Compiled by | TechFlow
Background Information
In this video, I will share the five biggest mistakes I've made in my cryptocurrency trading career and the valuable lessons I've learned from them. I will also analyze the common pitfalls that both novice and experienced traders face in the crypto market, and discuss why these mistakes, though costly, ultimately helped me achieve success. I hope that by sharing my experiences, you can avoid similar issues and become a better cryptocurrency trader or investor.
Main Discussion Topics
● Bitcoin (BTC)
● Altcoin
● Altcoin market dynamics
● Latest updates in the Altcoin market
● Altcoin trading strategies
● Projects involved: BEAM, MODE, AI16Z, LKY, LUNA, LMT, SUNDOG, PEPE
Introduction
In the crypto space, most people like to talk about their successes. They are eager to showcase the massive gains they have made in the market, but few are willing to publicly share their failure stories.
However, my success in the crypto market has largely stemmed from the lessons I've learned from those significant losses. Even in the current market cycle, I've experienced numerous failures, and these experiences have once again reminded me of the core principles that are required to become a successful investor.
Today, I want to take a different approach and focus not on my five success stories, but on the major losses I've encountered in my crypto journey. These losses represent the biggest mistakes I've made, and they have made me acutely aware of the "pits" I've repeatedly fallen into in the market. It is largely thanks to that harrowing experience in 2021 that I am able to be a profitable investor. Even in the current cycle, I've had a few trades that didn't go as planned, but it is these failures that will allow me to navigate the next market cycle, especially the upcoming Altcoin bull market, with more composure.
Ignoring Market Risk Signals
I have to start with the biggest loss I've experienced in the cryptocurrency market - Luna. This experience has deeply impressed upon me the importance of the "Holding Bias" investment psychology issue. "Holding Bias" refers to the tendency to develop a subjective belief that an asset's fundamentals are improving when you hold a large position in it and see its price constantly rising. However, this belief is often not based on an objective fundamental analysis, but simply on the illusion created by the price increase. In other words, you may mistake the price increase as proof that the fundamentals have improved.
It was this holding bias that caused me to ignore many potential warning signals, which actually indicated that Luna's fundamentals were gradually deteriorating. At the time, I was aware that algo-stablecoins like UST had value because they were scalable and decentralized, but unfortunately, this also brought the risk of depegging (i.e., the stablecoin being unable to maintain its value peg to the underlying asset).
Although I remained optimistic about Luna and held large positions in both Luna and UST, I was also aware of the "depegging" risk. However, I underestimated the actual likelihood of this risk materializing, and even viewed it as an extremely low probability event, so I took no action, or rather, I didn't take action in a timely manner.
When the price of UST dropped to $0.96, the market was already showing clear signs of crisis, and I should have immediately reduced my position by at least 50% to mitigate the risk. But due to the "holding bias", I chose to ignore these warning signals, and this psychological bias ultimately cost me dearly. We all know what happened next. Once UST started to depeg, the values of both Luna and UST eventually went to zero.
This massive loss in 2021 dealt a severe blow to my portfolio, but it also became a crucial turning point in my investment career. In fact, I had achieved huge gains through my Bitcoin investments in the early part of 2021. I had bought a full Bitcoin for $5,000 in 2019, and later saw this investment grow to $500,000, and then over $1 million during the bull market. However, due to the market's violent fluctuations, my assets shrank from $1 million to just a few tens of thousands of dollars by 2022. The experience of going from life-changing wealth to a dramatic shrinkage was excruciatingly painful, and the psychological gap is indescribable.
I firmly believe that without experiencing the market's heavy blows, it is impossible to truly grow into an excellent investor. If you are experiencing similar losses, please remember that although the positive side may not be visible right now, these experiences will make you stronger and smarter.
This is also the reason why I decided to make this video today. Rather than talking about those 10x, 50x, or even 100x investment returns, I'd rather focus on my failure experiences, because the lessons contained in these failures are truly valuable. My goal is to help you become a better investor, and learning how to learn from mistakes is key to achieving this goal. This is also why I have been able to achieve success - because I have constantly learned from my failures.
Lack of Clear Stop-Loss Strategy
My second mistake was the lack of a clear stop-loss strategy. I believe this is a common problem for many investors, especially in the highly volatile Altcoin market.
