Don't be afraid of losses when selling; plan your exit strategy in advance

Source: Talking about Li and Talking about the Outside

The market has been quite dull in recent days, and Bitcoin seems to have re-entered a period of consolidation. The reading and commenting activity in the background is also relatively low. However, I actually prefer these boring moments because before any significant changes or adjustments in the market, everything often appears to be dull.

I remember mentioning in an article a few days ago that if Bitcoin enters a consolidation phase, some altcoins might present new opportunities. As for managing your positions, if you still don’t know what to do by now, the simplest method is to ask yourself: If you had never bought this token before, would you buy it at the current price?

If the answer is no, then please start planning to sell the token you hold right now.

Moreover, in the previous article (May 29), we briefly listed some macro factors that might influence the market trend going forward, as shown in the image below.

Here, we continue to refer to the U.S. 10-year Treasury yield indicator listed in the "Bitcoin Indicator Template." Since April 6, the 10-year Treasury yield has risen from 3.88 to 4.43, as shown in the image below.

During this period, however, the U.S. Dollar Index (DXY) has fallen from 102.6 to 98.8, almost reaching its lowest level in three years. As shown in the image below.

If we directly compare the U.S. 10-year Treasury yield and the U.S. Dollar Index charts, we can observe a very obvious change: the overall positive correlation between these two data indicators seems to have broken down, with the trends since April of this year showing a clear divergence. As shown in the image below.

Doesn’t this comparison seem quite interesting?

Of course, there could be many reasons for this outcome, and we cannot rule out the following possibilities:

1) The market's divergence regarding the outlook for the U.S. economy has begun to intensify. The rise in Treasury yields without a corresponding increase in the Dollar Index may reflect market concerns about the U.S. fiscal deficit and debt risk.

2) Due to insufficient confidence in the U.S. economy or monetary policy, the market may find other currencies (like the Euro) more attractive and choose to sell long-term U.S. Treasuries, which could also lead to a decline in the Dollar Index.

3) Around April 6, there was a noticeable change in the TGA account (which we introduced in previous articles; this TGA is a checking account set up by the U.S. Treasury at the Federal Reserve). The changes in the TGA account led to an increase in Treasury supply, which may also contribute to the rise in long-term Treasury yields, thereby putting downward pressure on the Dollar Index.

4) Changes in the relationships between different asset classes due to the U.S. tariff war, inconsistencies between Federal Reserve policies and market expectations, etc.

When we look at the recent trends in Bitcoin, it seems that the changing relationship between Treasury yields and the Dollar Index is actually favorable for Bitcoin prices (and gold assets). In other words, if Treasury yields continue to rise overall but the Dollar Index does not follow, some funds may continue to choose to enter Bitcoin (and gold) for risk hedging.

Of course, the above is merely a simple expansion of some data dimensions and considerations based on the U.S. 10-year Treasury yield indicator. The reasons influencing market price trends arise from multiple factors, and a single indicator or data point can only serve as a necessary auxiliary reference. DYOR.

1. Plan Your Exit Strategy in Advance

Regardless of how the market changes and fluctuates, don’t forget that our ultimate goal in entering this market is to leverage our abilities to make money, not to come in with the mindset of losing money.

For most retail investors, if this is your first bull market, prioritize preserving your principal (most of your principal). If this is your second bull market, prioritize preserving your realized profits. Otherwise, you may fall into a bad cycle and miss many opportunities over several cycles.

In summary, this can be boiled down to one sentence: Everyone should develop their own buying and selling strategies.

However, from the few comments in the background recently, some friends still prefer to come and ask specific questions about price fluctuations, such as: Do you think ETH can reach $5000 this year? I bought UNI at $15, and now I’ve lost a lot of my principal; when do you think this token can rise back to $15? Questions like these.

To be honest, if I could know 100% accurately when a certain token will rise to a specific price or drop to a certain level, I would quickly go long or short with high leverage and probably wouldn’t spend so much time writing articles every week to pass the time. Conversely, if you don’t have a clear exit plan during a bull market and always base your buy or sell decisions on what others say, you might end up shooting yourself in the foot.

