Original author: Miles Deutscher
Original translation: TechFlow
Background Information
In this video, I will share the five biggest mistakes I have made in my cryptocurrency trading career and the valuable lessons I learned from them. At the same time, I will also analyze the common pitfalls that new and experienced traders encounter in the crypto market and explore why these mistakes, although costly, ultimately helped me succeed. I hope that through my sharing, you can also avoid similar problems and become a better cryptocurrency trader or investor.
Main discussion topics
Bitcoin (BTC)
Altcoin
Shanzhai Market Dynamics
Latest updates on the cottage market
Trading strategies of copycats
Projects involved include: BEAM, MODE, AI16Z, LKY, LUNA, LMT, SUNDOG, PEPE
Introduction
Miles:
In the crypto space, most people love to talk about their successes. They are happy to show off their huge gains in the market, but few are willing to open up about their failures.
But my success in the crypto market is largely due to the lessons I learned from those big losses. Even in this current market cycle, I have experienced my fair share of failures, which have reminded me again that there are some core principles to being a successful investor.
Today, I want to change the perspective and not talk about my five success stories, but focus on the big losses I have encountered in my crypto career. These losses represent the biggest mistakes I have made and made me realize the pitfalls I have repeatedly stepped on in the market. The reason why I have become a profitable investor is largely due to the period of heavy losses in 2021. Even in this current cycle, I have had a few trades that did not go as expected, but it is these failures that allow me to be more calm in future market cycles, especially the next round of altcoin bull market.
Ignore market risk signals
Miles:
I have to start with my biggest loss in the cryptocurrency market - Luna. This experience made me realize the importance of the investment psychology issue of position bias. The so-called position bias refers to the fact that when you hold a large position in an asset and see its price continue to rise, it is easy to have a subjective belief that the fundamentals of the asset are improving. However, this belief is often not based on objective fundamental analysis, but simply because of the illusion caused by the increase in price. In other words, you may mistake the increase in price as proof of improving fundamentals.
It was this holding bias that caused me to ignore many potential warning signs that Luna’s fundamentals were failing. I realized at the time that while algorithmic stablecoins like UST are valuable because they are scalable and decentralized, unfortunately, this also brings the risk of possible decoupling (i.e. the stablecoin cannot maintain the value balance with its anchor asset).
Although I was optimistic about Luna at the time and held a large amount of Luna and UST, I was also aware of the risk of decoupling. However, I underestimated the actual possibility of this risk and even regarded it as an extremely low probability event, so I did not take any action, or did not take action in time.
When the price of UST fell to 96 cents, the market had already shown obvious signs of crisis, and I should have immediately cut at least 50% of my position to avoid risks. However, due to the influence of position bias, I chose to ignore these warning signs, and this psychological misunderstanding eventually made me pay a heavy price. We all know what happened next. Once UST began to decouple, the value of Luna and UST eventually returned to zero.
This huge loss in 2021 dealt a severe blow to my portfolio, but it also became an important turning point in my investment career. In fact, I made huge gains through my Bitcoin investment in early 2021. I bought a whole Bitcoin for $5,000 in 2019, then doubled the investment to $500,000, and further grew it to more than $1 million in wealth during the bull market. However, in 2022, due to the drastic market fluctuations, my assets shrank from $1 million to tens of thousands of dollars. This experience of going from life-changing wealth to a significant reduction is painful, and the psychological gap is indescribable.
I firmly believe that you cannot truly grow as an investor without experiencing the hard knocks of the market. If you are going through similar losses, remember that while you may not be able to see the positive side in the moment, these experiences will make you stronger and smarter.
Thats why I decided to make this video today. Instead of talking about 10x, 50x, or even 100x returns on my investments, Im going to focus on my failures because those are the lessons that are truly valuable. My goal is to help you become a better investor, and learning how to learn from your mistakes is key to that goal. Thats why Im successful today - because I learn from my failures.
Lack of clear stop-loss strategy
Miles:
My second mistake was not having a clear stop-loss strategy. I believe this is a common problem for many investors, especially when the altcoin market is volatile.
