If you’ve tried your hand at crypto investing at all, then you’ll have noticed something odd: the entire market can be down, but a handful of coins will be returning triple digits in a 24 or 48-hour period. Many of those cases are simply the result of low liquidity and market manipulation. 

But not all of them are.

At least, not a special class of them that we could call narrative trades. Let me explain with some examples.

• I wrote this piece on January 17th about the new AI narrative. And after it, coins promptly exploded 400%+.
• Here’s my coverage of Optimism as an L2 rollup, and the Zk-Snark + Rollup trend followed shortly after for 70% - 80% gains.
• I wrote this piece on BTC Ordinals, which make BTC a kind of L1, and 1 day later, STX (the actual protocol to make BTC an L1) exploded 88%.

I am not claiming causative power and I only made money on Optimism. What I’m doing is watching the narratives and, apparently,  my team and I are just in time for many of them.

Here’s a basic version of the strategy.

• If industry momentum is up (e.g., the Total or BTC are higher than the SMA 160), then search for narratives.
• When you find a narrative, buy the smallest coins directly associated with the narrative.
• Trade out after about a 25% - 40% gain.

These are short trades as the runs more closely resemble pumps than bubbles (again, Lesson 10 from AOTB). So, you want to trade out early, not late. 

There’s a lot that goes into verifying narrative strength, but at base, narrative investing is a kind of sentiment investing.

• So, you’ll want to see the topic appear in a few places or one place with a lot of reach (e.g., CoinDesk).
• It’s worth checking Google Trends.
• It’s also worth checking crypto Twitter.

This approach to narrative investing is grounded in momentum methodology, but it identifies coins that a pure momentum methodology won’t. Narrative coins explode in price and quickly drop off (after 24 to 72 hours). By the time a momentum indicator identifies them, it’s going to be too late.

So, there you go: a new strategy. I’ll be validating the details of the idea with the team over the next few weeks and then offering it to the paid subscribers. But I think everyone will find this outline useful for themselves.

Note: this article is adapted from the Free 1.2 Labs Newsletter.