For example, regarding the UNI mentioned above, if you understand and are optimistic about the long-term development of this project, believe it can rise above $100 in the future, and the funds you invested in this project do not need to be liquidated urgently (i.e., it won’t affect your quality of life), then you can just hold on as long as you stay within your risk tolerance. Otherwise, when you decide to go all in at a cost of $15, you should have a clear exit plan in place. This exit plan should include not only profit-taking strategies but also stop-loss strategies; you shouldn’t participate in trading with the singular mindset of "buying means making money."

In reality, many people always hope to sell at the market top, but true investors don’t try to predict market tops and often don’t care about so-called market tops. Instead of risking higher losses waiting for a potential top to sell precisely, they prefer to sell within what they consider a safe range. These individuals tend to remain cautious during market uptrends and attentive during downtrends, which is the opposite of most retail investors' habits.

Many also say that those who can buy are apprentices, while those who can sell are masters. Many people's issues may stem more from the "selling" aspect. As for how to sell reasonably, we have discussed this topic in previous series of articles (such as the article from last May, as shown in the image below). There are many strategies for selling; for example, you can sell based on historical experience or certain data indicators, etc. As shown in the image below. (The image above is taken from the 2024 annual e-book "Blockchain Methodology" by Talking about Li and Talking about the Outside)

Many people, after buying a token, once they incur a loss, fall into a mindset of holding on, hoping to wait for a return to break even; some even fall into a mindset of buying more as the price drops, trying to lower their average cost until they exhaust their principal. Relying on some historical experience or data indicators can help avoid falling into this irrational mindset to some extent.

In trading, everyone hopes to make money, and making a profit after buying is certainly the best outcome. However, an important point is that you shouldn’t fear losses when selling; instead, you should overcome the fear of loss and learn to accept losses within a controllable range. Timely and effective stop-losses are also a form of trading wisdom. Unless you are engaged in long-term trading and are very optimistic about the long-term development of the corresponding project, and you don’t care about any short-term fluctuations, you can buy without selling (i.e., not considering selling).

Here’s a simple example: Suppose you are currently engaged in short-term trading of BTC, and by coincidence, you bought at the historical peak of $110,000. At this point, you should have two plans:

1) Since you were able to accept and buy BTC at a high price, it at least indicates that you saw a higher price before deciding to buy. If your short-term (within a few months) target is to see $130,000 (i.e., a 16% increase from the current historical peak of $112,000), then that price point naturally becomes your profit-taking range. You shouldn’t wait until $130,000 and then suddenly change your plan to aim for $150,000 or $200,000. If you want to change your plan at that time, it’s best to sell some positions when you reach the $130,000 target to maintain liquidity.

2) At the same time, since you are engaged in short-term trading, you need to set a stop-loss position. Our conventional (simplest) approach is to consider a stop-loss when the price retraces 16% from the recent peak. Currently, the historical peak price of BTC is $112,000, so you might consider a stop-loss around $94,000.

Of course, the above is just a very simplified operational thought and our own operational habits. The specific stop-loss position should also be considered based on your personal risk preferences and operational habits (for example, you can also use Fibonacci retracement and other technical indicators for auxiliary reference), and it’s also possible that the market may reverse after a stop-loss. However, the market never lacks short-term opportunities; as long as your liquidity is intact, there will be new opportunities. Otherwise, if you don’t set profit-taking/stop-loss levels and get fully trapped, it will be very passive.

In summary, in any market, almost everyone hopes to buy at the lowest point and sell at the highest point, but such opportunities are not always available. Remember that we have mentioned the buying and selling operational issues multiple times in previous articles, and our position management advice has always remained the same: when buying, try to buy in batches; when selling, also try to sell in batches. The proportion of positions allocated to investing in Bitcoin and the proportion allocated to investing in altcoins should also be planned in advance, as this will help you better control your risk range.

2. Losing Money is Worse than Losing Your Funds

A couple of days ago, a friend messaged me saying they had just transferred all their funds from the exchange to a wallet, thinking it would be safer. However, within a week, the funds in the wallet disappeared, and they asked if there was any way to recover them.

