Understand who you are making money from.
Author: Lin Chuan, Head of Research at dappOS
Introduction
My output in Web3 has primarily focused on investment research and writing long research articles. Although I made some money from memes before October this year, I generally viewed them as hot topics for sector rotation and did not systematically study how to play with memes. On one hand, I increasingly realized the position of memes as a new type of attention economy in this cycle; on the other hand, the intention of the project I am involved with, dappOS, to launch a trading platform in the next phase is also related to memes and trading.
Therefore, about two months ago, I began to conduct in-depth and systematic research on how to trade memes. I coincidentally caught a wave of bull markets in BTC and memes, and the gains were quite substantial. What started as a playful investment of 10 SOL has rolled into over 1000 SOL, more than a hundredfold increase. Recently, as the meme hype has somewhat receded, I have organized my trading insights from the past period to share and discuss with everyone.
General Discussion: What Kind of Money Are You Making?
There are many ways to make money in the market, but to achieve long-term stable profits, you must understand the logic behind each of your trades, which means figuring out who you are making money from. If you rush into the market without thinking this through, you are likely to be the one losing money.
In fact, different traders have different styles. During this period, I have summarized that I am relatively good at making money from two types of logic:
Money from new hot sentiment;
Money from the bottom explosion of excellent narrative targets;
Due to the different underlying logic of these two types of trading, the selection of targets, entry timing, and exit timing are all different, which I will share in detail next. Even for "VC coins" in exchanges, in the current context where the price increase is more based on sentiment rather than fundamentals, some trading logic is also applicable.
1. Trading Logic of Hot Sentiment
1. How to Choose Targets?
In a bull market, if a new hot topic or concept emerges and begins to spread exponentially, the corresponding meme's price will show a continuous surge.
The typical characteristics of this stage are: the price rises sharply without much pullback, or even if there is a short-term pullback, it does not exceed 30%; Twitter KOLs, WeChat/TG groups, and news media start to publish a lot of articles discussing this hot concept, initially focusing on calls to action, and over time, some neutral/negative comments will gradually appear. The emergence of these comments is a sign of exponential spread, indicating that these people see others discussing the topic, are not optimistic about it, but feel it is necessary to comment on this hot topic.
To seize such opportunities, there are two methods:
a. Regularly browse Twitter and GMGN for hot targets, and have a certain judgment on the strength of the narrative's spread. For example, the narratives of $BAN, $RIF, and $LUCE each have their own angles and novelty, while $DOGE and others also have strength from a spread perspective;
b. If you did not pay attention at the first moment, when you see some Twitter KOLs posting or some group members talking, you can also analyze and judge which stage of exponential spread the project is in. If you believe the project is in the early stage of exponential spread, it is also a good time to enter;
Generally speaking, according to my coin selection preference, when deciding to enter, the market cap of the coin is usually between 5M-50M. Coins below 5M are often just people who have already entered shouting everywhere, very fragile, and may not have strong backing, making it easy for them to drop to zero in one go; coins above 50M have insufficient odds, and even if you want to enter, you need to control your position. For popular coins above 50M, I prefer to profit from their shallow bottom explosion after a pullback.
2. How to Enter?
For such targets, when you decide to buy, you need to enter immediately. Because you are making money from hot sentiment, you are betting that this narrative can achieve exponential spread, or you are at the upstream of this exponential spread. If you wait for a pullback, you may easily miss your psychological price point and then watch the price rise continuously, while various KOLs analyze the vast potential of this meme from different angles, regretting and chasing the high price to enter, ultimately getting trapped.
However, in practice, to have a relatively low average cost, if the target is in a rapid rise, I would consider entering 40% of the planned position, and then buy the remaining 60% when a pullback of about 20-30% occurs. If there is no significant pullback, I will not add to my position. If the target is currently in a sideways/downward state, I will fill my entire position at once and will not consider adding to my position afterward.
When entering with a relatively large position, I will learn from Hui Jie’s three-wallet method, dividing the funds into three new wallets of 20%, 30%, and 50% to buy, which reduces the risk of being monitored and facilitates controlling the position when exiting later.
- How to Exit?
If it has risen: The 15-minute trend line take-profit method recommended by Dayu @BTCdayu is quite effective in practice, as we are making money from sentiment. If the 15-minute trend line is broken, it is easy to trigger a cascading drop, and this is the time for a phased take-profit. Generally, I will exit 30%-50%-20% when the price breaks the 15-minute trend line after three rises. However, if there is a significant rise followed by a pullback to the cost line, I generally consider selling all remaining positions to prevent further pullbacks turning profits into losses;
(Attached: Dayu's 15-minute trend line take-profit method explanation video link)
If it drops directly: If after buying, the coin never rises above the cost price, it indicates a problem with the logic of target selection. In such cases, I generally consider stopping losses around half of the cost price; if the target is indeed a good one with potential for a second explosion, there will generally be another opportunity to enter at a lower cost.
2. Trading Logic of Excellent Narrative Bottom Explosion
1. How to Choose Targets?
Even some excellent narratives that exceed a market cap of 50M or even 100M in the first wave of explosion often experience a deep pullback of about 70-80%, such as $MOODENG, $AI16Z, $BAN, and $LUCE, which later stabilized above 100M in market cap, all had moments of deep pullback after the first wave of explosion.
