As you continue your NFT journey, you must wonder what are some of the timeless wisdom I can learn to avoid making the same mistakes again and again and again?
Let’s say you get an “alpha” tip for an NFT project… how do you approach it in a sensible way to avoid getting burned?
What is a trading opportunity?
Decide if it’s a good trading opportunity or an investment opportunity.
What does that mean? Projects that you should treat as trading opportunities are those which probably won’t be around in three months, Let’s even the next month. call them hype projects.
Why are those still worth trading at all?
Even well-hyped projects can be worth trading because they often have high volatility, and if you approach them right you can extract trading profits from them. The volatility, if played smartly, can be worth money.
With hype projects, you are basically taking funds from less savvy investors.
It’s also possible to make good trades on actually valuable projects that have long-term potential. So trading is not necessarily all about hype projects.
There are usually a few spikes at the beginning and a rollercoaster that will make most people lose their lunch. It is the NFT space at its most brutal.
There are four simple rules to follow when trading NFTs.
1. DYOR: no matter where the tip came from DO YOUR RESEARCH. Yes, even for well-hyped projects because sometimes they always end up as scams.
Research doesn’t mean just joining discord. Ask questions, talk to other investors, find reasons, why this project might be a scam e.g art, is stolen or authentic?
This is important because you don’t want to be the guy holding the last bag or do you?
2. No FOMO:
When you FOMO you are already buying at the top and that is when early ruthless investors exit. it’s too late. You’ve missed the boat already. Wait for a dip. Wait some more. Then go back to rule number one and DYOR.
3. Stay Ruthless: Don’t be greedy; Sell during the pump. If a pump happens that lifts the price high enough that the profit is worthwhile… flip. Yes, it might still go higher, but it most likely won’t. Remember that FOMO that was a signal not to buy? It’s also a signal to sell.
It’s so easy to enter a great trade and fail to exit at the right time. I wonder how many people bought Mekaverse at 1 eth, rode it up to 8 eths, and then back down to 1 eth. Learn to take profits and not look back.
Yes, the project might keep pumping. Maybe it’s the next blue-chip and you flipped @ 0.1 when you could have held to 60. But that’s not the trading game. Trading is short-term.
If you flip out of a project, do more analysis, and want back in, you can always buy back in the dip.
When trading, get used to just not looking back. You traded the volatility, you cashed in a profit. Well done you. Of course, the project might also be a good investment, but that wasn’t the game you played.
4. Don’t look back.
Pumps are often short-lived, sometimes just a few hours or a couple of days, and trying to sell into a dying pump will eat into your trading profits. So put alerts in place in whatever tools you have, and make sure you stay on top of your trades. After you exit a project, don’t FOMO back in. Sometimes you win, most times you lose.
Investing
Let’s move on to investing. Investing is a very different thing. When you invest, you’re making a bet that the project is undervalued over the long term, and so buying it for what to you seems like a cheap price, to sell it once it reaches a more appropriate price.
The first rule of investing is the same as the first rule of trading:
1. DYOR.
For investing, the research has a different objective; you want to convince yourself the project is undervalued compared to either its current true value or its potential.
In the NFT space right now, research involves checking and understanding the project roadmap at least. Roadmaps are plans the project plans to execute and when it plans to execute them.
An important point: so-called bluechip projects can often be misleading in the investment context. Imagine a project sitting at, say, 30 eths. Are they a good investment? Right now a lot of people would say “yes” cuz it’s “less risky”.
But investment is about returns.
If a project is already at 10 eths and has been there for 6m, is it a good investment? Maybe, if there are reasons why it’ll go up a lot from there. But, if anything, it’s harder for a bluechip project to be a good investment because it will need to create *even more* value.
Instead, what I find most profitable investment-wise is to look for much smaller projects (ideally at the mint, or soon after), which have huge unrealized potential and so are massively undervalued. That’s my investment approach.
As an example, if you see another project that’s similar to that 30Eth project, but just minted and now costs 0.2, and based on your actual research you think the new project is better than the older one, it’s reasonable to assume it might at least grow to match.
2. Patience
If you have done your extensive research and you are convinced the project is undervalued or you were able to buy during a dip, be patient and stick to your plan
Like with trading, you don’t want to buy during a pump, cause that’s just wasting money. Pumps always come back down.
But the timing of a long-term investment matters a lot less. So what if you buy at 0.10 and it comes back down to 0.05 if you’re convinced eventually it’s going to 10 eths? It doesn’t really matter.
Another major mistake people make is taking out their funds and investing in a pumping project with the hope of recovering their last funds; always remember you don’t want to invest in a pumping project.
3. Monitor Loosely
keep a loose eye on the investment, and sell once you think it’s reached its true value or your target price. If you’re not sure exactly what that is, let the graph show you: once the value stabilizes, it’s probably not going to move too much from there.
Investing is a lot less work. You don’t have to monitor it frequently, you can sleep and smile.
But you need to learn to recognize hype projects from worthwhile investments because investing in hot garbage looks like this eventually:
Happy trading and investing!
