5 Rules to Avoid Becoming a Bagholder 🧠

A "bagholder" is someone left holding a token after the hype dies and the price crashes — often to near zero.

In the dynamic realm of cryptocurrency, where fortunes can be made and lost in the blink of an eye, the term "bagholder" carries significant weight. A bagholder is essentially someone who is left holding a token after the hype surrounding it has died down and the price has crashed—often to nearly zero. This scenario usually unfolds when traders buy into a token late in the cycle, disregard the red flags that emerge, and cling to the hope of a price recovery.

The underlying psychology of a bagholder is a mix of denial, hope, and fear of realizing a loss. To help you avoid becoming a bagholder, here are five crucial rules to follow:

1. Don't Chase Green Candles:

As a newcomer to cryptocurrency, it's best to avoid chasing green candles, especially if a token has already experienced a 5x gain in a week. In such instances, the chances are high that you'll be buying into exit liquidity. Hype moves quickly in crypto, so it's best to seek out fresh opportunities.

2. Check Unlock Schedules:

Many tokens experience a price crash not because of "the market," but rather because insiders are unlocking and dumping their tokens. This aspect of tokenomics is critical to consider. For instance, if a token has a circulating supply of 100M and a total supply of 1B, with 900M being unlocked over time, it's clear that the potential for price depreciation is significant.

3. Beware of Low-Liquidity Traps:

Always be wary of low-liquidity traps. A $10M market cap might seem appealing at first glance, but if the real liquidity is only $100k, it can become difficult to exit positions. It's best to enter and exit trades with sufficient liquidity to minimize slippage and ensure smooth transactions.

4. Look Beyond Influencers:

While influencers can be helpful, it's important to form your own opinions and not be influenced solely by others. If your only reason for buying a token is because an influencer said, "Don't fade this!" then you might be serving as exit liquidity for that influencer or a group of traders.

5. Have an Exit Plan:

It's crucial to have an exit plan and set targets before entering a trade. If your strategy is simply to "hold until it moons," then you're gambling, not investing. For instance, if you believe a token could do 2x to $0.5 and it does reach that price, it's wise to take some profits and let the remaining position ride. Setting realistic goals and having a clear vision for your trades is essential for long-term success in the cryptocurrency market.