Mastering Crypto Trading Psychology: Secure the Bag and Avoid Getting REKT

“The markets can stay irrational longer than you can stay Solvent”

— John Maynard Keynes

High speed, High volatility, High risk… High reward?

Welcome to the wild world of cryptocurrency; where wash-trading is commonplace & headlines of fantastic wealth being made overnight are constantly deluding people from the truth...

The landscape of crypto trading is constantly evolving alongside the socio-economic pendulum of technological innovation & constant influx of new products, assets & services.

What does not evolve quite as fast is the human condition.

Many people consider trading to be a form of gambling; they might be right… but they might also have never had a chance to be successful at it.

Trading is a form of art.

It requires immense emotional resilience; steadfast intuition, and acute intellectual prowess like nothing else.

Used the right way, it can radically enrich your life.

Used the wrong way… it will wreak you.

(DYOR, but I'm speaking from the heart)

Enough of this foreplay; let’s get to the juicy stuff:

Without further ado, here are the fundamental principles of trading success that have stood the test of time:

Principles of Trading Success that have Stood the Test of Time

1 - The pain of loss is worse than the joy of victory.

We, as humans, are creatures that are designed for survival. Our flight or fight preservation mechanism will always trigger stronger emotional responses to negative situations than to positive ones. This will cause you ignore taking profits & force you into taking losses.

2- Don’t try to time market tops & bottoms.

One of, if not the most common misconceptions trading. People look at a chart & then try to measure the absolute bottom to the absolute peak in order to “calculate possible returns”. This is a natural psychological bias based on a lack of knowledge. The simple fact of the matter is you don’t/can’t know where the top is or where the bottom will be.

3 ⁃ Average IN; Run OUT

There is a phrase that runs around the crypto industry all the time, DCA. Dollar Cost Averaging is a magical thing that applies to long-term investing & trading alike.

→ Enter a position in portions (if the total portfolio is $1,000 & you want to make a trade for $250, instead of throwing the whole $250 at once, it is better to make 5 entries @ $50 or whatever other segmentation you find fit. This will control your risk.

→ The inverse applies to exiting. Exit positions in 1, max 2, swift actions. If your $250 position is now worth $350; take it out of the initial $250 then $100 or any other segmentation that works best for your risk tolerance.

4 ⁃ Keep a tight, consistent trading time frame/schedule

Traditional stock market participants like to trade early in the day when markets open, but this does not quite apply to crypto because it never sleeps.

→ Have a set time frame for trading (ex: start @ 10am done by 2pm or whatever works best for you) otherwise it will creep into other areas of your life & start to exhaust your mental state (a recipe for disaster).

5 ⁃ Have hard, non-negotiable parameters

Set up some of your own rules to follow & do not break them. At first, test out a few basic parameters to observe what works & what doesn’t; such as “once position X hits a certain % target, exit position X with your profits” or “if a position is down y%, close it”. Then discipline yourself to follow through on your rules.

Breaking your own rules is breaking the promises you make to yourself; this causes a loss of integrity.

6 ⁃ Focus on what you know

Learn a few select handful of markets & keep your trading focused in those markets; do not try to trade everything — it will be hard to track & all of the variations variables will get tangled in your brain, which will lead to “analysis paralysis” hinder your decision-making capabilities & result in impulsive reactions (also known as gambling).

7 ⁃ Don’t throw good money after bad;

While there are examples of people fishing themselves out of a loss — the market’s ability to stay irrational longer than you can stay solvent will drain your account & kick you to the curb.

8 ⁃ Cut your losses & let your winners ride

Wisdom from the professionals. One of the most influential American financiers & historical figures, Bernard Baruch is famous for saying “Nobody ever lost money taking a profit.” Keep that front-of-mind at all times.

9 ⁃ Be agile & don’t be tied to your convictions

Develop a thesis & don’t get attached. Go out there & listen to opposing opinions. Then go find others that share your opinion. Just listen. Learn to be flexible & always ask yourself; would you rather be right? Or be rich?

10 ⁃ All it takes is 1 good trade.

Sometimes you might fall into a spree of constant losses. It might last a day, a week or even a month. This will put your ability to trust yourself & your decisions on the chopping block; you might begin to doubt yourself. It won’t be easy, but so long as you keep trying, you will keep learning. Even if you are down -50% on the month… You must remind yourself that those losses only become permanent if you give up; & life has a funny way of teaching us: “success is always just around the corner”.

11 ⁃ This is a marathon, not a sprint.

It’s all about risk management. If you had $1,000 to start & turned it into $100,000 over the course of a year; you are a legend. But, you will be exposed to something called “recency bias” & assume that you can continue to perform the same way moving forward.

→ This overlooks the fact that increments from $1k → $100k are not that big ($99,000). While moving to the increments from $100k → $1M ($900,000) is a WHOLE different ball game. As you succeed, the returns will begin to bore you because they will be slower & more difficult to manage. Don’t rush.

12 ⁃ You are trading against yourself

Your emotions will try to fight you. Your brain will play tricks on you. The market makers will manipulate everything. It’s easy to get swept up in a hype cycle… it’s not easy getting back on your feet. Rise above the noise & be focused on the fundamentals. You can do this.

13 - Be VERY selective in WHO you listen to.

If you look at the world’s most powerful financial institutions you will notice something in common; they trade in silence. The most disheartening thing about crypto is the amount of bullshit “professionals” that will try to dump their bags on you. As a rule of thumb, don’t build a portfolio composition on the backs of people who know not what the future holds.

When using leverage / Margin Trading

- Do not have positions open when you go to sleep.

You will have heightened emotional sensitivity when falling asleep & will ruin the quality of your sleep cycle; which in turn will not let you properly rest. Waking up unrested will impact your cognitive state & cause you to go check your positions first thing in the morning. This will set your day off on a difficult route.

- 100x is downright idiocy.

Not much to say here; do as you please. But think about every successful person you might admire; odds are they don't do this.

- No margin for shitcoins

Consider: keeping your grenades in the microwave for safety… just don’t do it.

- Low margin Altcoins

Some altcoins are valid, but the vast majority will have poor liquidity. Poor liquidity means larger spreads. Larger spreads mean more difficulty exiting the position.

- Modest margin for “Blue Chips”

This is obviously not financial advice & primarily a reference only to the biggest names in the game BTC, ETH & LTC.

In the end, everything in trading boils down to the psychological.

All of these “rules” are merely suggestions, the best way to learn is through experience — I’ve made every mistake possible, multiple times & can tell you for SURE, ego has no place at the trading desk.

Stay Humble.

Stay Hungry.

&

Trust the process. 🥂

Also published here.