Learning from Failures: My Valuable Experience of Losing $1.7 Million in the Crypto Market

In the cryptocurrency market, most people like to talk about success, but few are willing to share their failures publicly. However, much of my success in this market stems from lessons learned from significant losses. Even in the current market cycle, I have experienced quite a few failures, and these experiences have reminded me once again of the core principles that I need to follow to be a successful investor.

Today, I'd like to share the top five losses I've suffered in my crypto career. These losses represent the biggest mistakes I have ever made, and they also made me aware of the "pitfalls" I have repeatedly stepped on in the market. I've been able to become a profitable investor in large part thanks to the devastated period of 2021. Even in the current cycle, I have had a few trades that did not work out, but it is these failures that have allowed me to be more comfortable in future market cycles.

1. Ignore market risk signals

I have to start with the biggest loss I've suffered in the cryptocurrency market - Luna. This experience made me deeply aware of the importance of "position bias" as an investment psychological issue. The so-called "position bias" refers to the fact that when you take a large position in an asset and see its price rising, it is easy to develop a subjective belief that the asset's fundamentals are improving. However, this belief is often not based on objective fundamental analysis, but simply on the illusion of rising prices.

It was this bias in my position that made me overlook many potential warning signs, which actually indicated that Luna's fundamentals were gradually failing. At that time, I realized that although algorithmic stablecoins like UST are valuable because they are scalable and decentralized, unfortunately, this also brings the risk of decoupling.

Although I was optimistic about Luna at the time and held a lot of Luna and UST, I was also aware that they were at risk of "decoupling". However, I underestimated the actual likelihood of such a risk, and even regarded it as a very unlikely event, so I did not take any action, or did not act in a timely manner.

By the time the price of UST fell to 96 cents, the market was already showing clear signs of crisis, and I should have immediately cut my position by at least 50% to avoid risk. However, due to the influence of "position bias", I chose to ignore these warning signs, and this psychological misunderstanding ended up costing me dearly. We all know what happened next. Once UST starts to depeg, the value of Luna and UST will eventually go to zero.

This huge loss in 2021 was a serious blow to my portfolio, but it was also an important turning point in my investment career. In fact, I made huge gains from my Bitcoin investments in early 2021. I bought an entire Bitcoin for $5,000 in 2019, subsequently multiplied that investment to $500,000, and grew further to over $1 million in the bull market. However, in 2022, my assets shrank from a million dollars to tens of thousands of dollars due to the wild swings in the market. The psychological gap between the life-changing fortune and the drastic drawdown is indescribable.

I firmly believe that it is impossible to truly grow into a good investor without experiencing the heavy blow of the market. If you're experiencing a similar loss, remember that while you may not be able to see the positives right now, these experiences will make you stronger and smarter.

2. Lack of a clear stop-loss strategy

My second mistake was not having a clear stop-loss strategy. I believe this is a common issue for many investors, especially in the case of significant fluctuations in the crypto market.

Let me take Beam as an example. During this cycle, I had a large position in Beam, but sadly, I didn't have an effective stop-loss strategy for it. This morning, when I looked at my portfolio, I saw that the value of Beam had shrunk to a few cents, and it used to be one of my biggest investments in the market.

When I looked back, I saw that Beam's price action had already given warning signs. After the initial highs, the price began to enter a series of lower highs and lows, and momentum stalled significantly. Although technically, the price was still above the moving average at the time, this should have caused me to be on high alert when it first broke down, however I chose to ignore the signal until the price fell further. Looking at the daily chart, I also have a few days or even weeks to act, but I didn't set a stop loss in time.

For long-term holdings, I usually don't set a 100% stop loss, but instead adjust the stop loss ratio based on the fundamentals of the currency and my investment horizon. For example, for short-term trades, I would set a strict stop-loss, while for long-term holds, I might allow a 50% drawdown. However, in Beam's case, I should have cut at least half of my position, because even if I missed the rally, I could re-enter the market when the price action improved.

Therefore, whether it is a short-term or long-term trade, it is crucial to set a stop loss. You can identify key support and resistance levels based on high timeframes ( such as weekly or monthly ) as a reference for stop losses. The key support for Solana is currently at $175, and if the price falls below this level, I will start to worry. Similarly, Bitcoin's key support may be at 75K. Even if these levels may not necessarily be touched, setting a stop loss ahead of time can help us act in the event of a significant change in the market.

In order to better execute the stop-loss strategy, I recommend combining a variety of technical indicators, such as moving averages, relative strength index (RSI), etc., to improve the accuracy of the strategy. When the indicator of the high time frame is triggered, it is possible to switch to the low time frame ( such as the daily or hourly timeframe ) for further analysis of the price action and thus decide whether to execute the stop loss.

In addition, I would like to share a useful tip for setting up price alerts on TradingView. By simply right-clicking on a moving average or key support level to add an alert, you can be notified when the price hits a key level, allowing you to act in a timely manner. This way, you won't leave the market for a long time to find that the asset has fallen significantly.

