A Simple Strategy I Utilize For Trading Memecoins

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12 Aug 2024

Dangerous Territory
Memecoins are without a doubt the most volatile and dangerous asset class. Unlike Bitcoin volatility, the volatility occurring within the memecoin space is often fatal. The majority of these coins don’t survive. The shocking truth is that the majority are not created with longevity in mind. In many cases, a rug pull is the initial motivation. This is why I have often said that I look for memecoins with significant trading history.
The majority of rug pulls occur within the first 72 hours of launching. It is by no means an absolute. However, it is important to bear in mind before aping into a newly launched memecoin. Solana, being the chain of choice for memecoin developers, attracts a lot of bad actors. This is unfortunate, but completely understandable. Scammers and bad actors will always look to operate within the “hottest property”.
Today I am looking at a Solana memecoin as an example of one of my memecoin trading strategies. This particular strategy is often very effective and if the appropriate risk management practices are exercised, it can be a relatively safe approach to memecoins. It is important to remember that this is a highly speculative arena and anything can happen, including the complete loss of funds.
Tested By Time
This is a simple strategy evolving around basic price action and an asset’s time in the market. Once a memecoin has survived multiple months in the market and still has a relatively healthy trading volume, it is likely to experience a bounce, provided it is in a position to do so. This would be a position of being heavily oversold. In this particular instance, I am making use of MAGA Hat.

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As you can see in the screenshot, MAGA has been heavily oversold. Furthermore, it has been trading for multiple months. According to CoinGecko the 24-hour trading volume is $28 million. This memecoin is still very much alive when you consider the investor interest. It has collapsed 94% from its blow-off top. Analyzing the price action reveals that MAGA peaked within four days of being listed on Gate.io.
When I first set out to write this article, MAGA was up 18% for the day. It is currently up 48% as I write and has been higher during today’s trading session. What first caught my attention was the rounding bottom. This is a classic bullish formation, as the saying goes:

Rounded bottoms pay the bills!

MAGA has been edging higher over the past few days and is up 111% over the past seven days. My approach would be to begin nibbling, especially on an hourly or 4-hourly correction. My strategy is to build a position while respecting my risk management practices, which include capital deployment. The risk/reward ratio becomes increasingly attractive in such scenarios which I typically like to trade.
I used the same strategy regarding a recent trade on BARRON which surged 375% from the moment I published it as a trade idea. It’s not a full-proof strategy, no strategy is. However, it does reduce the risk element, which is crucial when trading and investing in memecoins.

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Final Thoughts
Even though MAGA has experienced such a heavy correction, it still has significant potential as a short-term trade. In fact, the heavy correction is a helping hand regarding its thesis as a trade idea. Remember, this is the highest-risk sector within an already risky asset class. Exercise caution when participating in the memecoin market. It’s a battleground. See you next time!

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Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.