Let me use Beam as an example. In this cycle, I had a relatively large position in Beam, but unfortunately, I did not set an effective stop-loss strategy for it. This morning, when I checked my portfolio, I found that the value of Beam had shrunk to just a few cents, even though it was once one of my largest investments in the market.
Looking back, I can see that Beam's price action had been sending warning signals early on. After the initial high, the price began a series of lower highs and lower lows, with momentum clearly stagnating. Although the price was still above the moving averages from a technical perspective, when it first broke below, this should have raised my high alert, but I chose to ignore this signal until the price fell further. From the daily chart, I also had several days, if not weeks, to take action, but I did not set a timely stop-loss.
For long-term held coins, I usually don't set a 100% stop-loss, but adjust the stop-loss ratio based on the coin's fundamentals and my investment horizon. For example, for short-term trades, I will set a strict stop-loss, while for long-term holds, I may allow a 50% drawdown. However, in the case of Beam, I should have at least halved my position, so that even if I missed the rebound, I could re-enter when the price trend improved.
Therefore, setting stop-losses is crucial, whether for short-term or long-term trading. You can use high time frame (such as weekly or monthly) to determine key support and resistance levels as references for your stop-loss. For example, currently, the key support level for Solana is around $175, and if the price breaks below this level, I will start to be concerned. Similarly, the key support for Bitcoin may be around $75K. Even if these levels are not reached, setting stop-losses in advance can help us take action when major market changes occur.
To better execute a stop-loss strategy, I recommend combining multiple technical indicators, such as moving averages, Relative Strength Index (RSI), etc., to improve the accuracy of the strategy. When the indicators on the high time frame are triggered, you can switch to the low time frame (such as daily or hourly) for further price action analysis, and then decide whether to execute the stop-loss.
Additionally, I'd like to share a useful little trick - setting price alerts on TradingView. By simply right-clicking on a moving average or a key support level and adding an alert, you can receive notifications when the price reaches critical levels, allowing you to take action in a timely manner. This way, you won't find your asset has already plummeted significantly after being away from the market for a long time.
Finally, I would like to remind everyone that the stop-loss strategy is not only technical, but also fundamental. For example, the collapse of Luna is a typical case of fundamental failure. When the market shifts from risk preference to risk aversion, changes in fundamentals can also become the basis for stop-loss. Therefore, whether it is technical signals or changes in fundamentals, we need to remain vigilant and adjust our investment strategies in a timely manner.
This is an example where I did a little better in my stop-loss strategy. Let me use MODE as an example. Initially, my operation was very successful. I bought it at $0.014 in the Discord community, and it later rose to $0.06.
At that time, its price trend showed a clear upward trend. From a technical point of view, as long as this trend continues, the market conditions are favorable. However, the situation changed after the trend was broken. When the price fell below the trend line and the moving average, these two signals both indicated that the market momentum was changing. These signals should have caught my attention, but I was too optimistic at the time, thinking it might just be a false breakout, so I did not take action immediately.
However, in the following days, the price trend further deteriorated. The market experienced a series of retests, and the price failed to break through the key support and resistance levels again. Subsequently, the rebound failed, and the price finally fell below the previous low. Throughout the process, the market actually issued up to 6 stop-loss signals. These signals include the breach of the trend line, the loss of support, and the complete failure of the structure.
Here I adopted a step-by-step stop-loss approach. For example, when the price first fell below the trend line, I reduced my position by 10%; when the support level was lost, I reduced it by another 10%; when the price structure completely collapsed, I further reduced my position. This step-by-step stop-loss strategy allowed me to gradually reduce risk as the market fell, rather than liquidating all at once. The advantage of this method is that even if the market rebounds, I can still retain part of the position and re-enter the market when the trend resumes.
Of course, not all cryptocurrencies will respect the support and resistance levels in technical analysis. In some cases, the market may directly penetrate these key levels, leaving you unable to react in time. But in most cases, if the market sends clear signals of a trend reversal, it is wise to take action according to the pre-set plan.
I do not oppose those who invest based on long-term fundamentals and do not set stop-losses. If your plan is to hold an asset for the long term and are willing to accept the risk of it going to zero, that is also a strategy. But the key is that you must clearly recognize the consequences of this choice. If you decide not to set a stop-loss, you must be psychologically prepared to lose your entire investment.