Let me use Beam as an example. During this cycle, I had a large position in Beam, but unfortunately, I did not set an effective stop loss strategy for it. This morning, when I looked at my portfolio, I found that Beams value had shrunk to a few cents, and it used to be one of my largest investments in the market.
Looking back, I can see that Beams price action was already giving off warning signs. After the initial high, the price started to make a series of lower highs and lower lows, and the momentum clearly stalled. Although technically the price was still above the moving average at the time, it should have caused me to be highly alert when it first broke below it, but I chose to ignore the signal until the price fell further. From the daily chart, I also had days or even weeks to take action, but I did not set the stop loss in time.
For long-term holdings, I usually don’t set a 100% stop loss, but adjust the stop loss ratio based on the fundamentals of the currency and my investment period. For example, for short-term trading, I will set a strict stop loss, while for long-term holdings, I may allow a 50% retracement. However, in the case of Beam, I should at least cut my position in half, because even if I miss the rebound, I can re-enter the market when the price trend improves.
Therefore, whether you are trading in the short or long term, setting a stop loss is crucial. You can determine key support and resistance levels based on high time frames (such as weekly or monthly lines) as a reference for stop losses. For example, Solana’s key support level is currently at $175. If the price falls below this level, I will start to worry. Similarly, Bitcoin’s key support may be at 75K. Even if these levels may not be hit, setting stop losses in advance can help us take timely action when major changes occur in the market.
In order to better execute the stop loss strategy, I suggest combining multiple technical indicators, such as moving averages, relative strength index (RSI), etc., to improve the accuracy of the strategy. When the indicator of the high time frame is triggered, you can switch to a low time frame (such as daily or hourly) for further analysis of the price trend to decide whether to execute the stop loss.
In addition, I would like to share a practical tip, which is to set price alerts on TradingView. By simply right-clicking on a moving average or key support level and adding an alert, you can be notified when the price hits a key level so that you can take timely action. This way, you will not find that the asset has fallen sharply after being away from the market for a long time.
Finally, I would like to remind everyone that stop-loss strategies are not only technical, but can also be fundamental. For example, the collapse of Luna is a typical case of fundamental failure. When the market shifts from risk appetite to risk aversion, changes in fundamentals can also serve as a basis for stop-loss. Therefore, whether it is technical signals or fundamental changes, we need to stay alert and adjust investment strategies in a timely manner.
Here is an example where I did a little better with my stop loss strategy, let me use MODE as an example. At the beginning, my operation was very successful. I bought it at $0.014 in the Discord community, and then it rose to $0.06.
At the time, its price action was showing a clear upward trend. From a technical point of view, the market conditions were favorable as long as this trend held. However, the situation changed after the trend was broken. When the price broke below the trend line and the moving average, both signals indicated that the market momentum was shifting. These signals should have attracted my attention, but at the time I was too optimistic and thought it might just be a false breakout, so I did not take immediate action.
However, over the next few days, the price action deteriorated further. The market saw a series of retracements, with the price failing to re-break through key support and resistance levels. Subsequently, the price failed to rebound and eventually fell below the previous low. Throughout the process, the market actually issued as many as 6 stop loss signals. These signals included the breaking of trend lines, the loss of support levels, and the complete failure of the structure.
Here I took a step-by-step approach. For example, when the price first broke below the trend line, I cut 10% of my position; when the support level was lost, I cut another 10%; and when the price structure completely collapsed, I further reduced my position. This step-by-step stop-loss strategy allows me to gradually reduce my risk as the market falls, rather than clearing my position all at once. The benefit of this approach is that even if the market rebounds, I can still keep part of my position and re-enter the market when the trend resumes.
Of course, not all coins will respect the support and resistance levels in technical analysis. In some cases, the market may go straight through these key levels, leaving you unable to react in time. But in most cases, if the market sends a clear signal of a trend change, it is always wise to act according to the pre-set plan.
