08 Sep 2023
Trading Meme Coins 101 - Part 1
Get equipped with the essentials and understand the basics of trading meme coins.
Entering the world of memecoin trading can be akin to high-stakes gambling; it's complex, volatile and does not abide by traditional trading norms. This informative and exciting guide serves to arm prospective memecoin traders with crucial knowledge to navigate this dynamic market, focusing on three key pillars: understanding project safety, discerning tax implications, and conducting thorough social research. The guide further provides useful insights into the unique strategies involved in memecoin trading—copytrading, sniping, short-term hype trading, sentiment trading, and more. It serves as a compelling reminder that while memecoin trading can be a roller coaster ride, with a solid foundation of knowledge, you're primed for a thrilling journey into this ever-evolving landscape. Stay tuned for the next installment where advanced trading bots, risk management strategies, and mastering the art of riding hype waves will be explored.
This summary is AI generated, want to learn more? Read here.
Trading memecoins isn't a walk in the park. As someone who's been entrenched in this space for quite a while, even with access to top-tier analytical tools and a keen eye on market trends, I've made my fair share of poor decisions.
Memecoins are complex, and they don't conform to the norms of trading established cryptocurrencies on centralized exchanges or well-known tokens on decentralized platforms.
Trading memecoins requires an understanding of sentiment and culture, as we've discussed in previous articles. It's not solely about technical analysis.
The rapid volatility and susceptibility to rug pulls make technical analysis even more challenging. In this article, we'll break down the crucial elements of analysis required to identify potential winners in the memecoin market.
Remember, trading memecoins is akin to a game of high-stakes gambling – it can make you rich, but statistically, you're more likely to get "rekt."
Rekt - Crypto slang for losing all your liquidity and watching your portfolio plummet to zero. Derived from "wrecked," as if Miley Cyrus' wrecking ball came crashing down.
Moreover, we'll delve into the basics of trading memecoins to ensure you can navigate this sector safely without losing your hard-earned magic internet money.
Trading memecoins involves a variety of strategies: copytrading, sniping, short-term hype trading, mid-term sentiment trading, selling the news, and more.
Each strategy requires different tools. But no matter the strategy, there are fundamental aspects that every memecoin trader should know and employ when entering new positions within this unique sector.
Let's categorize these aspects into three sections that you can follow sequentially when investigating a new memecoin:
- Check Socials
- Is the Project SAFU?
- Evaluate Taxes and Slippage Amounts
Assessing a project's online presence is crucial. It can help answer questions like:
- Who's already involved?
- How does the developer communicate?
- Is there an active community?
- Is there a whitepaper, website, and other essential information?
Frequently, verified smart contracts will provide links to websites or social media accounts. On Etherscan, you can view the contract source code, often finding such links at the header, as shown in the Altur Protocol example below:
These social indicators can be individually or collectively used to convince potential investors. In some cases, cryptic messages left on the blockchain intrigue potential investors, creating a trail of clues and mysteries that bind communities together.
An example is $LSVR, where the community generated AI avatars during the MidJourney phase. Dedicated investigators concluded that Ethereum's Vitalik Buterin was behind the project, leading to speculations about new concepts like Soulbound Tokens (SBTs). Often, projects vanish like $LSVR, becoming distant memories in the ever-evolving memecoin landscape.
Most projects, however, provide straightforward links to their websites and socials. Common online components to look for include:
If socials aren't in the contract source code, you can search for them using Twitter or Telegram, utilizing the token ticker or project name as search terms. Advanced Telegram bots like OttoSimBot aggregate essential information, making it easier for memecoin traders to access key project details.
When visiting a project's website, pay attention to detail. One typo or glitch can speak volumes. Test all the links, see if there are containers or remnants that shouldn't be there. Over time, you'll develop an eye for genuine websites versus those used by serial scammers.
A project's Twitter activity before token launch is telling. Have they been preparing for weeks or months? Is the account years old with an unusually large following? Is there a Linktree? Twitter accounts are essential for updates and launch notifications, such as buy and sell tax updates and contract addresses.
