Why Your Smallest Bags Are Often Your Biggest Winners

Reading Time: 3 minutes
  • Many of us find that our smaller bags outperform our bigger ones in terms of percentage gain during a bull market
  • Sometimes our biggest winners can be coins we forgot about
  • It’s not just chance that our smallest bags turn into our biggest winners – there’s psychology behind it

We’ve all seen the tweets from crypto investors who have opened up an old wallet or exchange account and found a shitcoin they had clean forgotten about has gone 100x in the intervening months or years. You may even be one of the lucky ones yourself. Such experiences are examples of a phenomenon known to traders of all types, but one that is especially prescient in crypto – the smallest bags are often the biggest gainers. This may not be in monetary value, but it’s almost certain that those small bags you pick up will return you a much higher percentage gain than your bigger bags over the course of a bull run. The reason why this is the case is to do with the psychology behind our position sizes, and there is a lesson in there that every twitchy-fingered crypto trader could do with learning.

Buy and Forget vs Buy and Babysit

Imagine you had $100,000 and you bought two coins, one for a $100 investment and one for a $99,900 investment. Which of the two trades are you going to pay most attention to? Exactly, the one that makes up 99.9% of your portfolio. You will very likely be checking on it every five minutes, worrying about the tiniest red candle and maybe even selling the whole lot of it drops 5%, only to watch it rebound and go higher five minutes later

On the flip side, while you’re stressing about micromanaging the big investment, the $100 investment will be left relatively untouched. In real life you would probably put that $100 into a micro-cap coin in the hope that it will work wonders months or even years down the line, so it’s not something worth paying attention to on a regular basis. This means that you are less likely to sell it at the first sign of trouble. If it drops 25% so what? It’ll come back up again.

Fear of Loss Leads to Interference

We can clearly see the difference in the two attitudes and where they trip us up. Of course, with the above example there is another issue here, that of position sizing, but the principle remains the same whatever the position size – the bigger the position the more likely we are to stress and worry over it and sell it early before we’ve given it a chance to properly move. Compare this to the smaller bag on which you might only execute two trades across months – a buy and a sell.

The reason of course is understandable – with a bigger position comes bigger risk of loss – but this in itself should be a red flag that you have too much invested; if you’re scared about losing your money either your position size is too big or you’re using money you can’t afford to lose.

Set and Forget Brings the Big Gains

The chances are that leaving a big trade for the same length of time as a small trade throughout a bull market will result in an equally high percentage return over the same amount of time, perhaps even higher than the smaller position. However, the higher the position size gets the more likely we are to cut loose too early, worried that we will lose money, whereas we’re not bothered about losing on the small bag.

The easy way to see whether you are a victim of this phenomenon is to look back at some of your biggest losses and compare the value of that holding now. It’s a painful thing to do, but it teaches you a lesson – hold your positions to the end, no matter what the size. You should always go into a trade with an exit plan in mind, even if that plan is to hold and see what happens, and history shows us that not deviating from that plan, even if it comes with huge drawdowns along the way, is far more beneficial than babysitting trades.

Treating all your bags with the same amount of indifference is the best way to secure serious gains in a bull market, no matter how big your bag.