Thread by @swombat

As we open up 2022, what are some of the timeless wisdom we can keep from 2021 to avoid making the same mistakes again and again and again?

Let's say you get a hot "alpha" tip for a great NFT project... how do you approach it in a sensible way to avoid getting burned?

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The first thing I suggest you do is: decide if it's a trading opportunity or an investment opportunity. More info on these in these two threads:

https://twitter.com/swombat/status/1466455125212467201

https://twitter.com/swombat/status/1468235357099540488

Let's take the first case where it's a trading opportunity. What does that mean? Projects that you should treat as trading opportunities are those which probably won't be around in a year's time (or even 3 months' time). Why are those still worth trading at all?

Even hot garbage 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.

I want to add that those hot garbage projects are a zero-sum game, so you're taking that money from less savvy investors, which makes it, to me, less worthwhile. I might still do it from time to time but I don't consider this a constructive activity.

It's also possible to make good trades on actually valuable projects that have long term potential. So trading is not necessarily all about hot garbage. It can be hot gourmet cuisine too - the key is it needs to be hot!

Here's what a hot garbage, aka trading opportunity, project, looks like on a chart:

There's 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 three very simple rules to follow when trading hot garbage.

Number one is, no matter where the tip came from DO YOUR OWN RESEARCH. Yes, even for hot garbage! The research there is different than investment research though.

By the way, do you like this thread? If so please RT it so it can reach more people. It's all I ask in return for sharing all this :-) "Liking" the posts is nice but doesn't get more views. Please RT :-) And you can find more like this at swombat.io

When researching a trading opportunity there is just one thing you're looking for: is the project capable of generating more spikes of interest. If yes, it might be worth trading. If not, leave it alone, that one's dead.

A note about doing research: it doesn't mean just joining the Discord and chatting to a few people. The best research involves multiple sources of data, and importantly, finding people who disagree with you and testing your arguments against them.

Can you convince yourself, w/o using mental shortcuts and sleights-of-mind that rob you of your own logical thinking, that this project will pump again, and pump enough to allow you to take a profit worth the risk? If not, stay away, even if you got the tip from @garyvee himself!

This is important, because the long term picture of hot garbage projects looks like this. They are, after all, hot garbage, so eventually their true value, which is 0.000 eth, will come out.

So rule number 1 as always is DYOR.

Rule number 2 is: NEVER BUY DURING A PUMP. if you feel FOMO that the project is taking off and you might miss out... it's too late. You've missed the boat already. Wait for a dip. Wait some more. Then go back to #1 and do the research again.

Pumps always go back down. The chances that you caught a pump right as it was beginning are too small to consider. If you can see the pump, it's almost always too late to buy. So don't, and save yourself from being the dumb money counterparty to someone else's smart flip.

Finally, rule number 3: 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 all the way up to 8 eth, and then all the way back down to 1 eth. Learn to take profits and not look back.

Yes, the project might keep pumping. Maybe it's the next BAYC and you flipped @ 0.5 when you could have held to 50. 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.

Don't look back.

A final meta-rule for trading is: it's an active game. You need to keep an eye on your projects very regularly, and ideally have tools that will warn you if they're pumping, so you can take advantage of the pump and sell.

Pumps are often short-lived, sometimes just a few hours, 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.

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.

This is what a long term chart looks like for investing. So long as a project is worth something, it will eventually stabilise around that price. There may be a lot of volatility on the way up there, but as an investor you don't care.

The first rule of investing is the same as the first rule of trading: DYOR.

But this time 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.

A part of your research you don't want to skip is guesstimating the true value of the project. This is really hard in the NFT space rn because everything is so new, but it's still worth doing, at least by looking at comparable, successful projects.

Again, it is helpful to discuss with people who disagree with you. Come up with arguments both for and against your thesis. Don't just find a couple of youtubers saying the project is lit and say "alright, I did my research!" Youtube is part of research but not enough.

An important point: so-called bluechip projects can often be misleading in the investment context. Imagine a project sitting at, say, 30 eth. 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 30 eth, 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 mint, or soon after), which have huge unrealised potential and so are massively undervalued. That's my approach for investment.

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 actually better than the older one, it's reasonable to assume it might at least grow to match.

So then you buy a few of that .2 project, and wait. That brings me to rule 2 of investment: buy during a dip and then forget about it for a while.

Like with trading, you don't want to buy during a pump, cause that's just wasting money. Pumps always come back down.

But actually the timing of a long-term investment matters a lot less. So what if you buy at 0.25 and it comes back down to 0.1, if you're convinced eventually it's going to 30 eth?

Rule number 3 is: keep a loose eye on the investment, and sell once you think it's reached its true value. If you're not sure exactly what that is, let the graph show you: once the value stabilises, it's probably not going to move too much from there.

Investing is a lot less work. You can take holidays, you don't need to be online 24/7, you can sleep...

But you need to learn to recognise hot garbage from worthwhile investments, because investing in hot garbage looks like this eventually:

To get better at recognising good NFT projects, I naturally recommend reading my threads (!) at swombat.io . Just the one about roadmaps (

https://twitter.com/swombat/status/1463577582826397701

) will allow you to detect projects with no long term value more easily.

TL;DR:
- Trade: DYOR, don't buy during pump, sell during pump
- Invest: DYOR, don't buy during pump, sell when price reaches your target

Happy investing year!

gm & gl