When I was in my Early 20s I was in a trading seminar, at the back of the room and probably 4-5 chairs away from one of the instructors. If you can picture the scene it was about 3:30pm quiet room except for the dull drone of a speaker presenting another swing trading example and a quiet tapping of old-school keyboards as students took notes.
I needed the attention of the other instructor so I did what I would’ve done with any friend or colleague when needing attention in a quiet room – I threw a wadded up piece of paper at him.
The look of rage I received will stay with me for the rest of my life, and with a quick sharp jerk of his finger indicating we were heading outside – i knew I screwed up.
I’ll summarise the conversation:
“WTF was that”
“Sorry, man I just needed to ask you ab….”
“You’re going to get nowhere in trading, or in life with an attitude like that”
“Im sorry, but…”
“If you are too lazy to stand up and take 3 steps, how do you expect to achieve anything?”
That taught me a pretty important lesson in regards to 2 things: Laziness and Respect. If i wasn’t lazy and had the appropriate respect for my colleague, I would have gotten what I was after quickly and without any subsequent drama. This is a great analogy for novice traders – Too lazy to do the work, and have no respect for their capital.
So today I want to focus on the basics of actual crypto trading for people who may be starting out or looking at making a transaction into the industry. The key message being – do some work, don’t be lazy and have some respect for your money – otherwise it will chew you out and not give you your desired outcome.
So from my view – Firstly you need to really consider what you are – a Trader, or an Investor. If you want to do both – make this decision before you enter a position: “Are you wanting to be in and out of positions over a few hours/days/weeks, or are you looking to buy and hold (HODL) and hope for a longer term play”. If you are considering the latter you may want to read my article titled “Why you won’t be a bitcoin millionaire, Sorry”.
The biggest difference between being a long term investor in Stocks and Crypto – is that there is a high probability that if you invest in a company in the DJ30, it will still exist in 10 years. If you invest in a cryptocurrency in the top 30 – there is a 14% chance it won’t exist in 2 years, and a 45% chance it won’t be in the top 30 anymore. However there is also a possibility that if you buy a cryptocurrency this year it will go up by some astronomical figure over a 2 year period – risk vs reward I guess.
So it is important to establish upfront which camp you sit in – this will help you to better manage your risk, expectations and goals. One of the best lessons I’ve been taught in trading is to not let short term trades become long term investments – so if you define what you are from the start, you will be either taking a short term trade, or making longer term investment not switching in between as a position plays out. Decide: am I taking a long term, or short term position
Once you’ve made this choice now you need to decide what to trade/invest in. To make this call we generally use Technical, or Fundamental analysis sometimes in combination.
Technical analysis is typically done by looking at historical trends in pricing information – usually on a chart. Typically traders using Technical analysis would look at statistically recurring patterns (setups) that can reliably used over and over again to profit from. Technical analysis is based on probability, not certainty
From a technical analytics point of view, reliably trading limits you to the top 50 currencies as liquidy in cryptocurrency markets is significantly lower than other markets. Sometimes even the top 50 is thinly traded for extended periods – especially for the greater part of 2018 and 2019. For this reason you need to be careful about what markets you decide to trade. This is neither a positive or negative, just something to be aware of as thin markets can create exceptional breakouts, which create exceptional opportunities for profit… and loss.
My next point is debatable, however in my view using technical analysis on anything outside of the top 50 is a complete waste of time for 3 main reasons: These markets are thinly traded and easily manipulated – trading less than $1000USD a day in most cases. In fact there are less than 100 coins with daily volumes exceeding $100kUSD; There isn’t enough historical data of note to accurately analyse them; and lastly there aren’t really any reliable markets where many of these coins can be traded – especially for new entrants. Consider markets you trade carefully – is it big enough for you to generate profits over an extended period of time.
For a beginner trading the top 50 from a technical point of view – starting with basic setups like: Repeating/Expanding Ranges, Double/Triple Tops/Bottoms, and key % Retracements (Gann Box, Fibonacci etc – depending on the market) are a relatively easy way to get started. You wont get a trade every day but you’ll have a higher chance of success as you master those indicators – and there is no limit to the number of online material available to teach you how to use them. Learn to use a few key strategies to begin with as you are learning your market
If you’re buying something outside of the top 50, you should be making the decision based on valid Fundamental information. Fundamental information is basically any factual information that can help to determine the underlying value of a business. I’ll say it right now “I heard from some guy on Reddit” is not fundamental information, and has the same amount of value as the seconds it took to read.
From a fundamental view, the underlying value of crypto is inherently difficult as there is no real benchmark to see what “works” – as in what business model, what model for tokenization works best for the business and has been adopted by users, and there is still debate in the industry over worthy use-case of blockchain tech and cryptocurrencies. So essentially in many cases, investors are putting money into unproven ideas, products and business models – and if you’ve watched enough episodes of shark tank or Dragons den you’ll know that without these 3 things no professional investor will touch it. Obviously as investors go Crypto investors sit on the extreme side of “risk seeking” so sometimes some flaws in a business can be overlooked, so therefore the risk vs reward ratio needs to be significantly more favourable.
I’ll stand by my previous statement that 95%+ of cryptocurrencies will fade into obscurity over the next 2 years (as that initial ICO/IEO funding dries up) some key reasons for this:
Capital was too easy to raise
Most cryptocurrencies focused on marketing and the raise and not the business model
Most cryptocurrency projects are for hypothetical, or not fit-for-purpose use cases
In regards to how you store your crypto – you can do this either by holding on an exchange this is the easiest, but arguably more risky option as if the exchange falls apart, you’ve lost your crypto.
You can store it yourself on a hardware wallet, paperwallet or another third party wallet provider – this can be more complicated for the user, but it leaves the control and ownership of your asset with you, rather than trusting an exchange to stay in business. If you are short term trading I don’t really see the point in transferring crypto off exchange, however if you are buying and holding for longer than a few months – i would 100% recommend that you transfer your crypto to a wallet you control. I will go into more detail on this in an upcoming article.
In many countries crypto is still relatively unregulated, and many regulators are still experimenting with the best way to manage their respective ecosystems. There are still exit scams, pyramid schemes and other types of less than ideal investment options being peddled about so users still need to remain diligent to ensure that:
- The Crypto they are investing in is a legitimate project
- The Exchange you are purchasing on is legitimate
- The Wallet you use is secured and only *you* know the private keys.
Over all there are great opportunities to make massive money in this industry, but they are counterbalanced by the risks still present.