This is partly a natural result of the ebb and flow of sentiment (you can look at the K-line trend of $SLERF when it first launched; at that time, no one could have preemptively controlled it, and that K-line is the classic natural K-line of pure retail PVP), and on the other hand, it is also because the market makers need to offload profits through significant pullbacks, allowing more people to have the opportunity to enter and raising the average cost for everyone for the next explosion. Therefore, to make money from this logic, you need to first judge whether this narrative has durability and the potential for a second explosion.
How to judge whether a narrative will have a second explosion is also something that requires experience accumulation. Sometimes this is related to the market maker's operational logic behind it, and we can only try to improve the win rate without being able to achieve 100% victory. Generally, I think narratives that are likely to have a second explosion will have one or several of the following characteristics:
1. A community with a strong unique culture that is not limited to the Chinese-speaking world (e.g., $NEIRO, $ACT, $ELIZA);
2. The concept itself is related to a certain significant event that will definitely happen in the future (e.g., $BAN, $LUCE);
3. It has certain technological fundamentals that will continue to grow and benefit from the explosion of related tracks (e.g., $GOAL, $RIF);
The following narratives are more likely to experience a wave:
The concept itself is related to a certain event that has already occurred, and the probability of subsequent events is low (because the event has already happened, and people's attention will gradually shift to new events);
Celebrity endorsements, such as Musk concepts, Trump concepts, Vitalik concepts, CZ concepts (celebrities will continuously generate new concepts through their posts, attention will be dispersed, and meme coins based on celebrity concepts are generally temporary and wild, you will see a lot of similarly named coins, and the market makers may run away to play with new concepts after the first wave);
Non-leading coins in similar narrative concepts (after a wave of explosion and pullback, funds are more inclined to enter the leading coins rather than the second, third, fourth, or fifth).
2. How to Enter
For such targets, you must wait for a deep pullback before entering. You must believe that a significant pullback will occur; if a meme coin rises from 10M to 1B without a pullback of at least 50%, we won't be making that money. Generally, I prefer to look for opportunities to enter after seeing the coin pull back at least 70% and after it has been in a sideways state for more than 2 days, with the entry point being at the lower middle of the sideways range. For some coins that do not pull back as deeply, such as around 50%, if I really want to enter, I generally consider entering 40% of my position.
Note that since this is a logic of ambushing an explosion, it may occur that for a considerable period (like 1-2 weeks), the target remains in a sideways range, resulting in slight losses, which will occupy the liquidity of the funds. Therefore, when ambushing, you should also pay attention to position control to avoid the situation where you heavily ambush a project and then have to cut losses to obtain funds when new opportunities arise.
Here, I would also like to talk about the issue of making waves. Although I may enter and exit the same coin multiple times, the logic for each entry or exit belongs to one of the two trading logics. When entering, I am clear about what kind of money I am making and how to exit. If I simply look at the K-line to buy high and sell low, it is easy to miss selling or get trapped, so I do not recommend this approach. I have not seen any expert who can make long-term profits by making waves with memes.
3. How to Exit?
If it has risen: Since we are making money from narrative explosions, the expected odds for this type of trade are relatively high, so generally, I do not take profits when it first breaks the sideways range and then retests. After the target has risen at least 50%, I will consider using the 15-minute trend line take-profit method to take profits in batches. Since narratives with a second explosion are generally quite strong, it is best to leave a 20% tail position to look forward to big opportunities like being listed on Binance.
If it drops directly: If it does not rise at all and confirms breaking below the bottom of the sideways range (for example, if it has not gone up after a period of time, or if it drops very quickly to 20% lower than the previous bottom), you must decisively stop losses on the on-chain target. Although in altcoins on major exchanges, market makers often create a false breakdown to absorb more chips and let people exit, due to the generally shallow pools of on-chain memes, once it breaks below the key support level formed by more than 2 days of sideways trading, it often leads to a cascading drop. Therefore, do not fantasize that this is "the market maker testing the waters." If it is a target on major exchanges like Binance/OK, due to good liquidity and the tendency of market makers to operate this way, it is indeed possible to see a "false breakdown," and you can consider waiting for a while.
Recommended KOLs to Follow
In the field of meme trading on Twitter, there are also many excellent KOLs, among which I highly recommend four that I have learned a lot from:
Wizard (@0xcryptowizard): Rose to fame with $ACT, has a deep understanding of meme trading, and the new user tutorials and comments on some targets he writes are very valuable. The meme tutorial pinned by the Wizard is very suitable for newcomers.
Hui Jie (@0xmagnolia): A practical sharing KOL, $MOODENG and $BAN are her famous battles, and some content on how to trade in practice has even been organized into Hui Jing, which is very worth learning from. The interpretations and interactions in the comment section of the long review of $BAN are also very interesting.
Dayu (@BTCdayu): Very perceptive in capturing hot topics, can often catch new narratives emerging or old narratives about to explode and post them in the group, such as $PNUT, $LUCE, $RIF, etc. There are also many other experts in the group sharing and discussing. Even just looking at the public tweets is very helpful for understanding hot topics and sentiment.
Mai Zong (@Michael_Liu93): With an institutional background, his understanding of memes as a new era of attention economy is very advanced. If you are a VC, researcher, or come from a technical background and still look down on memes, I recommend reading a few of Mai Zong's long tweets; some interpretations from the perspective of developers and market makers are also very helpful.
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