I also have similar experiences, such as investing in certain memes. At the time, my plan was "either zero or skyrocket". Although these coins eventually went to zero, since I had a clear plan in advance, I was able to accept the result calmly.
Regardless of the strategy adopted, the most important thing is to have a clear plan. Even if the plan is "I am willing to bear the entire loss", it is much better than having no plan at all. Investments without a plan often lead to emotional decision-making, which is one of the most dangerous behaviors in investing.
Failure to Realize Profits in Time
The third mistake is the failure to realize profits in time, which may be the most serious mistake I have made over the years.
Depending on the different cryptocurrencies, there will be different price targets. In general, if I make money on a certain cryptocurrency, I will try to realize profits as the price continues to rise. However, during this cycle, there have been several times when I have broken my rules, which has cost me dearly.
There are two examples. The first is from November to December last year, when I kept promoting in the program that if you make a profit, you should realize it. But I actually didn't do it myself, as I was somewhat addicted to the optimistic sentiment in the market. Clearly, this period was very hot in the market, and the market performance from November to December was very good, with everyone excited about the altcoin season, and many memes also skyrocketing. But complacency is fatal in the crypto market, so you need to take action when things happen.
When the market is falling, you need to take action, which may be to stop-loss or reduce positions, or even choose to buy. This is also an action you can take. Or when the market is rising, you can raise the stop-loss to protect your trades, or start to realize profits. But complacency is just doing nothing and letting things develop naturally, and you are basically just passively watching the progress of events.
I saw the numbers in my portfolio constantly rising, and I developed a false sense of security, thinking the market would continue to rise. However, when the market started to turn around at the end of December, the bubble burst, and the value of my portfolio shrank significantly in a short period of time.
The second example is the Lucky Coin I traded. I have mentioned this case many times in previous programs and analyzed my mistakes in detail. Lucky Coin was an important investment project for me at the time, but I didn't make any profits from it. At the peak, the Lucky Coin I held was worth about $1.7 million, but due to my failure to realize profits in time, all these gains eventually evaporated. I didn't make a penny on Lucky Coin.
Of course, there are reasons why I was unable to extract the $1.7 million in gains from Lucky Coin. The first reason is that when I was creating content related to Lucky Coin, I followed a personal rule: I would not sell the coin within 24 hours of publicly discussing it. This was to avoid being accused of "pumping and dumping", that is, publicly praising a coin and then immediately selling it for profit. I believe this practice is morally unacceptable and would also damage my credibility as a content creator. Therefore, I strictly followed this rule. However, this also caused me to miss the opportunity to realize profits at the high point.
In addition, lack of liquidity is also an important reason. Cryptocurrencies with small market capitalizations like Lucky Coin usually have relatively low market liquidity, which means it is difficult to sell a large amount of assets at once without significantly impacting the price. If I had tried to sell a $1 million position at once, it would likely have caused a significant price drop, which is obviously not what I wanted to see. Therefore, in such cases, selling can only be done in batches, which may take several weeks to complete.
Despite these constraints, I still believe I made a fundamental mistake in this trade. When I first mentioned Lucky Coin on Discord, its price was around $3; when I first mentioned it on YouTube, the price had already risen to $9. And before that, I had hinted at its potential when the price was between $4 and $5, and then Lucky Coin's price soared to $17. Despite this, I didn't profit from it myself.
I was mesmerized by the rapid rise and mistakenly believed that the price still had more room to rise, so I failed to follow my own investment rules. According to my rules, when the price of a cryptocurrency doubles, I should at least withdraw the initial investment to ensure the safety of the principal, but this time I didn't do so.
Unfortunately, Lucky Coin later encountered problems such as replay attacks and blockchain migration failures, causing its price to plummet rapidly. At the time, I was obviously unable to foresee these technical issues, but this cannot be an excuse for my failure to realize profits in time. Regardless of what the future holds, once the price of a cryptocurrency doubles or even triples, withdrawing the initial investment is a wise choice.
This experience has made me deeply aware of the importance of realizing profits in a timely manner. When the price of a cryptocurrency rises, if you don't realize profits in time, once the market turns around, you'll find that the liquidity of many cryptocurrencies is very limited. And this phenomenon not only occurs in memes, but even in large-cap cryptocurrencies like Beam, the liquidity can be insufficient when the price falls. When the price drops, the market reacts very quickly, and if you haven't locked in profits during the uptrend, you may end up regretting it.