I have nothing against those who invest based on long-term fundamentals and do not set a stop loss. If your plan is to hold an asset for the long term and are willing to accept the risk that it may go to zero, that is also a strategy. But the key is that you must clearly understand the consequences of this choice. If you decide not to set a stop loss, you must be prepared to accept the possibility of losing your entire investment.
I have had similar experiences myself, such as investing in certain memes. At the time, my plan was either return to zero or skyrocket. Although these currencies eventually returned to zero, because I had a clear plan in advance, I was able to accept the result calmly.
Regardless of the strategy, the most important thing is to have a clear plan. Even if the plan is I am willing to take a total loss, it is much better than having no plan at all. Investing without a plan often leads to emotional decision-making, which is one of the most dangerous behaviors in investing.
Failure to take profits in a timely manner
Miles:
The third mistake was failing to take profits, which was probably the worst mistake I have made over the years.
Depending on the coin, there will be different price targets. Generally speaking, if I’m making money on a coin, I try to take profits as the price keeps going up. However, there have been several times during this cycle where I broke my rule and it cost me.
There are two examples. The first one was from November to December last year. I kept preaching on the show that if you make a profit, you should take profits. But I didnt do that myself. I was a little too obsessed with the optimism of the market at that time. Obviously, the market was very hot during this period. The market from November to December was very good. Everyone was excited about the alt season, and many memes were also soaring. And 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, maybe stop loss or reduce position, 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 trade, or start to take profits. But complacency is that you do nothing and let things develop naturally. You basically just passively watch how things develop.
I watched the numbers in my portfolio continue to rise, and I had a false sense of security that the market would continue to rise. However, when the market began to turn in late December, the bubble burst and the value of my portfolio shrank significantly in a short period of time.
The second example is my Lucky Coin trade. I have mentioned this case many times in previous shows and analyzed my mistakes in detail. Lucky Coin was an important investment project for me at the time, but I did not make any profit from it. At the time, the value of Lucky Coin I held at the peak was about 1.7 million US dollars, but because I failed to take profits in time, all these gains evaporated in the end. I did not make a penny on Lucky Coin.
Of course, there are a few reasons why I was unable to withdraw my $1.7 million in proceeds from Lucky Coin. The first reason is that I followed a personal rule when producing Lucky Coin-related content: I would not sell a coin within 24 hours of publicly talking about it. This was to avoid being accused of pumping and dumping, which is the practice of selling a coin immediately for profit after publicly being bullish on it. I believe this practice is morally unacceptable and would damage my credibility as a content creator. Therefore, I strictly adhered to this rule. However, it also caused me to miss opportunities to profit at high points.
In addition, lack of liquidity is also an important reason. Small-cap coins like Lucky Coin usually have low market liquidity, which means it is difficult to sell large amounts of assets at once without significantly affecting the price. If I try to sell a $1 million position at once, it may cause a sharp drop in price, which is obviously not what I want to see. Therefore, in such a case, the sale can only be done in batches, which may take several weeks to complete.
Despite these limitations, I still think I made a fundamental mistake in this transaction. When I first mentioned Lucky Coin on Discord, the price was around $3; when I first mentioned it on YouTube, the price had risen to $9. Before that, I hinted at its potential at $4-5, and then the price of Lucky Coin soared to $17. Despite this, I did not profit from it myself.
I was mesmerized by the rapid rise in price and mistakenly believed that the price had more room to rise, so I failed to follow my investment rules. According to my rules, when the price of a currency doubles, I should at least withdraw the initial investment to ensure that the principal is safe, but I did not do so this time.
Unfortunately, Lucky Coin later suffered from replay attacks and blockchain migration failures, causing its price to fall rapidly. I obviously could not foresee these technical problems at the time, but this is no excuse for not making a profit in time. No matter what happens in the future, once a coin doubles or even triples in price, it is a wise choice to withdraw the initial investment.
This experience has made me realize the importance of timely profit. When the price of a coin rises, if you don’t take profits in time, once the market turns, you will find that the liquidity of many coins is very limited. And this phenomenon does not only happen on Meme. Even large-cap coins like Beam will appear to have insufficient liquidity when prices fall. When prices fall, the market reacts very quickly. If you don’t lock in profits when prices rise, you may regret it.