I asked a few targeted questions and checked the on-chain operation records. It was likely due to the friend’s wallet being carelessly authorized (phishing). The chances of recovering funds in such a case are very low, and I am not an expert in this area, so I couldn’t help.

I remember that in the past two years (2023-2024), we organized and provided a lot of content regarding wallet security through Talking about Li and Talking about the Outside, as shown in the image below. However, since this year, I have rarely written articles on this topic because the wallet security issues that need attention are actually just a few key aspects, mainly focusing on personal operational habits and security awareness. (The image above is taken from the 2023 annual e-book "Advanced Blockchain Thinking" by Talking about Li and Talking about the Outside)

Here, we will continue to briefly list a few security precautions (writing down whatever comes to mind, without any particular order):

• Do not record or store your mnemonic phrase in plain text on your phone, computer, or cloud storage that is always connected to the internet. Do not share your mnemonic phrase with anyone. If you must use your phone to record it, it’s best to scramble the mnemonic phrase using a rule that only you can understand. Remember, once the mnemonic phrase is stolen, lost, or forgotten, the assets in your corresponding wallet may be permanently lost.

• Do not put all your funds in one basket. Using hot wallets is more for convenience; you can categorize your hot wallets for different purposes (such as airdrops, DeFi, testing, etc.) and use different hot wallets with corresponding amounts. For large asset amounts in hot wallets, do not casually authorize protocols you are unfamiliar with (such as unknown or small protocols), or consider using cold wallets for storage.

• Before any interaction, make sure to carefully check the URL of the corresponding protocol (website) before connecting your wallet. Do not click on links shared by others in search engines or social media, and do not download apps sent to you by strangers in groups to avoid phishing or falling into scams. You might consider adding commonly used protocol links to your bookmarks.

• Since token names on the blockchain can be duplicated, if you want to trade MemeCoin-type tokens, it’s best to verify through the contract address, rather than just looking at its trading volume or price. The contract address is the simplest and most effective way to verify the authenticity of a token. In addition to checking the contract address on the project’s official website, you can also use well-known tools like CoinGecko and CoinMarketCap to search for the real contract address of the token.

• Once your wallet address has publicly interacted with some protocols, there’s a high probability that phishing transactions will appear in your transaction records. For example, after you transfer $10,000, you might immediately see a phishing record for $10,000. Fortunately, many wallets can now identify such scam transactions and label them. You can simply ignore these scam transactions and should never copy the address inside for secondary transfer operations just to save time.

• When authorizing transactions, pay attention to the authorization limits of your wallet, especially for USDT; it’s best not to authorize unlimited access. Additionally, you can periodically use the wallet’s built-in authorization cleanup tool to check for potential risky authorizations and revoke them. Also, be cautious when using some TG trading bots; it’s best to create and use different new wallets instead of importing existing mnemonic wallets for convenience.

• Whether it’s an exchange account or a hot wallet application, make sure to enable 2FA if possible. For the SMS function on your phone, it’s recommended to use Google Authenticator or hardware keys instead to avoid SIM swapping.

• Due to certain specifics, when accessing certain websites for trading or interaction, you may need specific network lines. It’s not advisable to use public WiFi or VPN networks with unknown security; try to choose and use reliable network tools (sensitive topics omitted here).

• For newcomers, if you are only performing some routine operations, the safest place to store funds is actually large exchanges like Binance or OKEx. In other words, if your fund size is not very large, there’s really no need to fuss over separate private key wallets (EOA wallets) or hardware wallets. If you need to use a wallet, consider directly using the MPC-type wallets provided by large exchanges. Of course, for seasoned investors, the safest option is definitely a wallet where you control the private keys.

• There’s no such thing as a free lunch; don’t be fooled by those who seem to be professionals/enthusiasts or so-called teachers/experts/bloggers. If you want to directly follow them to trade for excess returns, they might just be looking to empty your wallet.

In summary, making money tests your abilities and mindset, while security is more about personal responsibility and awareness. Hackers and scammers are everywhere, and they often exploit people’s laziness and ignorance. Losing money is bad, but losing your funds or getting scammed is even worse.