Through these trades, I have learned to quickly adjust my strategy and avoid the same mistakes in the next major trade. The most critical point is that making mistakes is inevitable, but we must learn from them. Ensure that the mistakes made today will not be repeated in tomorrow's trades.
When you make 10x profits in your trades, don't forget the lessons learned from the failures of Luna and other cases. When the market price drops and hits your stop-loss, don't hesitate, decisively take the stop-loss, rather than passively watching the price continue to fall. Reviewing past lessons often prompts you to take action at critical moments. Although these experiences may be painful, they have indeed helped me stay clear-headed in this cycle.
In fact, many times we need to go through similar lessons repeatedly to truly understand the underlying principles. It's like a "scientific experiment" that requires repeated trials and summarization. Traders will make some unnecessary mistakes in the market. But with the accumulation of experience, we can gradually reduce the frequency of mistakes. Professional players may have an error rate of only 4%, while beginners can be as high as 20%. Similarly, excellent traders are not those who never make mistakes, but those who make fewer mistakes and with smaller impact.
The message I want to convey today is that making mistakes is acceptable, but the key is to learn from them and strive to reduce similar errors in the future. Whether you are a novice or a veteran, making mistakes in the market is inevitable, but each mistake is an opportunity for growth.
Missteps in Position Management
The fourth mistake is position management.
In this cycle, I sometimes invested too much capital in a single coin, and this oversized position made me emotional and difficult to make rational decisions in trading. On the other hand, there were times when I was very confident in a certain coin, but didn't allocate enough capital, resulting in missing out on greater gains. This made me realize that the importance of position management is often underestimated.
If you can learn something from my experience, it is that there are three key things to do in investing: set stop-losses, take profits in a timely manner, and manage positions reasonably. These three points are the keys to becoming an excellent investor. When you are bullish on a coin and this coin has strong fundamentals and technical support, make sure your position size is reasonable, but don't invest too much capital, to avoid losing control of your emotions in the event of losses.
Let me share an example, this is my Sundog trade on October 28th. On October 20th, I posted a tweet saying that I believed Sundog was about to rebound, and I established a spot position as a result. As my confidence grew, I added a leveraged position, resulting in a very large total position.
Initially, the trade progressed smoothly, with the price rising in a few days, and I made some money. However, the price then began to plummet sharply. Since I had sufficient margin in my account, I didn't set a stop-loss and wasn't liquidated. But when the price dropped to 10 cents, I started to feel immense pressure. I felt I should have closed the position. But at the time I hesitated, I didn't want to lock in tens of thousands of dollars in losses, so I decided to stick to my judgment.
Fortunately, the market then rebounded, and the price rose from 14 cents to 26 cents, and I quickly closed the position after breaking even. However, this experience made me deeply aware of the risks and psychological pressure that can come with an oversized position. Even if you are highly confident in a trade, you should not invest too much capital, unless you can fully accept the potential losses.
In investing, the problem of too small a position is also worth noting. If you are very confident in a coin but haven't invested enough capital, in the long run, this may cause you to miss out on potential major gains.
My advice is that your investment in a single coin should not exceed 5% of your total investment portfolio. By limiting the position to within 5%, you can effectively avoid significant losses due to an oversized position. In some special cases, if you are very confident in a trade, you can increase the position to 10%, but this should be limited to one or two trades in a cycle.
Additionally, as the coin price rises, your position proportion may naturally increase. For example, if you initially invested 4% of your funds in a coin, and its price tripled, that position may now account for 12% of your portfolio. In this case, I suggest you take profits in a timely manner. For example, you can reduce the position from 12% to 8%, preserve some of the gains, and withdraw the initial investment, allowing the remaining part to continue growing.
For example, I made 100x gains on Pepe. If I initially invested $20,000 and it eventually grew to $2 million, it would obviously occupy a larger proportion of my investment portfolio than the initial 1%. But as the price rises, you need to accept the changes in position proportion and control risk by taking profits in batches.
