Eight things that can increase the probability of making money in the cryptocurrency field

This article is authorized and reproduced from Dapp.com, collating the views of cryptocurrency researcher Route 2 FI on their personal social media platform. The translation and compilation are provided by Dapp.com, and the original article can be found here.

1. Crypto is a game of probabilities, but most people see it as gambling

Let's do a very simple exercise to illustrate how to achieve a positive expected value +EV in your investments.

First, consider long-term investment in BTC, let's set up the following 4 scenarios:

1. BTC will hit a new high this year

2. BTC will continue to consolidate in 2022 but hit a new high in 2023

3. BTC has completed its historical role, it will decline and stay at a position

4. BTC will dip this year but hit a new high in 2023

Now, let's do some probability analysis for each outcome:

1. Probability: 20%
2. Probability: 40%
3. Probability: 20%
4. Probability: 20%

Currently, BTC is priced at $42,000, considering these 4 scenarios, what is the best trade now?

1. Buy
2. Buy
3. Sell
4. Buy

In 80% of the cases, buying is the best outcome.

1. 20% probability of a 65%+ increase
2. 40% probability of a long-term increase of over 65%
3. 20% probability that BTC will never return to ATH
4. 20% probability we may lose in the short term, but have a 65%+ chance of profit in the long term

For point 3, you can set a stop loss at 30%. In other words, if BTC falls below $29,000, you sell. Overall, you have an 80% chance of getting a +65% return, with only a 20% chance of a 30% loss. Sounds like a worthwhile risk, doesn't it?

Of course, this is a very simple example, you may disagree with these scenarios and probabilities, but I just want to show you how to think about investing.

2. How to use probabilistic thinking?

Remember, the market can remain irrational longer than you can remain solvent. In Crypto, anything can happen. That's why you need to set strict rules for yourself.

For example, here are some hard rules about when to invest in LUNA:

• When BTC is trending sideways/upward
• When UST market cap is increasing
• When momentum is more apparent (new protocols, more users, bullish news, etc.)
• When Anchor savings generate positive returns
• When Anchor TVL increases (you can usually track everything happening with Anchor as over 70% of UST market cap is locked there)
• When technical analysis looks good on the 4-hour, 1-day, 1-month timeframes

Personally, I believe as long as you have these 6 factors, LUNA has a good risk/reward ratio. In simple terms, an increase in UST market cap equals an increase in LUNA price.

3. Pay attention to position size, never exceed what you can bear

When you encounter favorable odds, you may want to bet big, but even investments with positive expected value can ultimately fail. Remember, it's all about survival, that's why you should cut losses in time and never risk more than 1-3% per trade.

For example, suppose:

1. Total investment portfolio value: $10,000
2. Each trade has a 2% risk, with a stop loss at 7% loss
3. Position size: $10,000 x 0.02 / 0.07 = $2,857

This position represents 28.5% of your investment portfolio, but since you have set a stop loss at 7%, it means your loss will not exceed $200, which is 2% of your total investment portfolio. Position size and stop loss are crucial in trading, if you overextend your capital exposure, you'll eventually wipe out your account.

4. Figure out what your edge is

If you try to be a master of everything, you will end up mastering nothing. You must find the market that suits you best.

You might start by thinking, what are you most interested in? Trading, NFTs, or DeFi? But even trading is too broad. Microcaps, small caps, L1s, top 100 market cap, not to mention timeframes, swing trading, scalping, etc...

For NFTs, which ecosystem are you focusing on? I did spend a few days researching floor prices on http://rarity.tools. For DeFi, what are your strengths? After all, keeping up with the latest on various L1 chains is tough.

You need to figure out if you are the observer of smart money, the discoverer of low market cap gems, the one who can spot NFT trends earlier than others, or an expert in arbitrage or DeFi yield farming? Once you figure this out, you can double down on it instead of trying to learn everything.

5. Be able to admit when you're wrong, and stop

This is a key factor in succeeding in the crypto industry. Whether it's trading, NFTs, or DeFi, before you buy, you need a thesis and a failure point.

Ask yourself, "What if I'm wrong?"

Continuing the example:

Buying AVAX at $79, the failure point might be a fundamental change in the ecosystem, and the stop loss should be around 10%.

I'm writing this article because gambling is more emotional than you think. How many times have you not forced yourself to sell at a certain price but said, "If it drops another 5%, then I'll sell"? And then after another 5% loss...

So, respect your rules.

6. Find your "echo chamber"

If you've spent enough time in the crypto circles on Twitter, you'll notice many sub-communities, such as ETH maxis, LUNAtics, FTM degens, ATOM believers, etc.

While you should definitely join one or several of these communities, you should also always remain critical. Don't blindly accept information without making your own judgment.

In the end, it's a PvP game (player versus player) even if you think you're part of a big community on crypto Twitter, you're still on your own, don't assume others are looking out for your best interests.

7. Be patient

You don't always have to be fully invested, you can choose to farm DeFi with stablecoins or hold some cash. Don't always be trading, let the trades come to you.

Try to wait for major pullbacks and generational buying opportunities to help you achieve your ideal goals (easier said than done).

What I'm trying to say is, learn to wait for good trading opportunities. In a downtrend, don't try to catch every dip. Remember, most projects in the top 100 by market cap will disappear within 4 years.

8. Some DeFi tips

1. 1. Check yields on http://coindix.com, supplement missing information on http://defiLlama.com.
   2. Unless highly experienced (micro cap hunters), stick to high TVL staking or yield-farm opportunities.
   3. If using leverage, continuously monitor your positions.
   4. Try to engage with crypto Twitter influencers, many of them have insights others don't.
   5. The higher the APR, the higher the likelihood of becoming a revenue source.
   6. Avoid Binance Smart Chain as many projects there rug pull.
   7. Turn on notifications for important Twitter accounts, such as Peck Shield providing good shorting opportunities. Or when Andre Cronje announces his "retirement" in March, it's an easy shorting opportunity. Now, I think any news that stabilizes USN will affect the NEAR market in the ecosystem.
   8. Never put all your money into one DeFi protocol.
   9. Keep costs low when trying a new platform for the first time.

1. Try to focus on one or two ecosystems to capture the biggest opportunities.
2. Observe where the top wallets are going (you can check DeBank).