It’s hard to know where to start when you join the NFT space. It’s full of jargon, norms, and websites/tools that are overwhelming. There’s no guide; you pretty much have to figure it out for yourself unless you are lucky enough to have a mentor. There are resources on Youtube, Twitter, inside of DAOs, and more, but to gain visibility, these resources use clickbait tactics to attract readers/viewers. Therefore, unsuspecting newbies may really believe a certain strategy is “the easiest way to get rich quick” or something equally absurd. Many of these resources for newcomers do not explain that there is not a single strategy that works the best. Each investor has their own nuanced approach that they develop over time as they learn about their preferences and limits.
From my personal experience, I have noticed a few different factors that affect my trading strategy: risk tolerance, amount of capital, time per day, type of project, and broad timescale (how long I plan to be in the space). The rest of this article will break down each factor, describing how the different ends of the spectrum can affect trading strategy.
It’s no secret that the NFT market can be irrational at times. Sometimes “trash” gets pumped > 10 SOL, and the project you’ve watched build for months can barely get off the ground. It’s times like these where NFTs feel the most like gambling or luck-based. However, it also is true that at times, genuinely good projects get the spotlight they deserve. For example, Famous Fox Federation spent months at a price less than 10 SOL. The only thing that changed between then and now is they attention they have been given; they’ve always been builders and had the same plans, but they needed time to deliver before the masses understood. Therefore, someone with less risk tolerance might want to rely on more research and understanding utility over apeing into a project that has no promises. The latter type may be more of a “moonshot,” but it can die just as easily.
Additionally, someone with lower risk tolerance might want to spread their portfolio over a bunch of solid projects over accumulating a project that may or may not boom. Someone with a higher risk tolerance may prefer finding one project they think will make it (which may or may not) and buying a bunch or sweeping the floor, and although this will look like a great play if it is successful, it can just as easily crumble.
Lastly, it is much less risky to invest in an established project that has a lot planned for the future than it is to invest in newly created projects, especially ones with inexperienced teams. Though it may seem like a lot of capital is needed for these types of plays, there are plenty of projects that go under the radar for months before people catch on. For example, a couple of months ago, I wrote about UGA Nation (formerly Baby Ape Pixel Club), which at the time had a floor price < 0.5 SOL. At the time of writing this article, the floor price is 2.1 SOL. These founders have always had plans to build a lot of value for their holders, but it took time to execute and many holders grew impatient in the meantime.
AMOUNT OF CAPITAL
This factor is related to the previous factor in the sense that more capital might allow someone to comfortably increase their risk tolerance and vice versa. As someone who started with very little capital in the space, it was imperative to make short, intentional plays and place stop losses close to entries and quickly take profits when they came (some might say paperhanding). As liquidity builds, it is easier to diversify one’s portfolio and spread out liquidity into multiple projects. Additionally,
This factor is a main reason why wallet tracking whales can be a deceiving strategy. Most people see it as a very bullish sign if someone spends 500 sweeping a floor. However, it is important to remember the capital these players are working with; it is likely a very small percentage of liquidity that was used to sweep said floor. Though it is informative to see which projects are on the radars of these big players, it is far from a foolproof signal to go all in. Pairing these signals with research to make educated plays that you are fully comfortable with is a strategy that will lead to the most success.
TIME PER DAY
Making educated plays often requires a large time investment. Even full-time NFT investors do not have enough time in the day to keep up with everything going on in the space, and therefore, information sharing is crucial. People with less time to invest per day may benefit more than others from owning other NFTs that give access to alpha calls. Additionally, different types of trades are better for different investors. For example, day trades on projects that are not stable holds require a large time investment in terms of watching floor price and waiting to time entries/exits based on pumps. However, more reliable long-term holds do not require as close of monitoring and may be better suited for an investor that is unable to check floor prices and updates often.
Investors with less time to commit to trading may find themselves entering projects at higher entries than what could have been achieved if the investor could have done the research on his/her own, and therefore been more “early” to a piece of news. However, it is still possible to be very profitable with this strategy, especially for mature projects that have a lot of potential for growth, even though it might be slower than a hyped project that pumps and dumps quickly. It is important to be honest with oneself and adjust strategy based on how much time one intends to devote to trading. Overextending oneself can lead to burnout and exhaustion, which often leads to poorer investment decisions.
Time horizon refers to how long an investor intends to remain in the space. An investor with a small time horizon may enter the space with the intention to do it as a side hustle for a couple weeks/months at a time to make some extra money. A more serious investor with a larger time horizon may plan to be in the space for years to come, and with that, be willing to ride the waves of the market through its different cycles.
For investors with larger time horizons, a great strategy can be to focus more on networking. To start this process, it is great to invest in a credible DAO full of people that are trustworthy and have matching goals. Networking can be accomplished without being a member of DAO, but DAO membership greatly accelerates the process and adds a level of baseline respect to one’s portfolio when viewed from the outside. One’s network is important for accessing opportunities or being exposed to new information.
Additionally, investors with larger time horizons are more likely to make long-term plays. These types of plays are ones where after purchasing the NFT, the owner is confident enough in the direction of the project to not monitor the price closely, but moreso monitor the progress of the project itself, knowing that price action will likely correspond to progress. Given news and progressions, a holder can time an exit based on progress instead of purely price. The holder likely keeps the NFT unlisted or staked to earn rewards until he/she is comfortable exiting. People with shorter time horizons must make more frequent trades on shorter timescales. They may hold NFTs for days or weeks at a time, but not longer. These types of investors benefit from taking profits frequently. Taking profits refers to both projects into SOL and SOL into fiat.
For example, we are currently seeing a pump in the price of SOL since the crash in the past few weeks. An investor with a shorter time horizon would take this as an opportunity to cash out and realize some profits. However, someone planning to be in the space for the foreseeable future may not take this opportunity to take profits, as they believe that in time, the price of SOL will far exceed these prices. In this perspective, the profits realized today would pale in comparison to profits taken in many months/years from now.
Importantly, though the price of SOL has held up relatively well compared to the expectations of many, it is not guaranteed to continue on that path. Macroeconomic conditions are very grim, and it is very possible that markets continue to crash. Therefore, people with short term horizons would be wise to look for a time to liquidate and exit to preserve capital. However, people that are intending to stay in the space for the foreseeable future may view this bear market as an opportunity to accumulate until the next bull market, which might not come for a long time.