I have collected the best wisdom from countless books on trading, sifted them through the strainer and used them to bake the 12 golden rules.
1. There is no win-win situation
Think back to the seesaw on the schoolyard. Two children rock up and down. There are two states. Either one child is up and the other is down. Or they balance themselves in the middle under a lot of strain. That’s how trading works. Sometimes nothing happens and the courses balance in the middle under a lot of strain. However, every time a trader makes a profit, a different trader takes a loss. The seesaw cannot be up on both sides. Simple physics. The question is: Why do you think you’re better than your counterpart?
2. Trading is war
In organised battles between nations, there is the term “fog of war”. The general can’t see the entire battlefield but only what’s in front of him. He has to make decisions with incomplete information. It’s the same with trading. Some traders are always on the wrong side of the asymmetry. There are so-called whales — they own so much crypto that they can strongly affect the course with a trade. However, only the whale knows when he will make the trade. If a (real or fake) message drives the price, then we usually find out about it too late. The winners in trading are those that have the significant information before the others do.
3. 50 plus 1
Once again the seesaw. There are only two relevant states a course can have: rising or falling. It’s a matter of 50:50. If we let a monkey trade, then the probability of it being right is exactly 50%. Nobody is 100% right. There is no system that can always predict an irrational and repeatedly manipulated market correctly. The goal of every trader is to be right at least 51% of the time. Every trader needs a frustration tolerance for losing money in 49 out of 100 trades.
4. Unfortunately, faith is everything
No matter how mathematical the system is, our belief in magic and faith keeps getting in our way. Example: A coin is currently being pumped and reaches dizzying heights. We know that it’s generally too late to get in already, but we still do it out of fear of missing out (FOMO). Or we see patterns where there aren’t any. In psychology, there is a separate research field for this: Bias. The result: Nobody is rational. Believing that we act rationally in the market is a mistake.
5. You are the mistake
The market is always right. If the market doesn’t behave the way you thought it would, then you’re wrong. Always and forever. Amen.
6. The 80/20 rule of trading
The good traders make their money with 20% of their trades. The rest is either a tie or a loss. If a good trade brings a profit of 16%, then a bad one may bring an average loss of 4%. You can reach this relationship with a stop-loss. In this way, you can also calculate whether you make a net profit. And you see that a trade with 3% profit isn’t really a win.
7. Beginners lose at trading because they:
- bet too much money
- trade without knowledge, so they’re basically playing the lottery
- hold positions for too long
- trade with cheap shitcoins
- gamble with other people’s money
- never cash out their winnings
- trade too often, therefore also trying out mediocre trades
8. Invest in what you understand
Inform yourself before you buy a coin. What are they doing? Does it make sense? Or is it at least understandable? The better the product, the more likely it is that the course will go up in the long term. This advice basically also states that you shouldn’t trade shitcoins.
9. The differences between crypto and other markets
- Crypto markets don’t sleep, they are open 24/7. The cycles between euphoria and depression are shorter by a factor of X, crypto trading happens in warp speed. If a stock market is “bearish”, then it can take a break for a few weeks or months. In crypto, next week everything will be different.
- Volatility — meaning course fluctuations — of 30% per day are almost normal and up to 100% (flash crash of Ether in 2017) aren’t impossible. You have to have the stomach for this. Traditional media for instance are too slow for crypto. If the article says that Bitcoin is down 30%, then the situation will have already changed by the time the author publishes it on his website.
- Stock traders thing in %. Crypto traders think in x (in form of a x-fold increase or decrease).
- Illegal actions like insider trading are happening everywhere. However, in the unregulated crypto space, it’s happening more frequently and the effects are bigger. An advantage in knowledge is even more profitable in crypto.
- Herd mentality. Technical course analyses can work well in the crypto space because the market is small and there are many participants doing analytics. If many people trade based on the same results, then prognoses become true.
- You shouldn’t make big purchases or sales outside of the top 20 (bigger than 1,000 euros). Lower trade volume worsens the price between the first and the last euro.
10. Make 100 bad trades quickly
The only way to increase the probability for winning is real experience in trading. Reading books won’t help you. Neither will trading with play money. Only real trading with real money will bring experience, insight and success (if anything will). Start small. Start with 100 euros. Once they have doubled, add another 200 euros. Once these 400 have doubled, repeat. Only trade with sums that won’t make you nervous. Being nervous is bad for business.
11. Less technical analysis (TA) is more
Learn about: Moving averages, stochastic RSI, trend lines, the basics of the Candle Sticks, upwards & downwards channels, bull flags, breakouts and wedges. You can “zoom” TA, you can form them from daily, hourly or minutely values. The shorter the timeframe, the more error-prone the pattern. Don’t search in minutes what you cannot discover in hours.
12. Emotions are not your friend.
This one thanks to https://medium.com/@rise2thecall
It’s all too easy to get caught up in the rush and excitement of a winning trade streak; or conversely, the depression of a losing trade streak. In both cases, the end result is the same far more often than not — sloppy trading, which ultimately results in loss.
Like a UFC fighter who’s trained hard to become the athlete they are, emotionally-detached discipline and focus is the key to becoming a successful Crypto Trader with regard to Golden Rules #2, 3 & 6.
The best trading strategy in the world will still lose you money until you get this right.
Simply put, if you loose 3 trades in a row, time to back off for awhile and “regroup”. Conversely, if you win multiple trades in a row, don’t get cocky, as this will inevitably lead to ruin.
So stay humble, stay lean, and check your emotions in at the door. They’ll still be there waiting for you at the end of your trading session.