Protecting the Ship.
The sea is obviously not a calm place.
Random changes in the weather, itself a proponent of outside forces, can turn beautiful ocean backdrops in to choppy devilish currents.
But what do the sailors do when such a thing happens ? Do they take every belonging and jump in the ocean hoping for a divine miracle ? Do they call 911 in the middle of the ocean ?
Tell me the last time you heard people jump off or take lifeboats since the Titanic ?
The shipping and trading industry has been around since centuries, it’s the bedrock of the world’s economy.
The experienced sailor knows choppy waters come, choppy waters go. A state of panic only results in an improper judgement, and hasty situations.
The same applies to our world of trading.
In a market governed by various external forces, ample precautionary steps must be taken to avoid huge losses and even loss in potential profits.
One of the most overused but wise phrase is “buy low and sell high”.
There are still some people who never learn because you can see that they do mistakes repeatedly. Check any forum or subreddit, there shall be posts about how they buy at the peak because they are scared of being left by the train and then they panic sell.
This is the easiest and dumbest way to lose money. Afterall, didn’t we spend enough time on a fundamental analysis before the purchase ?
Such bumps in the sound investment, that you believe is viable enough to grow in the future, should not deter you from holding. Especially if you work full-time and have no time to actively trade.
Just like bad weather, a number of occurrences will try to mess with your portfolio, such as —
- Regulation. If a government makes a statement or pushes for a particular regulation that affects cryptocurrencies, you can bet that the price will react to it (sometimes positively, often negatively). When China banned ICOs, the price of Ethereum fell by 41% in 15 days (from US$386.83/ETH to US$228.06).
- Media influence. Just like government regulation, exposure in the media greatly affects a cryptoasset’s price. Whenever a public figure makes a statement regarding cryptocurrencies or a major retailer starts accepting cryptocurrency as a form of payment, you will see the market respond.
- Changes to the technology. When a cryptoasset’s core technology is affected (either via an update or the finding of a flaw), the cryptoasset’s price is also affected.
- Whales. Strictly a crypto thing, these fellows have accumulated so much of BTC or ETH, that they are capable enough of manipulating the market by bulk buying, bulk selling, or placing fake buy/sell walls. ( I shall be explaining a Buy/Sell wall in detail in the next part of this series.)
Thankfully, some quick pre-damage control helps for a good night’s rest.
Have your pricing strategies right
Most of the amateur crypto traders don’t have pricing strategies. Professional traders always deploy their pricing methods to successfully discover trading strategies that works for them. This is indeed difficult because pricing financial securities are difficult than pricing other things (for ex a television or a dentist visit) and it requires constant optimizations to meet dynamic markets. You can learn the basics of crypto pricing here: Cryptocurrency pricing: A foundational perspective.
Pricing further becomes even more difficult in cryptos because of their inherent volatility. When we say buy low sell high it is really using pricing strategies to determine whether the intended security (Cryptos in this case) is under-priced (long) or overpriced (short).
Learn how to manage risk efficiently
People have an appetite of cutting profits faster and taking loss further. Have your risk management strategy in place. Do not trade what does not suit your risk profile. This is discipline. You will not last longer in any sorts of trading (Cryptos or futures or whatever) without proper risk management techniques. Have your target prices for purchase and exits set around multiple favorable prices (like a ladder) and maximize your risk-reward rate.
Know when NOT to trade
This is critical. Professionals develop their senses to a level when they know not to trade. Too often amateur traders wants to ride everything they learn on YouTube. You must know when not to trade. When the market offers you an opportunity that supports your “edge” hop in, when it doesn’t stay put. Don’t forcefully take positions that cannot be complemented by your edge.
Great. Never throw fish out. Never abandon Ship. Never trust fishermen who shill bad fish.
Fortunately, you aren’t alone in the ocean. There’s tons of kind people out there who regularly discuss the catch of season, the weather around the world, the potential of the fish you caught, new ships to upgrade to. It’s a looong list.
Say What ?
Yes ! People. Kind in nature, but holistically loyal to their coins at times, who discuss about the crypto world in terms of coin-tech, announcements, news, commentaries, everything ! A lively ecosystem unlike the traditional markets where only the high-fliers and professionals share valuable stock information, that may or may not impact your portfolio
This is Crypto, Baby !
By sniffing out forums, discord groups, telegram groups, subreddits, GitHub, Slack, and even 4Chan, you shall network with the world’s earliest adopters of this market, this future, this realm which stands to change the financial system as we know it.
This Global ecosystem never sleeps, and you could always look up what people are talking about, trading about, shilling about, or even bitching about.
When a thousand minds discuss a project, there is bound to be a lot of conflicting opinions, thoughts, and analysis. But, do not be dismayed, compare the collective opinion (which would usually sway in one direction) against your own research and ask the community questions. Perhaps even share your own findings !
In fact, two of my hugest ROIs were due to me lurking over different subreddits while scourging for new coins. I happened to see some one mention RaiBlocks, a new payment based currency that is instantaneous and has zero transaction fee.
It did look neat to me but I slept over it for a few days before checking out the RaiBlocks website and whitepaper.
Before I knew it, I was hooked. This was beautiful.
I admit I did not understand the block lattice technology they use, I still don’t. But the sheer real world use case of the coin, along with it’s relatively low coin supply and low market cap attracted me and I put some of my Ethereum profits in to it. It was about $1 at that time.
Two months later. RaiBlocks reached $30 dollars.
