What things do you wish you’d known earlier regarding crypto trading/investing?

Posted By Robert On Tuesday, May 14th, 2024 With 0 Comments

First, bulls and bears do matter. During a bull market everybody thinks they’re a good trader because it’s so easy to make money. If you’re a good trader, you should be making money even during bear markets. Be wary of advice in general coming from traders who have made a lot of money in crypto recently: there is always an element of survivorship bias here, and also, a monkey capable of throwing darts at the highest volume cryptos would have have been successful during the recent bull market.

The point on news is incredibly important though, especially with crypto. Here’s the thing: it’s really hard to pump and dump commodities and currencies IRL, especially in modern times now that information travels instantly and we have set up the system so that this is impossible. But everyone and their mom is trying to pump and dump every crypto they have a stake in, and journalism on cryptos is usually entirely devoid of anything remotely technical / informative other than “wow this crypto exists and people are using it”. Bitcoin is a weird currency-asset thing in a class of its own, and is valued pretty much independently of any other market (at least causatively, except perhaps the price of electricity?), so it’s really hard to come up with estimates of its “true” worth, whereas with oil or the GBP we can come up with confidence intervals, upper and lower bounds, etc.; this puts the market in a weird position where market sentiment is probably the most reliable predictor of movement, but the “signal” of true market sentiment is crowded out by the “noise” of the market sentiment generated adversarially by people with vested interests (I wonder how many people have actually tried to use game theory to account for this). So finding this signal is of the utmost importance, and understanding the content is absolutely key in finding this signal.

We’re speculating on future value. A lot of people are speculating on others’ speculations and yes, this is recursive. Hype can make up the majority of a coin’s market cap

To not take any one person’s advice regarding the prospects of a particular coin/token with more than a grain of salt. Eg, I once posed the question on Polo’s trollbox regarding why Ark’s crowdsale was not receiving much attention, prompting a reply that it was “a rekt attempt to relaunch Lisk”; which in turn contributed to my premature sale of these tokens and subsequent loss of a 40X gain.

Bulls and bears matter. Don’t quit your day job for trading solely because you did well during a bull market.

Technical analysis matters. Technical analysis matters, if it works, which it may not. Specifically quantitative analysis is what you should be looking at. Don’t just plug some shit into an excel spreadsheet, do some basic stats, and expect it to tell you anything important.

The single most important thing in trading bitcoin is separating the small amount of good information from the mounds of shit out there.

Holding for multiple days, in my opinion, isn’t really trading. Trading is about making money off of volatility in the market in the short term without exposing yourself to the longer-term volatility you get from holding.

When trading, the more volatility of something, the less time you want to hold it (and also the less time it takes to make money off it via trading anyway). I view trading as exploiting volatility between market events – if you hold on to something for long enough for market events to occur, you’re trying to make money off of those events and the volatility. In general predicting events is a lot harder than volatility – it definitely can be done, and you can make money off of it, but it requires a completely different set of skills than trading does.

As a general buying strategy: run into a building when everyone’s running out, especially if there is no evidence of a fire. This is a riff on the saying ‘when others are fearful be greedy’. And I wish I’d done it more when I started.

Be far more patient. All of the bad trades I’ve made would eventually have turned a profit if I’d held onto the coins long enough. This even includes disasters like buying Synereo at their almost scam-like second crowdsale and promptly watching the price drop by 75% (after the team split up). If I’d held onto those for six months I’d have still reaped a 30% profit.

You don’t have to be tech savvy or a technical analysis expert to succeed as you can do just as well – or well enough anyway – identifying a few highly respected figures and following their strategies. You need to learn to distinguish between those that are worth listening to (eg, Olaf Carlson-Wee) and those that aren’t however, and this takes time and research.

Look for ICOs or cryptos with a promising proposal which some reason isn’t garnering a lot of interest as this might lead to a lower supply – once those tokens hit exchanges – and significantly greater profits, if there is a sudden demand. Eg, ArkEcoystem failed to reach their funding target yet ended up turning a 50X profit if you bought in the first round of their ICO.

Research and then factor in taxation before trading, as what might seem like a highly profitable trade will often be far less of a windfall after capital gains are factored in – not to mention a hassle having to tally up and declare those taxes, or fines and even jail time if you don’t.

Set yourself limits as to how much time you spend looking at your portfolio app/Reddit etc as this can (and has, for a while there with me) become an obsession, depriving you of time you could have spent in more valuable ways.

Don’t waste energy fretting over bad trades or missed opportunities as you may well be overlooking another opportunity whilst needlessly punishing yourself for something you can’t change.

Trading is not about predicting massive events like a crash or huge upswing, trading is about making money without losing money when these events do occur. In fact this is a fundamental misunderstanding of what it means to “trade”. I like to think of trading as one of two things: either providing liquidity to a market (for which the market “pays you), or as a way of exacting a “volatility tax” on the market. You should never be left “holding the bag”, so to speak, because your trading strategy should guarantee (or guarantee with some high probability) that this won’t affect you negatively much, if at all.

The biggest money makers on Wall Street (Renaissance Tech, DE Shaw, Jane Street, Two Sigma) and “Market” Street (like the most successful prop trading firms on the CME) are all quantitative (which basically means they use technical analysis that works).

Edit: Not every form of technical analysis works. If you don’t have a strong math/programming background (as in, a Bachelors degree understanding of CS/Math/Physics at the bare minimum), technical analysis isn’t for you. But if you use quantitative strategies like the biggest quant funds and prop traders use (or can understand them) then you would be fine.

In general I’d say if you want to learn to trade crypto, learn about trading in general. If you just learn from crypto day-traders you’re going to get a lot of survivorship biased bullshit from amateurs/noobs who think they’re geniuses because they made money in a hugely strong bull market. Real trading is technical and hard, don’t believe it’s easy and mostly guesswork just because that’s a more convenient “truth”. Best places to read are probably blogs by traders, textbooks on things like stats/stochastic differentiability/linear algebra/etc.

If you’re not willing to learn the hard math you shouldn’t be trading, because you’ll be eaten alive by the people who do know that stuff when the time comes. As soon as there’s a bear market, all these amateur traders who think they can get by without technical analysis will lose all their money if they try to keep trading.

Share Button