So you want to join the millions of people around the world who now consider themselves cryptocurrency traders? Well, before you hop in with both feet, here are three important lessons I’ve learned through the most recent Bitcoin bull and bear markets that you may want to consider in order to avoid paying a premium on the market tuition each new trader must pay as they begin developing their own trading style.
1. Hodl Is Idiotic
Unless we’re specifically talking about Bitcoin, where a reasonable argument can be made for its current valuation, buying and ‘hodling‘ alternative cryptocurrencies – or ‘alts’ – is one of the great myths of the cryptocurrency era, likely perpetrated by duplicitous market-makers and regretful bag-holders looking for more time to offload their stock. Because while it may be true that a couple of today’s alts will one day become the next Google or Amazon, with vastly inflated marketcaps, very little in terms of working products, and a lack of transparency still prevalent throughout the crypto market, the likelihood of being right about which alt will emerge victorious five to ten years down the line is suspect at best, and will likely require weathering significant pains in the meantime.
Additionally, with the vast majority of alts so closely paired with Big Daddy BTC, attempting to hodl them through the inevitable Bitcoin swings makes very little sense unless you happen to catch the exact Bitcoin bottom – a task very few cryptocurrency traders, if any, have the ability or skill to do.
So unless you consider yourself a long-term value-investor (as opposed to a trader) and see no greater (or more immediate) opportunity in the market, rather than focusing on trying to predict the 1% of altcoins who will remain standing when all is said and done, consider using alt swing-trading to grow the size of your Bitcoin holding and leave the hodl nonsense for the meme accounts.
2. Risk Management Is Like Oxygen, Without It You WILL NOT Survive
One of the biggest mistakes new cryptocurrency traders make, much like their inexperienced poker-playing counterparts, is not recognizing that their NUMBER ONE PRIORITY is capital preservation. After all, just as in poker, you can’t win what you’re unable to put in the pot, so if you’ve whittled down your bankroll making risky plays and failing to instill safety mechanisms into your trading strategy such as proper stop-losses and overall bankroll management, it’s not going to really matter when your favorite coin finally ‘moons’ as you’ll likely need an unreasonable multiple just to get back to even, an unenviable position to find yourself in for sure. The trick then is to focus on minimizing your risk at (almost) any cost by limiting your losses as soon as each trade idea is invalidated. After all, it is infinitely better to take multiple small losses that can be overcome relatively quickly once you catch a winner, than to hodl through the storm and count on prayer to force a reversal and get you back in the game. Or, as Ed Seykota – the legendary trader who pioneered the computerized trading system way back when in the 1970s – once said:
IF YOU CAN'T TAKE A SMALL LOSS, SOONER OR LATER YOU WILL TAKE THE MOTHER OF ALL LOSSES! Click To Tweet
3. New Cryptocurrency Traders Must First Focus On Building Themselves, Not Their Bankroll
If there’s one thing that being a professional poker player for more than a decade taught me it’s that the real battle was never between me and my opponents, but rather between me and myself. And even though that might sound like a lameass quote you’d see in a cheesy Instagram post, there is nothing I’ve learned that is both as true and as applicable to every facet of life. For me personally (thanks in part to the wisdom of media king Gary Vaynerchuk) that reality manifests itself in two very important forms: personal responsibility (or, as Gary likes to say, ‘everything is my fault’), and honest self-awareness.
Did I take a bad-beat late in a poker tournament and just missed out on a big score? – What could I have done earlier in the tournament that would have enabled me to accumulate more chips, and how will I ensure I’m in a better position next time the same situation comes up?
Had a big loss trading shitcoins on illiquid exchanges? – Where did my trade-plan fall apart? Did I size up too big? Forget to set a stop-loss? Fall prey to some serious FOMO and take a bad entry?
Spent too much of the day arguing with my strong-willed 5-year-old? – First off, wtf dude, he’s 5! Secondly, why did I let myself get sucked into fights I would normally evade with total ease? Was I tired because I stayed up too late looking at crypto charts (again)? Did I get so wrapped up in the day-to-day responsibilities of keeping a small human being alive that I forgot to eat and am now simply suffering from low blood-sugar (the parents out there can attest that this happens wayyyy more than you might think)?
Whatever the problem, whatever the results, my motto these days is everything is always my fault!
The key for me then, is instead of worrying about how much I made or lost each day, instead of focusing on the size of my bankroll or the accuracy of my profit-taking, is to use every trading opportunity to reflect on 2 things: what did I learn from the situation that could help me in the future, and what strategies or skills do I need to build or improve that will allow me to do so from this point forward. After that, all that’s left is putting in the actual work and grinding out self-improvement in small, easily-manageable pieces day after day, month after month, year after year until the compounding interest of consistent good practices begin to show up in the results, as they will inevitably do.
Because, if you’re passionate about trading and want to make it your life’s work (or your life’s work for now), there’s really only one question you have to answer:
Well, are you?
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