The Telegram community is often the heart of memecoin projects. Is the chat locked? Do developer actions align with chat communication, including set or changing buy and sell taxes? Are influencers engaging? Are users actively discussing or just posting GIFs? Telegram reflects the project's culture. Being present in a chat before a token launch provides insight into common launch practices, which can be valuable for navigating memecoin launches.
These platforms often host official communication and technical documentation. While technical projects commonly use them, they're not exclusive. They might host essential contract information, whitepapers, roadmaps, and project updates.
While their presence indicates a more legitimate project, remember that their content can be faked, just like any text generated by tools like ChatGPT.
In conclusion, a project's social presence is crucial to assess its legitimacy. Subtle signs can help you determine whether a project is worth your investment.
Is the Project "Safu"?
SAFU, originally an acronym for Secure Asset Fund for Users, is crypto slang for safe.
This question often goes overlooked by new investors and market participants, but it's crucial. Determining a project's safety can be challenging without knowing what to look for.
Here are key questions to answer:
Developers often lock the liquidity pool on platforms like Unicrypt to instill investor confidence.
If the LP is locked for a few days, it's not reassuring. A lock of 30 days is good, while one year is considered bullish.
You can find this information by asking on Telegram or reviewing the lock link. Alternatively, view developer transactions on Etherscan linked to the token.
Telegram bots like OttoSimBot can determine the original token supply deployed in the liquidity pool.
A deployment of 90-100% is favorable, while a range of 50-80% suggests many team tokens might dump.
Check the holder distribution to gauge the distribution of wallet sizes. Large wallet holders can create substantial volatility upon exiting positions.
Especially for tokens with considerable volume, review the holder distribution on Etherscan. An even spread of max wallets across different percentage ranges is preferable, as opposed to a few 1-3% wallets dominating.
They say death and taxes are the only certainties in life. In the memecoin sector, taxes take on another dimension, extending to transfers and buy/sell actions.
Buy and sell taxes generate revenue during trading. This revenue may be used for buybacks or marketing pushes.
Taxes play a role in setting slippage amounts – the allowance for price deviations within trades.
Slippage, combined with taxes, is essential for executing trades on memecoins.
If a project's taxes are 3% buy and sell, you'll need to set the slippage at 4-5%.
A top tip: set slippage as low as possible on zero-tax tokens to avoid MEV (Miner Extractable Value) bot manipulation.
Avoid leaving it on automatic slippage and consider using RPCs that protect against MEV bots or Telegram bots like Maestro Bot for MEV-protected trading.
Developers often rely on buy and sell taxes instead of airdropping tokens to themselves. This approach creates revenue and assurance for new investors, who might worry about insiders dumping tokens on them. However, things are rarely straightforward. High taxes can discourage snipers, while developers can secure early investor trust by farming tokens through early purchases.
Congratulations! You're now well-equipped to embark on your journey into the dynamic world of meme coin trading.
This article provides just a glimpse of the comprehensive knowledge required for successful meme coin trading. The three fundamental pillars – assessing project safety, understanding tax implications, and thorough social research – serve as your reliable guides through this exhilarating sector.
As you set out on your meme coin trading adventure, remember that this is merely the beginning. The memecoin market is a constantly shifting landscape, full of both surprises and challenges. Part 1 of Trading Meme Coins 101 has laid a strong foundation, but there's an abundance of further exploration and learning ahead.
In Part 2 of this series, we'll delve even deeper, exploring the utilization of advanced trading bots that enhance your trading experience, implementing effective risk management strategies, and mastering the art of riding the waves of hype while maintaining a steady decision-making approach.
While meme coin trading can resemble a roller coaster, these fundamental principles will act as your guiding compass throughout this thrilling journey. Stay tuned for the upcoming installment, where we'll equip you with an array of additional tools to confidently navigate the exciting and unpredictable realm of meme coin trading.
Wishing you successful and enjoyable trading, and may the meme force always be in your favor!
Disclaimer: Nothing on this site should be construed as a financial investment recommendation. It’s important to understand that investing is a high-risk activity. Investments expose money to potential loss.