Through these trades, I learned to quickly adjust my strategy and avoid the same mistakes in the next major trade. The key point is that it is inevitable to make mistakes, but we must learn from them. Make sure that the mistakes made today will not be repeated in tomorrows trades.
When you make 10x profit in your trade, dont forget the lessons from Luna or other failure cases. When the market price drops and hits your stop loss, dont hesitate to stop loss decisively instead of passively watching the price continue to fall. Reviewing past lessons often motivates you to take action at critical moments. Although these experiences may be painful, they have indeed helped me stay sober during this cycle.
In fact, many times, we need to experience similar lessons many times before we can truly understand the truth. This is like a scientific experiment that requires repeated trials and summaries. Traders will make some unnecessary mistakes in the market. But with the accumulation of experience, we can gradually reduce the frequency of mistakes. The double error rate of professional players may be only 4%, while that of beginners may be as high as 20%. In the same way, excellent traders do not make no mistakes, but they make fewer mistakes and have less impact.
One message I want to convey today is that it is okay to make mistakes, but the key is to learn from them and work hard to reduce similar mistakes in the future. Whether you are a novice or a veteran, making mistakes in the market is inevitable, but every mistake is an opportunity to grow.
Position management errors
Miles:
The fourth mistake is position management.
During this cycle, I sometimes invested too much money in a certain currency. This oversized position made me emotional in trading and difficult to make rational decisions. On the contrary, sometimes I was very confident in a certain currency, but did not match enough funds to invest, resulting in missing out on greater returns. This made me realize that the importance of position management is often underestimated.
If you can learn something from my experience, it is that you must do three things in investing: set stop loss, take profits in time, and manage your position properly. These three points are the key to being a good investor. When you are bullish on a coin and it has strong fundamental and technical support, make sure your position is reasonable, but dont invest too much money to avoid losing control of your emotions when you lose money.
Ill share an example of my Sundog trade on October 28. On October 20, I sent a tweet saying that I thought Sundog was going to rebound and therefore took a spot position. As my confidence grew, I added a leveraged position, and my total position became very large.
At first, the trade went well, the price rose within a few days, and I made money. However, the price then began to fall sharply. Because I had enough margin in my account, I did not set a stop loss and was not forced to close. But when the price fell to 10 cents, I began to feel a huge pressure. I felt that I should close the position. But I hesitated at the time. I didnt want to lock in hundreds of thousands of dollars in losses, so I decided to stick to my judgment.
Fortunately, the market rebounded and the price rose from 14 cents to 26 cents. I quickly closed the position after recovering my investment. However, this experience made me deeply aware of the risks and psychological pressure that may be caused by over-positioning. Even if you are confident in a certain transaction, you should not invest too much money unless you can fully accept the potential losses.
In investment, the problem of too small a position is also worthy of attention. If you are confident in a certain currency, but do not invest enough money accordingly, then in the long run, this may cause you to miss out on potential significant profit opportunities.
My advice is not to invest more than 5% of your total portfolio in a single currency. If you limit your position to 5%, you can effectively avoid major losses caused by excessive positions. In some special cases, if you are very confident in a certain transaction, you can increase your position to 10%, but this should be limited to one or two operations in a cycle.
In addition, as the price of a coin increases, your position ratio may naturally increase. For example, if you initially invested 4% of your funds in a certain coin and its price tripled, then this position may account for 12% of your portfolio. In this case, I recommend that you take profits in time. For example, you can reduce your position from 12% to 8%, retain some of the profits, and withdraw the initial investment at the same time, allowing the remaining part to continue to grow.
For example, I made 100 times the profit on PEPE. If I initially invested $20,000 and it eventually grew to $2 million, it would obviously occupy a larger proportion of my portfolio than the initial 1%. But as the price rises, you need to accept the change in the proportion of the position and control the risk by taking profits in batches.
