Bitget App
Trade smarter
Buy cryptoMarketsTradeFuturesCopyBotsEarn

Mastering Narrative Trading: A Complete Guide from Trend Spotting to Profitable Strategies

BlockBeats2024/05/28 03:49
By:BlockBeats
Original title: A narrative trading guide
Original author: The DeFi Investor
Original translation: Ismay

Editor's note: Crypto researcher The DeFi Investor introduces the strategies and techniques of narrative trading in this article, from discovering new trends to profit-making strategies, and gradually explores how to trade effectively in the cryptocurrency market. Emphasizes the important role of psychology in market fluctuations, as well as the time and patience required to establish successful transactions. He also recommends that beginners start trading with a small amount of money and summarize lessons learned by constantly tracking investment performance.


I have been doing narrative trading for nearly 3 years. There is no doubt that narrative trading can be very profitable if you can bet on emerging trends before most people. But at the same time, if you follow the trend too late, you may also fail miserably. When I first started trading, I lost a lot of money because of this reason. There is a reason why 90% of traders lose money. It takes a lot of time, investment and patience to make a profit. In this episode, I want to share my crypto narrative trading strategy and some tips for maximizing profits.


Narrative Trading Strategy Handbook


At first, the general strategy for narrative trading is fairly simple:


Look for a big crypto catalyst that’s about to happen

Identify cryptocurrencies that are related to and benefit from it

Invest in them

Sell when everyone starts talking about them


An example of a catalyst that had a huge positive impact on the price of AI tokens was the AI conference that NVIDIA hosted in March this year.


Before this event, AI tokens performed extremely well because there was speculation that some big AI news would be released during the conference. In addition, teams from several crypto projects, such as Near Protocol, also participated in the event.


If you bought NEAR or other popular AI tokens a few weeks before the conference, you would have made a lot of money.


Platforms like Coinmarketcal (Crypto Calendar) can help you find upcoming catalysts that may have a positive impact on the price of certain tokens.


In addition to upcoming catalysts, major unexpected news can also lead to the formation of new narratives.


For example, earlier this year, Blackstone announced the launch of its tokenized fund on Ethereum. This news created a lot of hype in the RWA space, and many RWA tokens doubled or even quadrupled in price in the following days.


In hindsight, it seems easy to trade narratives. But the problem is that it is difficult to tell if you are an early participant in a trend.


And in crypto, timing is everything.


Following this issue, I will introduce some ways to help you improve your chances of participating early in an emerging trend.


The Three Waves of Hype


Most major narratives go through three stages:


First, some smart money starts buying tokens related to the potential upcoming narrative. Then, several X accounts with fewer followers start sharing the bullish thesis of that narrative on X. Eventually, everyone starts talking about that narrative on X, and the price of the token associated with it goes straight up. This is a great time to start taking profits.


So how do you use this information to your advantage? Your goal should be to always catch new trends before everyone starts discussing bullish scenarios on social media platforms.


Here are a few ways to increase your chances of early participation in future narratives:


Use on-chain data to your advantage


On-chain analytics platforms like DeFillama (completely free) can help you easily spot emerging trends in DeFi.


For example, here’s how you can use DeFillama to your advantage:


Go to DeFillama


Click on DeFi → Overview


Click on “1m Change” to sort protocols by recent TVL growth


After that, click on TVL range, select minimum $5M-$10M, and select “Apply Filters”


DeFillama will then display the fastest growing DeFi projects over the past 30 days.


If you see that multiple top protocols in a crypto space (such as RWA) are growing at a very fast pace, this could be a sign that a narrative is forming in the space and it’s time to pay attention to it.



Build Your Network


“Your network is your worth” is more than just a meme.


An underrated tip is to try to connect with other narrative traders on social media platforms and build strong relationships with them.


You can use X’s advanced search feature to find people who talked about a narrative or token before it took off.


Once you find some people who seem to know what they’re doing, try to message them and try to build a connection.


If you do this, and maybe provide them with value in some way, they may return the favor and start sharing their trading ideas with you.


Don’t try to go it alone. It’s like trading on hard mode.


Monitoring Smart Money Wallets


The easiest way to monitor the most profitable on-chain traders and investor wallets is to use a tool like Nansen.


However, Nansen is not free and requires a paid subscription. But even without Nansen, you can use free tools like Arkham to track smart money wallets. Arkham has an advanced filtering system for screening on-chain transactions.


Profit Strategy


The reasons why most narratives emerge can be attributed to the following:


1. Major unexpected news (the real world asset narrative was caused by the announcement of Blackstone’s tokenized fund)


2. Upcoming catalysts (the cryptocurrency AI narrative in early 2024 was caused by high expectations for the upcoming Nvidia AI conference)


3. Secondary market hype (GameFi is one of the narratives that retail investors love)


Depending on the type of narrative you are trading, your exit strategy should be different.


For narratives caused by major unexpected news, it is usually difficult to estimate when they will end. But most of these narratives only last for a few weeks. When trading these narratives, I think the best practice is to gradually profit on the way up rather than closing the entire position at once.


Next, for the upcoming catalyst narrative, I think it is easier to trade.


In most cases, the price of tokens associated with these narratives reached local highs a few days before the catalyst date.


As I mentioned before, Nvidia’s AI conference significantly contributed to the emergence of new narratives around AI tokens in Q1 2024. Many AI tokens reached their highest price levels in 2024 on the day of the conference or a few days before. After that, they started to fall. So the conference ended up being a “sell the good news” event.


In fact, 90% of catalysts end up being “sell the good news” events. Given this, I recommend taking big profits a few days before the catalyst, and possibly even closing the entire position.


As for narratives that emerge due to secondary market hype, most of them will last until the end of the bull market.


Of course, they all go through ups and downs. But for example, AI may maintain a high-performing narrative throughout the bull market because it is easy to understand and loved by retail investors.


Summary


Psychology plays a big role in when and why crypto markets move, and game theory and market psychology take some time to understand.


If you want to start making money from narrative trading, I also recommend that you start trading narratives with a little bit of money.


Track your portfolio performance over time to see what mistakes you make and how you can become more profitable. Do more of what works and less of what doesn’t.


Only after you’ve been making money consistently over a long period of time should you consider increasing your bet size.


Trading can help you build wealth, but it’s not something you can learn overnight.


「 Original link 」


欢迎加入律动 BlockBeats 官方社群:

Telegram 订阅群: https://t.me/theblockbeats

Telegram 交流群: https://t.me/BlockBeats_App

Twitter 官方账号: https://twitter.com/BlockBeatsAsia

0

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

PoolX: Stake to earn
APR up to 10%. Always on, always earning.
Stake now!