Weekly Nugget of Wisdom #5

Always Be Liquid

Welcome to another Nugget of Wisdom! A weekly post I send out every Thursday. These are designed to be short and sweet, a quick read to (hopefully) impart some sort of wisdom, or at the very least to get you thinking about something interesting.

There are 3 ABLs that I like to think about when it comes to trading:

1. Always Be Liquid

2. Always Be Listed

3. Always Be Learning

We’re just gonna focus on the first one today, and will discuss the others in future weeks (though the last one is pretty self explanatory).

So. Always Be Liquid. Here’s why.

Imagine this situation. Someone in your group chat sends a message where they’re telling you about an opportunity, and it’s a sure thing. You know and trust this person, and they wouldn’t be doing this if there wasn’t a high % chance of it being true.

Perhaps they have some inside scoop or alpha, perhaps they’ve just done lots of research, perhaps it’s some viral meme that is beginning to propagate. Either way, you make up your mind pretty quickly that you want to buy in.

Problem is.. You don’t have any liquidity! Your ETH or SOL or whatever token you might buy this thing with is all in NFTs, or other tokens, or locked up in DeFI protocols. Okay, no problem, we’ve been here before. I’ll just quickly sell some things – that’s how this works right? Most crypto assets can be sold within minutes, if not seconds.

But what do you sell? Ahh do you let go of that token that is down 20% this week? You don’t really want to sell at a loss, and you’re still long term bullish on the thing, but that’s long term – this opportunity is NOW. Maybe you’ll sell it now, take advantage of this opportunity, then quickly buy back…

By the time all is said and done you’ve likely missed the great entry point (since things move fast in crypto), and you have made some suboptimal decisions with the parts of your portfolio you needed to liquidate. But you still buy the original thing you wanted to buy at double the mcap you first saw it at, because FOMO and how awful would you feel if it went on to do a 10x from here?

It can be incredibly difficult to stay liquid, trust me, I know. For most of my crypto career, if I have had ETH or SOL in my main wallets, it would not take long at all before it’s fully deployed in whatever random degen buys of the day. When I am on top of my game and locked in with discipline, I can hold off – but it’s almost inevitable for me that any liquid money easily accessible will eventually get deployed into junk.

So how do you counter this?

1. Make a habit that whenever you sell something or make a profit, you set aside some % of it to remain liquid (in ETH / SOL / Stables / Whatever).
   

2. Keep most of your liquidity in a hardware wallet. Not only is this wise from a security perspective, but the additional steps of having to get your device out, unlock it, and sign a transaction on it, will often make you pause about whether you really do want to ape into whatever thing you’re about to ape into.

That’s basically it. Simple, but not easy.

There’s some friction now if you want to buy something new, but not too much – for the truly great opportunities, you can still act on them within a minute or two.

At the end of the day, liquidity is crucial for a trader. It is your all purpose tool, your lifeblood. Those who regularly keep a solid amount of liquidity will almost always outperform those who are fully deployed at all times and unable to move swiftly.

An additional side benefit of being liquid is that it often forces you to think about taking profit more frequently and aggressively, which is something else most people would do well to do.

There are many benefits to being liquid, and very few to being 100% fully deployed. Yet most often people find themselves in the latter group rather than the former.

Remember your ABLs; remember to always be liquid.