At one stage, PEPE used to account for a large proportion of my altcoin portfolio. However, I gradually profited as it continued to rise, and eventually recovered my initial investment and realized some profits. Although nominally there was a 100-fold gain between my first purchase and the highest price, in reality, I may have only made 20 times. This situation is very common in the market. Even if you seize a 10-fold opportunity, the actual profit may only be 4 times, because you cannot accurately grasp the best time to buy and sell, and you will make profits in batches during the rise.
However, this strategy also has a bright side. If a coin does not reach 10 times, but only rises 5 times and then falls back, you can still achieve a 2x or 3x return. Although this gradual profit-taking approach may reduce your potential gains, it can also effectively protect your investment when the market falls. In general, it is always wiser to take profits in time than not to take profits at all.
Holding too many altcoins
Miles:
Next, I want to talk about the last mistake, holding too many coins. In 2021, I made this mistake mainly. At that time, I held as many as 30 or even more coins in my portfolio. I remember that I not only held Solana, but also invested in many decentralized exchange (Dex) related coins. I also held some proxy coins, some game-related coins, and various L1 projects. As a result, my portfolio swelled to 40 to 50 coins.
When the market started to turn, managing such a large portfolio became a nightmare. During this cycle, I limited my holdings to 20. But even so, I still felt that I held too many coins in November. Although not as exaggerated as 40, it was still around 20. In fact, I think 5 to 10 coins are the most ideal number.
Over the past few months, I have been working hard to compress my portfolio and reduce the number of currencies to a more reasonable range. Almost all adjustments have been completed in the past month. I have not added too many long positions, but focused on optimizing the existing position structure. The only exception was when there was a large-scale liquidation in the market one week, which I thought was a good opportunity to increase my positions for a short period of time and get some good rebound gains. But overall, my goal is to condense the portfolio to 5 to 10 currencies instead of 20 to 30.
If you hold 20 coins now, it’s not too late to cut back. 15 might be ok, but honestly, even managing 15 coins is difficult. For each coin, you need to set price alerts and stop-loss conditions, which is almost impossible for part-time investors.
In addition, it is not easy to really build deep confidence in a certain currency. For example, if you say that you are optimistic about the gaming industry, and therefore hold five game-related currencies, this approach is acceptable, but if you want to establish a deep technical or product argument for each currency, the difficulty will be greatly increased. There are not many truly high-quality projects in the crypto market. When you look closely at your portfolio, you may find that there are only 7 currencies that you are really optimistic about, and the other 5 to 6 are invested only because you are optimistic about certain narratives.
Therefore, my advice is to focus your portfolio on a small number of high-confidence coins rather than spreading it 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 investment.
This problem becomes more prominent as more and more new tokens are launched. The number of altcoins continues to increase, and market liquidity is diluted, which leads to greater volatility when the prices of all currencies fluctuate, thereby increasing the overall investment risk. If you want to reduce risk, reducing the number of currencies you hold is an effective way because it makes it easier to manage risk.
In summary, I believe the following five core mistakes are the most common ones that investors make during this cycle:
Position bias: Developing an irrational obsession with existing investments and ignoring market changes.
Failure to set invalidation conditions: Failure to set clear exit criteria for each investment leads to amplification of losses.
Failure to take profits in a timely manner: Failure to gradually take profits when prices are at high points and missing out on the opportunity to lock in profits.
Position management errors: The funds invested do not match the investment confidence, resulting in psychological pressure or insufficient returns.
Holding too many currencies: Over-diversification of investments makes it difficult to concentrate on management, increasing overall risk.
Conclusion
Miles:
Just as I did in the video, I openly shared my mistakes, now its your turn. Write down your mistakes and what caused them. Once you have the reasons, you can make a plan for improvement in the future and stick to it. Put this list somewhere prominent, such as your computer desktop, on your phone, or print it out and stick it next to your trading desk. Always remind yourself to stick to these principles when market sentiment is high or low.
To be consistent in your investing, you first need to recognize the problem. Before you can solve the problem, you must know what the problem is. Review the mistakes one by one, reflect on their root causes, and develop a solution. Perhaps you can think of some mistakes I didnt mention that could have a significant impact on you. Write them down, analyze them carefully, and plan steps to improve them.