At one stage, Pepe occupied a large proportion of my Altcoin investment portfolio. However, I gradually took profits during its continuous rise, and eventually recovered my initial investment and realized some profits. Although on paper there was a 100x gain between my first buy and the peak price, in reality I may have only made 20x. This is a common situation in the market. Even if you catch a 10x opportunity, your actual gains may only be 4x, because you can't precisely time the best entry and exit points, and you take profits in batches during the uptrend.
However, this strategy also has its advantages. If a coin only rises 5x instead of 10x and then falls back, you can still achieve 2x or 3x gains. This gradual profit-taking approach may reduce your potential gains, but it can also effectively protect your investment when the market declines. Overall, taking profits in a timely manner is always wiser than not taking profits.
Holding Too Many Altcoins
Finally, I want to talk about the last mistake, holding too many coins. In 2021, I made this mistake. At that time, my portfolio held as many as 30 or even more coins. I remember I not only held Solana, but also invested in many Decentralized Exchange (Dex) related coins, some proxy tokens, some game-related coins, and various L1 projects. As a result, my portfolio expanded to 40 to 50 coins.
When the market started to turn, managing such a large portfolio became a nightmare. In this cycle, I have limited my holdings to within 20 coins. But even so, in November I still felt I was holding too many coins. Although it's not as extreme as 40 coins, I still have around 20, when I think the ideal number should be 5 to 10 coins.
Over the past few months, I've been working to compress my portfolio, reducing the number of coins to a more reasonable range. Almost all of the adjustments have been completed in the last month. I haven't added too many new long positions, but have focused on optimizing the existing holdings. The only exception was when the market experienced a large-scale liquidation in one week, which I thought was a good opportunity, so I briefly increased my position and gained some decent rebound profits. But overall, my goal is to condense my portfolio to 5 to 10 coins, rather than 20 to 30.
If you currently hold 20 coins, it's not too late to reduce now. 15 coins may still be manageable, but to be honest, even managing 15 coins is very difficult. For each coin, you need to set price alerts and stop-loss conditions, which is almost impossible to achieve for a non-full-time investor.
Furthermore, it's not easy to truly build deep conviction in a coin. For example, if you say you are bullish on the gaming industry and hold five gaming-related coins, this approach is acceptable, but if you need to establish in-depth technical or product arguments for each coin, the difficulty will increase significantly. There are not many truly high-quality projects in the crypto market. When you carefully examine your portfolio, you may find that you are truly confident in only 7 coins, while the other 5 to 6 are just investments you made because you were optimistic about certain narratives.
Therefore, my advice is to concentrate your investments on a small number of high-conviction coins, rather than diversifying across too many coins. By reducing the number of holdings, you can focus more on researching and managing each coin, thereby improving the overall efficiency and returns of your investments.
As more and more new tokens are launched, this issue has become more prominent. The number of Altcoins is constantly increasing, diluting market liquidity, which leads to greater price fluctuations when all currencies fluctuate, thereby increasing the overall investment risk. If you want to reduce risk, reducing the number of currencies held is an effective way, as this makes it easier to manage risk.
In summary, I believe the following five core mistakes are the most common mistakes investors make in this cycle:
1. Holding bias: Unreasonable obsession with existing investments, ignoring market changes.
2. Lack of invalidation conditions: Failure to set clear exit criteria for each investment, leading to escalating losses.
3. Failure to take profits in a timely manner: Failure to gradually take profits at price highs, missing the opportunity to lock in gains.
4. Mistakes in position management: The invested capital does not match the investment confidence, leading to psychological pressure or insufficient returns.
5. Holding too many currencies: Excessive diversification of investments, difficult to focus on management, increasing overall risk.
Conclusion
Just as I did in the video, I honestly shared my own mistakes, and now it's your turn. Write down your mistakes and the reasons that led to these mistakes. Once you have identified the root causes, you can list your future improvement plans and strictly implement them. Place this list in a prominent place, such as your computer desktop, your mobile phone, or post it on the trading desk. Always remind yourself to adhere to these principles, whether the market sentiment is high or low.
To maintain consistency in investing, you must first recognize the problems. Before solving the problem, you must be clear about what the problem is. Review these mistakes one by one, reflect on their root causes, and develop a solution. You may also come up with some mistakes that I haven't mentioned, which may have a significant impact on you. Record them, analyze them carefully, and plan the steps for improvement.
