After buying my first bitcoin I learned a lot about blockchain technology and then I learned about mining. A friend of mine bought some miners and I helped with ventilating them. I say the numbers for myself. There was always a big question of what is bitcoin going to be worth in the future, because there are factors in play that will increase or reduce the value of bitcoin and public adoption or rejection will be one of the huge factors.
With all that said, the crypto currency market is a volatile one, in which many of the best traders say great, cause that is where most of the money can be made.
So I got into cryptocurrency markets, started trading coin and went through the downs and ups from Jan 1, 2018 to today (Jan 21, 2018). No doubt I learned a lot and went through lots of different emotions as part of the process.
The biggest lessons I learned from trading for a few weeks are:
- Always calculate risk, and have stop orders for everytrade
- Do your own research to come up with your own ideas
- Look for opportunities in the 1 to 6 month range
- Bottom Line - Hear the results of 90 % of traders
This is probably a very deep topic however the simplistic view is simply this; If you are buying a stock or crypto at $10 and have a $8 top loss and project a potential price increase to $15 then the upside is $5 the downside is $2, in other words the upside is 50% and the down is -20 %. So this could be termed as taking 20% risk to your capital. And then looking at the ratio of potential gain of $5 vs loss of $2 is a ratio of 2.5 to 1 or to flip it around, its 40% risk ratio on the trade, which sort of feels like a gamble, but then again in life we are gambling every day with our time or investments and debts we take on to pay for housing and cars etc. From a very simple perspective, is it smart to buy a house for $500,000 and have to work 20 years to pay it off or is it smarter to take a loan for $500,000 and have that return $5 for every $10 share or coin you bought, making a profit of $250,000 then do that twice and voila, you can now buy a house for $500,000 in cash.
With all that said, there is obviously a skill that is needed to be able to make trades with a decent enough win ratio to be able to trade the money for a profit. And as is shown in the video below, the institute of trading projects it takes traders about 2 years to become consistent with there win ratios.
The skill takes time to learn, both the technical part of it and the experience part of it. As I have done a lot of research into trading education and mentors there is almost always a time where the get into a bad position and have to resist panicking and making a bad decision and that is where training becomes so important, and even having a mentor to help when caught in one of those positions. Of course, the training also provides ways to limit the chances of being in positions that are not good.
Do Your Own Research
At first, this one seemed to be kinda of like something I would say "Ya, Ya, Ya" to and roll my eyes, cause most of the time we tend to think that all we need is one good idea, or something to tell us there good idea and we are good to go.
I think the reason for this is partly due to the fact that we are essentially trained that when we have a problem there is a push button solution to it that someone else has already created. Then when we have a problem we didn't see coming we just look for the push button solution.
With trading it seems to be much more important to get your head into the markets by researching them yourself and inevitably you will come up with or see opportunities that others have not seen and be able to make good trades on that insight. However, if you use someone else's idea that is based on their insight you won't actually be able to see why the price is going up, where it is likely to go, for how long and what will impact the price (as far as it achieving your target price).
I have learned the result of not doing your own research likely turns into the feeling of being dropped off in the middle of a war zone, in complete darkness, without a flash flight and hoping to survive without knowing who or what is around you.
Trade With Views of 1 to 6 Months
One of the first ideas I had in my head when I started trading is that I could trade multiple times per day and make a 1 to 3% profit each trade, which would then lead to 10 % or more returns each day. So i started off day trading, at first it seemed relatively easy, the market was on an upswing, then it took a huge drop a few days later and it wasn't so easy any more. The crypto's were likely to drop again and the upswings to trade on where shorter and shorter and seemed to have higher risk of dropping.
I had learned a lot about technical analysis of charts, and also learned that sometimes there is simply huge ups and huge downs. The technical analysis can be a guide, however there are good things about using it and bad things.
The teachers of technical analysis will teach to learn patterns and trade on breakouts (or simply anticipation of upswings). Some pro traders have shown that this is not their preferred or recommended way of trading for profit. On top of that, in a crypto world that is very volatile there is larger risk (which is good for profit if played right) that must be played right to win big as the chance of loosing big is there too.
When I was doing multiple day trades it became pretty intense as the profits and losses happened frequently and it is definitely work as it used a lot of my brain power to focus on so many trades and also the emotions of ups and downs is quite a ride to manage as well.
The first thing I would recommend to anyone before getting into trading is to look at the different styles of trading and see which one best suits your trading type and also which one is most likely to provide the best results with the least amount of time, money and effort. Cause it can be a full time job that tires you out if its not working out for you, which they say is most likely to happen in the beginning.
4. The Bottom Line
This is probably one of the most crucial things there is, let me tell a story to illustrate:
When I first bought bitcoin, it felt great, I was now part of the new technology with the potential to change the world. So I ended up sending some bitcoin back and forth to friends and at first the fee was around $2, then $10 and then $30 at which point sending to friends just stopped.
At the same time I got into mining and a friend of mine bought a bunch of miners and they started generating bitcoin.
I started to realize that when I sent bitcoin part of every transaction went to the miners, which meant it was smarter to have a miner than to have bitcoin. Cause holding a bitcoin did not produce more bitcoin, but owning a miner did produce more bitcoin. And the more I transacted with bitcoin the more money i gave to miners.
This led to a few things... finding a way to trade without paying mining fees, wanting more miners, and looking for other crypto currencies with lower trading fees.
This all reminded me of how our traditional world works. I go to work, make money, first tax is taking off my pay cheque (this is just like a mining fee). Then when it goes into my bank account there is a fee to take it out... accept with some bank accounts so I won't even include this one. Next, when i got to spend the money I gave tax on my purchase (government mining fee) and the store I bought the product from has to pay property tax, payroll tax, accountants, lawyers, managers, staff, income tax, insurance etc. So essentially those are just like mining fees as well.
So if I got to a coffee shop and buy a coffee, I am paying for all that stuff that really has nothing to do with me, I just want a coffee. Which is just the same as wanting to trade a bitcoin with a friend. I really don't want the wallet app, the phone i am using to trade it with, and the miner fee.
So this stuff (fees) is everywhere, and this especially includes trading crypto currencies. For every trade you do there is a fee, if you loose on the trade there is a fee, to put money into your account there is a fee, to take money out there is a fee. Essentially, the system will make its money regardless of whether or no you do. As long as you win on trades this is not an issue.
So what are the chances of winning on trades? Taking a look at the examples from stock and forex traders, the pros have some good win rates....the retail trader, which they define as less than $500,000 in the market, has a different win rate.... as seen in the video below....90% of retail traders lose and the inverse is pro traders and the industry wins 90%.
How does that happen? The video below tells the story.