I write this with newer, uninformed, crypto friends in mind. This is very much the wild west and when I started I had help that I wish to everyone who is interested to start.
You want money. I reckon that’s why you’re reading this. Sure, some might find the technology interesting, but not that interesting. You want mad stacks, big benjamins and all the green promised. Well, news flash: markets are a place to lose your money more likely than one to make more.
Ever gone surfing? You start with the small waves first. You get up, vibin’, doin’ a little skippy dance on the board before you crash back into the wave. You now got the beginner’s confidence. Behind you, you see bad ass surfers doing flips and tricks. After a couple beginner surfs you want to try yourself at the big waves. You paddle over and wait for the next wave with the pro’s. Next thing you know, you’re drowning. You get such a good ass-whooping by the waves, drink a litre of seawater, hit by a surfboard, centrifuged in the wave and before you know it you’re out of the water feeling beat. Welcome to the crypto markets.
Where as surfing’s worst-case scenario is probably brutal death. I have seen similar cases in crypto, as horrifying as it is to witness. Worst-case scenario won’t likely be literal death in your case, financial death of your savings is for sure on the table.
A trading plan
I guess you don’t want to die from financial death, well.. You need a plan. I can define some rough ideas of what a plan looks like, but you make it, for yourself.
A good trading plan talks to all the unknown events and variables. The what-if’s, could-be’s and hell-yes’. It states a goal, a strategy to reach it and all your actions involved in every imaginable event possible.
My goal: enough money to live off with a decent amount to spend a month with as little time spent a month as possible.
For me I love travel, irregularity in my life and I can’t manage a happy life with the stress of shorter-term trades. That helped me decide that I want to position trade. Meaning my trades go for months, sometimes over a year. My end-all is investing, building assets. My position trades profit are meant to go into investments, to invest in and hold indefinitely (a little bit here comes back to portfolio distribution but that’s for another day).
Ask yourself. What are my strengths and weaknesses, my desired lifestyle and how do I want money to enrich it. Build on that and decide how much time and energy you can or want to dedicate. The less time available, the more passive your strategy will probably be, so be realistic in your plan. The less time spent may mean it takes way longer to build portfolio. That’s cool. It’ll be your road.
Drumroll please.. Risk management (how exciting)
probability x consequence = risk
Righty-o. That’s the formula. Not so exciting, but very, very important.
The plan needs to address the worst and best consequences and sequence them probability-wise chronologically, then have a defined strategy for each of them that effectively addresses the nature of the situation.
You do that, you are doing GREAT. Why? Because whatever happens, you have PREPARED. Hell, even if something called “Black Swan events” happen (from the book by N.N. Taleb ‘The Black Swan’), you can define a strategy for what to do when that happens, meaning you have a plan for when your plan fails (yes, that extreme I would take it).
Biggest fucking question of ’em all. WHY. Why would I think of all the possible outcomes and have a plan for all of it? Emotions. I would go in to countless stories, but just take my word for it that when it comes to markets, you can truly not trust your emotions because they are predictable and those pulling the strings in these markets understand mass psychology (and your thus emotional responses) much better than you. Your intuition sometimes, you can trust, but not fear, greed, and similar emotions.
Lose it all, baby
If you’re still with em and keen on playing: decide how much money you can afford to lose. When I say afford to lose I mean it. If it’s gone tomorrow, are you cool? Not just because it might happen, but because it will cause you psychological pressure that affects trading decisions (and sleep). The logic of more money = more profits is skewed.
I believe crypto is a massive wealth redistribution event, mostly because you can literally turn a couple hundred bucks into millions (but not without hard work and sleepless nights I might add). I started with a couple hundred bucks to practice. I advice you to do the same, if that equals your no-fucks-given-if-it’s-gone amount.
Lastly, when I say hundreds into millions, I should add that it isn’t a get-rich-quick scheme. It can take years, and I believe crypto is here to stay. Perhaps not always this volatile and unregulated, but the opportunities will ALWAYS be there. Don’t feel pressure to perform now; such pressures are literally what make up for half my bad trading decisions.
Now. What is your goal? What is your type of trading you’d like to do? How much money can you lose? If .. happens, then what? (repeat that last one)
Write this down! I’m serious, open up Word, or a notebook. You need to have it written. Your goal. Your strategy for reaching it. Your actions in case shit goes side ways. Prepare for the worst, expect the best.
I’d advice you to read the following little book (Nik Patel’s an Altcoin Trader’s Handbook). Thank god he took the time to write all that great information, so I don’t have to. Even if his way isn’t your way, it still gives perspective on a solid approach to consistent money making in this space.
Hope this has been helpful. Any questions, please let me know.
Enjoy the ride.