocate 70% of your position to high-quality assets like BTC, ETH, BNB, SOL, XRP, ADA, which have strong market capitalization and can withstand bull and bear cycles; 30% should be used for capturing and allocating altcoins and on-chain assets, noting that these come with high risks and high returns.
In summary, adopting a dynamic strategy based on the actual market situation can yield considerable returns in a bull market while effectively controlling risks.
3. How to Avoid Risks and Ensure Stable Profits in a Bull Market
1. The Most Important Thing in Investment is Capital Safety and Longevity
Buffett has shared many investment philosophies, with two being the most important. The first is to preserve capital, and the second is to always remember the first. Opportunities are always present; do not attempt to make enough in one go. For ordinary investors, the most important thing is to ensure they last long enough to stay in the game.
2. Avoid Getting Overexcited and FOMO.
FOMO: Fear of Missing Out, or the extreme fear of losing an opportunity. Emotional instability can disrupt the system; emotions are our underlying operating system, and these methodologies are like apps. When the system crashes, the apps cannot function. Regulating emotions is the most crucial aspect of trading, bar none.
3. Avoid Going All-In.
Avoid going all-in by buying excessively upon entering the market, or worse, using all your money at once. Going all-in refers to investing time and energy to study the industry and follow trends, rather than spending all your money in the trading market at once. ("Going all-in is a form of wisdom" is misleading for beginners or those who haven't experienced intense bull and bear cycles.)
4. Avoid Chasing Highs and Maintain Rationality.
Typically, a significant rise in a target will attract widespread market attention, usually after it has already increased by 2-3 times from the bottom. Most investors will be drawn in by the wealth effect, only to find themselves stuck when the hype fades, leading to a prolonged decline in asset value. After struggling for some time, they may find themselves deeply trapped, no longer hoping to make a profit but merely wishing to break even. The underlying sentiment is that they will exit once they recover their capital.
In summary, avoid trading with a full position; adopt a staggered reduction strategy to manage volatility, preparing psychologically for a 50-70% pullback; view volatility as an opportunity rather than a threat, as volatility is a significant source of profit in the cryptocurrency market; learning to coexist with it is key to success; at the same time, maintain emotional stability to avoid panic-driven decisions.
