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Investing Practices

What are best practice protocols for investing?

Checklist

Evolve a checklist that improves understanding and ability to execute best practice decision making processes.

  1. Evolve an Investment Thesis
    • How is value created
    • How is value evaluated
    • How is it retained or lost
  2. Monitor social media:
    • Track crypto-related hashtags on Twitter, Reddit, and TikTok.
    • Use sentiment analysis tools to gauge overall market mood.
  3. Stay informed on crypto news:
    • Follow reputable crypto news sources.
    • Join crypto-focused Telegram groups and Discord servers.
  4. Analyze on-chain data:
    • Use blockchain explorers to track large transactions.
    • Monitor exchange inflows and outflows.
  5. Develop a meme-aware trading plan:
    • Set clear entry and exit points.
    • Use stop-loss orders to manage risk in volatile markets.
  6. Practice proper risk management:
    • Never invest more than you can afford to lose.
    • Diversify your portfolio to mitigate risks.
  7. Stay objective, keep perspective:
    • Don't let FOMO (Fear of Missing Out) drive your decisions.
    • Conduct thorough research before investing.
  8. Use technical analysis in conjunction with cultural insights:
    • Combine chart patterns with social sentiment indicators.
    • Look for divergences between price action and meme popularity.
  9. Keep a trading journal:
    • Document your trades and the memes/flows that influenced them.
    • Regularly review and refine your strategy.
  10. Utilize crypto-specific tools:
    • Explore platforms like CryptoQuant for flow analysis.
    • Use coin trackers to stay updated on trending tokens.
  11. Educate yourself continuously:
    • Stay updated on new meme trends and their potential impact.
    • Learn about different types of market flows and their significance.

Capabilities

Subject matter expertise and activities.

  • Investment Research
  • Fraud Detection
  • Portfolio Analysis
  • Portfolio Valuation
  • Exposure Modelling
  • Risk Modelling
  • Risk Management
  • Wallet Strategy

The Marketplace

The market is prone to extreme mood swings that cause prices to fluctuate wildly, often disconnected from fundamental value. These mood swings tend to oscillate between euphoria and depression, leading to overpricing and underpricing of assets.

The key is to remain rational when others are being irrational and to see market overreactions as opportunities rather than threats.

Irrational Behaviour

Several factors contribute to irrational market behavior:

  • Perception shifts: Investors' perceptions of events can change dramatically, even when actual conditions haven't changed much.
  • Cognitive dissonance: Investors tend to ignore or reject information that contradicts their existing beliefs.
  • Contagion: Negative sentiment in one market can spread rapidly to others, like a game of telephone.
  • Ambiguous interpretation: The same news can be interpreted positively or negatively depending on the prevailing mood.

Psychological Factors

  • Optimism bias: Investors, especially equity investors, tend to be optimistic by nature.
  • Wishful thinking: People often believe what they want to be true, rather than what is actually true.
  • Short memory: Investors quickly forget past mistakes, leading to repeated cycles of euphoria and panic.

Lack of Immutable Rules

Unlike natural sciences, investing lacks consistent, immutable rules. What works in one market environment may not work in another. This lack of dependable principles contributes to market instability.

Market as a Voting Machine

The market acts more like a voting machine reflecting investor sentiment rather than a weighing machine assessing fundamental value. Daily price movements often reflect changes in psychology rather than changes in underlying fundamentals.

Opportunity in Volatility

Prudent investors can take advantage of Mr. Market's mood swings by:

  1. Forming independent views on asset values based on fundamental analysis
  2. Selling when prices are irrationally high
  3. Buying when prices are irrationally low