Finally, I would like to remind you that stop-loss strategies are not only technical, but can also be fundamental. The collapse of Luna, for example, is a classic case of fundamental failure. When the market shifts from risk appetite to risk aversion, changes in fundamentals can likewise serve as a basis for stop loss. Therefore, whether it is a technical signal or a fundamental change, we need to stay vigilant and adjust our investment strategy in a timely manner.

This is an example where I did slightly better with my stop-loss strategy, let me take MODE as an example. At first, my operation was very successful. I bought in at $0.014 in the Discord community, and it later rose to $0.06.

At that time, its price action showed a clear upward trend. From a technical point of view, as long as this trend holds, the market conditions are favorable. However, the situation changed after the trend was broken. When the price falls below the trend line and the moving average, both signals indicate that the market momentum is shifting. These signals should have caught my attention, but at the time I was overly optimistic that it might just be a false breakout and didn't act immediately.

However, in the following days, the price trend worsened further. The market experienced a series of pullbacks, and the price failed to break through key support and resistance levels again. Subsequently, the price rebound failed and eventually fell below the previous low. Throughout this process, the market actually issued up to 6 stop-loss signals. These signals included the breaking of trend lines, the loss of support levels, and the complete failure of structures.

Here I've taken a step-by-step approach to stop loss. For example, when the price fell below the trend line for the first time, I cut my position by 10%; When the support level fell, I cut 10% again; When the price structure completely collapsed, I further reduced my position. This step-by-step stop-loss strategy allows me to gradually reduce my risk when the market falls, rather than liquidating my position all at once. The advantage of this approach is that even if the market rebounds, I can still keep some of my position open and re-enter the market when the trend resumes.

Of course, not all coins will respect the support and resistance levels in technical analysis. In some cases, the market may pass directly through these key levels, leaving you unable to react in a timely manner. But in most cases, it's always wise to act according to a pre-set plan if the market signals a clear trend shift.

I'm not against those who invest on long-term fundamentals and don't set stop-losses. If your plan is to hold an asset for the long term and be willing to accept the risk that it could go to zero, that's also a strategy. But the point is that you have to be clear about the consequences of this choice. If you decide not to set a stop-loss, be prepared to lose your entire investment.

I have had similar experiences myself, such as investing in certain Memes. At that time, my plan was "either go to zero or skyrocket." Although these coins ultimately went to zero, I was able to accept the outcome calmly because I had a clear plan in advance.

Regardless of the strategy, the most important thing is to have a clear plan. Even if the plan is "I'm willing to take all the losses", it's much better than no plan at all. Unplanned investing often leads to emotional decision-making, which is one of the most dangerous behaviors in investing.

3. Failure to take profits in a timely manner

The third mistake is failing to take profits in time, which is probably the worst mistake I've made in years.

Depending on the currency, there will be different price targets. Generally speaking, if I make money on a certain coin, I try to make a profit when the price keeps rising. However, there were several times in this cycle where I broke my rules and cost me.

There are two examples. The first one was from November to December last year, and I kept promoting on the show that if you make a profit, you have to take a profit. But I didn't do it myself, and I was a little too obsessed with the optimism of the market. Obviously, the market is very hot during this time, and the market from November to December is very good, everyone is excited about the copycat season, and many memes are also going crazy. And complacency is deadly in the crypto market, so you need to act as soon as it happens.

When the market falls, you need to take action, possibly to stop or reduce your position, or even to buy. This is also an action you can take. Or when the market is rising, you can raise your stop loss to protect your trade, or start taking profits. But complacency is that you don't do anything, let things go naturally, and you're basically just passively watching things unfold.

When I see the numbers in my portfolio rising, I have a false sense of security that the market will continue to rise. However, when the market started to turn around at the end of December, the bubble burst and the value of my portfolio shrank significantly in a short period of time.

The second example is Lucky Coin, which I traded. I've mentioned this case several times in previous shows and analyzed my mistakes in detail. Lucky Coin was an important investment for me at the time, but I didn't profit from it at all. At the time, my Lucky Coin holdings were worth about $1.7 million at their peak, but they were not able to take profits in time, and all of them evaporated. I didn't make a penny on Lucky Coin.

Of course, there were some reasons why I failed to withdraw $1.7 million from Lucky Coin. The first reason is that when I make content related to Lucky Coin, I follow a personal rule: I don't sell a coin within 24 hours of talking about it publicly. This is to avoid accusations of "pump-and-dump", i.e., the act of selling a coin for a profit immediately after being publicly bullish on it. I think this practice is morally unacceptable and would damage my credibility as a content creator. Therefore, I strictly follow this rule. However, this also caused me to miss the opportunity to profit on the highs.

In addition, the lack of liquidity is also an important reason. Small-cap coins like Lucky Coin typically have low market liquidity, which means it's difficult to sell large assets all at once without making a significant impact on the price. If I try to sell a $1 million position all at once, it could cause the price to drop significantly, which is obviously not what I want to see. So, in this