Timing and size are the most important aspects of trading. So, how do we time entries and exits properly, pick the correct size so we don’t get blown out, and manage these trades while things change in the middle?
Here’s a 🧵 on how I do it, and how you can do it too (TLDR #35)
What if you were right that BTC was going to send to Valhalla, but you used too much leverage and got stopped out last night on a 1,000 scam wick price movement yesterday only to watch it climb to 50K in the next month without you? Did you get liquidated? Bet size.
What if you thought you bought an arb coin that had a new product launch in 1 week, only to get delayed a month due to audit problems and you watched the entire ecosystem pump without you, while your coin evaporate 50% after arb season, and the catalyst was still delayed?
Timing. Are you still holding that bag?
A recent trade we took at @digitsdao was $GRAIL pre-Arbitrum announcement.
The thesis was simple - there was another myth and chatter going around Twitter that Arbitrum was going to have a token drop soon, so we wanted to play the rumor even if it didn't come true.
We had no idea the rumor was true, as it had failed multiple times before, and was not yet confirmed by the official team. Risk.
Timing was good; we got into GRAIL very early and because it was liquid decided to go for a fairly large size. We used the majority of our liquid stables to enter GRAIL, knowing that if the rumor was fake, we would take a modest 5% hit from where we entered.
As the rumor spread, we were sitting in profit and decided to close because multiple times before, Arbitrum had a rumor that the coin was dropping only to disappoint. History is important and should almost never be ignored.
This happened to be one of the rare times where “this time is different'' actually came true. This was the most risk-averse exit, and one we took.
Hindsight is 20/20, and if you look now, GRAIL is up a lot from where we had exited. We re-entered the trade higher today looking for a much higher blow-off up to the Arb coin launch. Why? Never feel bad about buying things you sold higher when information changes.
Now we have confirmation of an Arbitrum token airdrop (we did not have this before when we exited), GRAIL has proved to be a higher beta to the market and Arb ecosystem by being one of the most liquid coins on-chain.
It is a coin we can size into comfortably without getting hit with too much price impact (bet size), and the timing feels right to ride higher beta Arbitrum ecosystem up to the token launch. All of this confirmation makes the trade less risky, in my opinion.
We see a high probability of $GRAIL continuing its upward price pressure and discovery as we near closer to the airdrop.
We also see $BTC going further here, pulling the rest of the market up with it, and when BTC does that, we want to be allocated to hot narratives (Arbitrum ecosystem as a whole).
$GRAIL is our proxy, and although we cut the bag in the most risk-averse fashion before, information now has been confirmed, and it is an easier hold and entry making it still a great trade, in my opinion, up to the Arbitrum token drop.
Timing is something you have to feel as a trader; it’s not always rational, but there are some things that can help you time exits and entries properly, but the most important rationale for timing for me is always a catalyst/narrative.
OK, so we took the most risk-averse exit on $GRAIL, but what new information did we get from the Arbitrum token being announced, and how can we use this strengthened thesis to inform future trades?
One trade we recently took today is $gFLY, a gamefi project part of the $MAGIC ecosystem on the Arbitrum. TLDR gFLY has great statistics when it comes to user growth and product.
MAGIC is one of the largest communities set to receive a huge $ARB token payout, and we see $gFLY as being a higher MAGIC beta play durring a gamefi arbitrum season narrative.
@alpinestar17 explained it has a good product with consistent and constant user growth, it has good tokenomics and decent liquidity, and it was a trade he brought to the table weeks ago.
We decided not to take the trade at that time because it felt early (timing), but the time is right now. FYI Alpine is also someone you should be following if you're not already.
There is a big gamefi conference next week, GDC, and you better believe we can expect some type of announcement from the $MAGIC team here.
More eyes on $MAGIC mean more eyes on $gFLY (higher beta), and with a good working product, consistent user base growth, we think it's a good bet going into next week.
How did we choose our bet size? Liquidity is fairly thin, but we feel like this could do multiples, so we were happy to take a 5-10% price impact hit on entry.
This is a rare occasion, and one where I will only agree to if we are what I consider “early” to a trade or narrative, and I shrug the price impact off like the tax on a meme coin.
When you are early, you HAVE to take advantage of it, even if it costs you some slippage.
With the GDC conference coming up, I felt it was an easy decision to eat this price impact. With the current market environment, there was no way we were going to get a TWAP on, and with our wallet being public and watched, it would make it nearly impossible in this environment.
So we painted the chart.
How do you time your exit?
We don't exit when the “number looks good” on our trading account. For us, it's simple - we exit mostly on a news catalyst, product release, or some type of inefficient pump in price we can sell into. Sometimes this means we exit way too early.
Most of the time, this protects our profits, and we simply move on and do not become bag holders. Our style is to try to capture some of the move, not all of the move, and get out before anything changes in narrative/thesis/macro.
Sometimes this style of entering and exiting means we enter and exit the same coin multiple times in the lifetime of a trade/narrative like we have with $GRAIL.
We won't sit in a trade waiting for the devs to do something. We won't sit hoping people buy our bags so we can cut at entry. We won't become community members and convince ourselves this is the future of France. This keeps us alive and surviving so that we can thrive.
Survive first, thrive later.
Here is the TLDR points: Never make your bet size so big you can't sleep at night or sit through normal volatility. You’ll most certainly fumble the ball before you get to the goal.
Never convince yourself the team is good, and things are coming in the future if you don't have a set catalyst on the way. Never size in too big you risk liquidation (survive first)
Always feel comfortable buying back a bag higher and don't get attached to your original entry and exit. Every trade is a new trade. Always consider how long the narrative will last, if it is still hot, and when your catalyst will be in this narrative.
If timing changes while in a position, analyze the change and don't convince yourself to hold, cut the bag. Don't exit a bag just because the number looks good on the screen. Exit for a reason.
Trading is a never-ending learning experience that requires constant effort and improvement. The most important aspects of trading are timing and size.
As a trader, you need to find the right balance between taking enough risk to generate profits and not risking too much that it leads to a significant loss.
To time your trades properly, it's essential to focus on catalysts and narratives that drive the market. By following this approach, you can make better-informed decisions about your trades and be more successful in your trading career.
Remember always to be comfortable with your bet size, understand the risks, and don't get too attached to your trades. Every trade is a new opportunity, and there will always be more opportunities in the future.
By learning from experienced traders and constantly improving your skills, you can become a successful trader and achieve your goals too.