Trading cryptocurrencies is risky, but risks can be managed.
Every time I see novice investors entering the cryptocurrency market with the mindset of "getting rich overnight," I always think of myself five years ago. At that time, like most people, I thought cryptocurrency was a shortcut to quick wealth, but I ended up losing tens of thousands in a matter of months.
Now, I have survived in the crypto market for five years, from blindly following trends to now making stable profits, having taken countless detours and gained valuable experience. Today, I want to share three investment rules summarized from my painful lessons, hoping to help you avoid unnecessary detours.
Rule One: Leverage is a trap, not a shortcut
I will never forget that night in March 2020. The price of Bitcoin suddenly plummeted, and I was forced to close my position with 20x leverage within just two hours, turning my account from a profit of hundreds of thousands to zero. The sense of despair at that moment is still fresh in my memory.
Leveraged trading superficially offers the opportunity to "make big with small investments," but it actually hides enormous risks. Cryptocurrencies themselves are highly volatile, with daily fluctuations of over 10% being commonplace. Adding leverage amplifies this volatility, leading to forced liquidation even from minor price movements.
The rational approach is: if you must use leverage, limit the leverage ratio to between 3-5 times, and ensure that the funds used for leveraged trading do not exceed 5% of your portfolio. This way, even in the worst-case scenario, it won’t deal a fatal blow to your overall financial situation.
The strategy I currently follow is: focus on spot trading, with leverage as a supplement. Most of the funds are used for spot positions, with only a small amount allocated to low-leverage trades. This controls the risk while retaining the opportunity for excess returns.
Rule Two: Mainstream coins are the foundation; altcoins are like lottery tickets
After paying a lot of 'tuition', I finally understand a principle: Bitcoin and Ethereum are the 'hard currency' of the crypto market, while most altcoins are more like 'lottery tickets'.
In 2021, I was attracted to a so-called "next-generation blockchain" project and invested a large amount of money into it. Initially, the price did surge rapidly, and my account balance increased several times. However, it did not last long; when the market adjusted, the project plummeted over 90% due to technical flaws and insufficient liquidity, and I almost lost all my investment.
In contrast, mainstream cryptocurrencies like Bitcoin and Ethereum have the strongest liquidity, widest acceptance, and soundest market structures. Even during severe market fluctuations, they still maintain relatively good downside resistance. Data shows that Bitcoin's drawdown during bear markets is typically over 40% lower than that of altcoins.
The asset allocation strategy I am currently implementing is: 70% Bitcoin, 20% Ethereum, 10% stablecoins, and a small amount of high-risk tokens. This allocation not only reduces overall volatility but also ensures that I do not miss out on mainstream market opportunities.
I view altcoins as 'lottery tickets' rather than investments: only invest a small amount of funds and be prepared to lose it all. In fact, I strictly limit my investments in altcoins to no more than 5% of my total assets, and once I achieve significant returns, I immediately withdraw my principal and continue rolling with profits.
Rule Three: Stop-loss is the bottom line; discipline is life
In the crypto market, traders who cannot set stop-losses are doomed to fail to survive in the long term. The heaviest losses I have experienced in my investment history have all come from not stopping losses in time.
In 2022, a certain token I held dropped 15% from its peak, but I refused to stop-loss because I "believed it would rebound" and even continued to add to my position in an attempt to average down my costs. As a result, the price continued to drop by 70%, leading to losses far exceeding my expectations.
Now, I strictly enforce an 8% stop-loss rule: any investment that drops 8% from the entry price will be immediately liquidated. This may seem conservative, but it has helped me avoid multiple major black swan events over five years of trading.
Stop-losses are not just a technical strategy but also a mindset management tool. The crypto market operates 24/7, with significant price fluctuations that can lead to emotional loss of control. By setting automatic stop-loss orders, I can avoid making emotional decisions during volatile price movements.
In addition to stop-losses, dollar-cost averaging (DCA) is also an effective strategy to smooth out fluctuations and reduce risk. By regularly investing a fixed amount, one can avoid the risk of buying at a high point in one go, and achieve a more reasonable average cost in the long run.
Summary: Survival first, profit second
The crypto market is full of opportunities but also traps. After five years of trials and tribulations, I have come to deeply understand that in this market, survival takes precedence over profit. Those who can survive long-term are not necessarily those who made the most money, but those who best understand how to control risk.
The three major principles I currently follow actually revolve around one core: risk control. Whether it's limiting leverage, focusing on mainstream coins, or strictly executing stop-losses, it is all to protect oneself in a highly uncertain market.
Cryptocurrency investment is not suitable for everyone; it requires solid knowledge, a calm mindset, and strict discipline. If you decide to enter this market, start with learning, test the waters with a small amount of funds, and gradually build your investment system and risk management.
Remember, the market is always there, but once your principal is lost, it is difficult to recover. Move forward steadily to go further on the path of crypto investment.
These are the three rules I have summarized from my five years of experience in crypto investing. I hope my lessons can become your experience and help you walk more steadily and further on your crypto investment path.
What do you think about cryptocurrency investments? Feel free to share your views and experiences.#ETH走势分析 #加密市场观察 $ETH
