I've been seeing a prevalence of memes lately on the Chainlink(LINK) moon.
Lots of FOMO about getting in too late, or holding until it's $100. Almost entirely emotion-based decisions. Human emotions are even more volatile than crypto, so why add all that extra variance? I treat Chainlink and other smaller market cap coins (before the run-up to a current $7.3B Billion MC) the same way, as widgets for investment with entry and exit points pre-determined. While there are coins I hold because I fully believe in their purpose (Bitcoin, Ethereum, Monero) there are others I speculate on strictly for the returns. Considering how nearly all of the talk of LINK is centered around the price, and not use, I believe most people involved in this run-up are also just using it as a tool for profit. There is nothing with that.
The premise of each alt-coin investment/speculation/gamble (ISG) is to generate returns, and then put those returns into my long-term portfolio based off of allocation percentages. For the example of Chainlink, I had started DCA'ing in back in Dec. I was put on to it by DataDash YouTube as he had a video on the most popular DeFi options and LINK was the most backed at the time as well as the main name outside of Maker. In February I started to average in more aggressively, and during the crash I maintained the same fiat worth of investment to effectively DCA more aggressively without risking any more dollar wise. My avg. cost was $3.19 by the time I stopped averaging in and held. Before you start buying into a coin, it's important to have an exit plan. At the beginning, I was going to average in unless it dropped below $2 and cash out once it was at $9. Once the crash happened, I lowered the loss to $1.69 and cash out to $8.50. After months of holding, and even selling 10% of my LINK at $7.20, the recent run-up was enough for me to cash out comfortably. Sold half my shares at $9.50 when unsure of it breaking psychological resistance of $10, and then selling 90% of the remaining holding at $10.80 when it broke through.
This is not a crazy gainz story or a sorrowful post about COULD'VE GOT IN SOONER, CASHED OUT LATER!!1! This is a recent example of how to detach from the high of altcoins and the gains that come from them. While this is not the traditional stock market, many tips from that world still apply. One of the main ones being to remove emotion from decisions. There's a reason High-Frequency-Trading (HFT) bots dominate the game in both sectors. Outside of buying penny stocks, it is often unreasonable to expect 100% ROI in a short time frame when buying traditional stocks, but altcoins double their value with something as easy as exchange listings within days or a week. NOT ALL ALTCOINS DO, but far more compared to the traditional stock market. With that in mind, the amount the coin can dip in a short time frame is also increased, so my stop losses are adjusted accordingly.
Lesson Time: Stop-Limits are your best friend
- Stop-Limit: Predetermined price to exit your position.
- Stop-Loss: At that set price you will sell X amount of your holdings to limit loss.
- Take-Profit: At that set price you will sell X amount of your holdings to secure profits.
- PnL Ratio: The ratio of your take profit to your stop-limit. For safer entries, you are looking at a goal of 3:1 in the traditional stock market.
- Example: For LINK, let's take the final avg. cost of $3.19 as our entry. With $10 being the take profit, and 1.69 being the stop-loss, the ratio is 5.92.
- For Crypto in general, I have found higher ratios to be more regularly attainable. As long as you keep market cap in mind, lower price coins can double in value much easier than traditional stocks. This effectively makes your ratio slightly higher by default, as the potential growth is higher than in secondary market stocks. 5:1 is what I personally aim for.
- Overall Benefit: You remove the variance of emotion over time, and only have the variance of your emotion at the moment of entering the trade. With having reasonable ratios in mind when entering, you can remove the risk of mega bag holding and getting 90% losses, while also limiting the number of positions you enter if at least a 3:1 ratio isn't reasonably attainable. Don't look for reasons to make it fit the ratio, but determine reasonable price points for what it could hit and what it could fall to and apply the ratio after.
TLDR:
I made profit off of Chainlink, and while I left some on the table, I have no regrets and the reason why is because of stop-limits.
This is not financial advice, this is more of storytime with a small lesson to take away.
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