On August 6, Miles Deutscher, a prominent crypto analyst and influencer, shared crucial investing advice on X (formerly Twitter) that can help both novice and seasoned traders navigate the volatile world of cryptocurrency. He outlined five essential rules to avoid significant losses and maximize profits.

1. Always Set Invalidations

Miles Deutscher emphasizes the importance of having an invalidation clause whenever purchasing a cryptocurrency. This means setting a predetermined condition under which you will exit the position. This can be either a fundamental trigger (such as a major team member leaving, a hack, or a narrative losing traction) or a technical trigger (like a key high-time frame (HTF) level breaking or a loss of strength).

Deutscher suggests that for those who are both active traders and investors, setting partial invalidations can be beneficial. For example, if Bitcoin (BTC) drops below $60,000, selling 30% of your position can help manage exposure while retaining some investment if the market turns around. This strategy protects your capital by securing cash during downturns. He shared that when the market dipped recently, he swiftly exited major altcoin positions that broke below predetermined support levels, illustrating the effectiveness of this rule.

2. De-risk at the Start of a Move

Deutscher advises de-risking at the beginning of a market move rather than waiting until it has progressed significantly. While it’s challenging to predict the duration of a market move, early signs of trouble (such as initial technical breakdowns) should prompt action. If the market recovers, you can re-enter positions at a slight loss, which is preferable to risking a much larger loss.

He points out that it’s worth losing 5% to avoid a potential 50% loss. By being proactive, traders can protect their capital and maintain the flexibility to re-enter the market at a more favorable time. Deutscher notes that this approach has made him a better trader and investor, as it prioritizes capital preservation.

3. Maintain a Stablecoin Reserve

Maintaining a significant portion of your portfolio in stablecoins (at least 20%) is crucial, according to Deutscher. He believes that this strategy ensures you have liquidity during market dips, allowing you to capitalize on buying opportunities. Although it might seem counterintuitive to hold stablecoins when you’re bullish on crypto, having this reserve enables you to buy at optimal times.

Stablecoins are cryptocurrencies pegged to stable assets like the US dollar, providing a safe haven during market volatility. This reserve can also be used to trade breakouts or buy dips, maximizing your trading opportunities. Deutscher explains that this liquidity is essential for taking advantage of favorable risk/reward entries in the market.

4. Limit the Number of Altcoin Positions

Over-diversification can dilute your chances of outperforming the market. Deutscher recommends holding no more than 10-20 altcoins to ensure manageability, especially during market crashes. Managing too many positions can be overwhelming and counterproductive.

He suggests focusing on high-conviction positions and asking yourself how many coins you genuinely believe in. This focused approach, he claims, can help you manage your portfolio more effectively and make better-informed decisions during market downturns.

5. Buy During Market Fear

Deutscher’s final rule is to buy when there’s “blood on the streets,” meaning during significant market downturns. These shakeouts transfer wealth from less experienced traders to savvy investors. Having a stablecoin reserve (as mentioned in rule 3) is crucial for taking advantage of these opportunities.

He also advises setting “stink bids” on centralized exchanges—limit orders placed at much lower prices than the current market price. These bids can get filled during sudden market drops, allowing you to buy assets at a discount without emotional interference.

Deutscher says by setting stink bids, you can automate part of your trading strategy, reducing emotional decisions. For instance, he mentioned getting a $110 bid for Solana (SOL) filled during yesterday’s market crash.

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