The Crypto Rally is among us, but how do you not get rekt along the way?
REKT (or rekt) is a misspelling of "wrecked." "Getting rekt" refers to a cryptocurrency trader utterly ruined and destroyed due to losses from a recent price crash. Rekt is what happens when crypto traders get swept up by FOMO and end up becoming the victim of a pump and dump.
Here are some lessons to learn on navigating rallies.
1. Make Back Your Initial Position
It can be tempting to want to hold a position that is pumping. However, always look to regain the initial position at a 2x pump. This eliminates your risk and helps immensely with your mentality if the price goes south.
If you do not take profits at the end, the exit liquidity may be you. The simple method for taking profits is to take half your position out every 2x.
2. Do not Rotate All of Your Profits into Other Positions
You get so caught up in thinking you can make more money, and when the market crashes, you realize you have lost almost everything.
You can set a set percentage of profits that you want to use for degening, but please put away some that you need for life. Otherwise, you run, losing everything you put your hard work into when the market turns.
3. Market Sentiment and Probabilities
While it may feel safer to ape in when markets are pumping, purchasing at these prices for mid to long-term holds is riskier than buying when nobody else is around. It just feels safer because everyone else is doing the same thing.
Apart from maybe riding low-cap shitcoins for a short period, pumps are something I would sell into rather than buy into. Remember that for every pump, previous players are looking to take profit.
4. Capital Rotations
One common thing you will see in market rallies is capital rotating from pumped chains and narratives into smaller chains due to people wanting to flip tokens that have smaller marketcap.
If you are anticipating this, it could be worth looking into L1s and L2s that have pumped less to look for potential rotations. Crypto Flows can show you where capital is being rotated, so you could potentially find early capital rotations.
5. Wait for Retracements
If you are in the mood for aping shitcoins, you should always wait for a retracement before entering. Most of the time, there will be retracements after a pump because there will be sellers who want to realize profits after the first leg up.
While you could miss some runs, you put yourself at less risk if you stay a little patient for a better entry. There are many other opportunities in rallies, so don't feel like you need to take a position.
6. Have a Portfolio Structure
One thing that many people neglect has a set portfolio structure where the amount of risk split between high-risk and low-risk assets is defined.
An allocation structure is essential because it defines your risk and helps keep your portfolio from being precarious.
Takeaway
Before diving into any project, research is vital as it keeps one from making mistakes. Please do your own research into a project before vesting into it. This keeps you from entering what may seem like a legit project but is a rug pull.
Carry out technical and fundamental analysis.
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