All due to a post I stumbled upon on Reddit. I should have tipped the guy 1 XRB, now that I think about it.
These were real money gains all due to the community, the ecosystem that breathes,talks and eats crypto 24*7.
As an Investor, you should make full use of this and spend a few hours per day just listening away to conversations, arguments, and debates about the best and latest coins out there, as well the scams and red flags that the users find out about.
There’s always someone out there who shall smell out shit, and give it out to the community for free, thus protecting a ton of people from bad investments.
USE THE FREE KNOWLEDGE.
There is no way you can be under a rock while investing in Crypto. After all, it is digital for a reason.
Bookmark these out ! —
On Reddit –
r/cryptocurrency r/bitcoin r/cryptomarkets r/finance
( There is a subreddit for almost all coins all there. Use the search bar to enter in the coin name and the first result shall be r/(coinname). For RaiBlocks, it is r/raiblocks. For NEO, it is r/neo. If your coin does not have a subreddit, Well……stay away from it.)
The Coin Websites shall have an official Telegram or Discord link right at the end of the page. This is highly recommended as developers, managers, or even the CEO directly interact with the community there. It is vital to keep track of the business and if the team is delivering as promised. If they aren’t, it’s a red flag !
On GitHub, the teams post code, patches, and fix flaws in real time. This indicates the strong work ethic and vision of the team and positivelyincreases investor confidence. Use the search option to find your investment, to check the progress in terms of software.
On 4chan — /biz/ is the forum for business and finance, and is mostly filled with crypto posts these days. Despite its shady reputation, 4chan users aren’t dumb. A quick read won’t do harm. We aren’t here for investment advice anyway, just reading the general sentiments out to see if any news or rumor shall affect our investment.
For every person who imparts valuable information, five others will be noob amateurs who solely trade based on price and intuitive indicators.
Noobs buy a coin and claim it will be 5x by the end of the month and this isn’t the type of trading that gives sustainable, stable results.
Take with a pinch of salt the advice of anyone who just predicts a coin’s price without any underlying fundamental detail, let alone the technical details of price action (THE way to actually “trade”)
BE SMART DURING A CRASH
If you were the gentleman who chilled in Thai Silk pajamas and resorted to Panic Selling in the morning, a host of strategies are out there for you.
- Holding, or HODLing, isn’t a great strategy, irrespective of what every other people out there tells you.
If you invested $100 in coin X, and the next day there is massive FUD or any of the 1000 factors that affect the market, do you really feel it is wise enough to hold on to your dear investment ?
It’s possible in 2000 BC, having a life threatening disease meant praying to the sun,moon, God, just about anything to cure it. Until one day some dude discovered a mixture of plants and herbs which did much better and saves lives.
I am sure religious beliefs hold great meaning, but outside of the medical field or finance markets.
What if the coin went down to $10, $5, $2 and then a few pennies ? Would you still Hold ?
And since we are talking about a crash here, lets assume you have a sweet portfolio of 10 coins with a $100 dollars invested in each.
HODL doesn’t seem like a viable enough strategy to me.
Enter Margin Selling.
2. Margin Selling, or Short Sales
During an obvious Bear market, you have two options. To Hold and Hope, or to Short that bitch to make profits while everyone else is holding and hoping.
I DO NOT recommend short selling in the daily market, and never during a Bull run. Short Selling is risky and should be only done during a surging market.
I.E If the market continuously has had 5 days of negative, with the red portfolio all around, that is when you short sell before reaching a low.
Let’s say Coin X, is poised for a substantial decline, and we decide to short 100 coins at $50 per coin. (Taking trading pair of X/USD for the sake of simplicity.)
Here is how short selling happens:
- Find a crypto exchange that allows margin trading. Eg — Bitfinex and Bitmex.
- Transfer funds to margin account and place an order for Margin Sell ofCoin X.
- The exchange will “borrow” X either one of the different sources — It’s own inventory, other clients, or another broker.
- Once the shares have been borrowed or “located” by the broker-dealer, they will be sold in the market and the proceeds deposited in your margin account.
Your account will be credited with $7,500 in it — $5,000 from the short sale of 100 coins of X at $50, plus $2,500 (i.e. 50% of $5,000) as your margin deposit.
*Bitfinex offers a 3.3x leverage on the margin calls. Above calculation is an example.
Your call turns out to be correct and in a few days, X is trading at $30. You find a support at this level and the price seems to be going sideways. This is a perfect time to close the short and pocket your profits.
Therefore, you buy the 100 X at $3000. The gross profit is $2000. ( Keeping out the exchange commissions and interest rates, usually very low.)
And that. Is how you profit in a super- bear, red bear market.
Everything isn’t that bright thou. This is the market we are talking about. In case you were wrong on that call, you lose the difference of the surged price, i.e if X surges to $70. Your loss in this case is $2,000 (i.e. $5,000 — $7,000).
A Ship is prone to be attacked at by Pirates in the seas. AND this sea isn’t safe either !
How to protect your cryptocurrency ?
We have some this far and decided to buy into this rapidly expanding market, potentially to trade but, most probably, with the intention of holding an amount of a particular currency long term.
But what good is it in case a hack or computer bug causes you to lose it all ?
Be smart and do the right thing.
You and you alone are responsible for your cryptoassets.
In fact, I am going to link this wonderfully written article by Daniel Jeffries, a full time author and crypto-trader whose work I closely follow and admire. Take a second and read through his wonderful write up on crypto-security. It couldn’t have been better explained than this.