LewisGlasgow
教学

The Major Impact of High Risk Trading

BITFINEX:BTCUSD   比特币/美元
I feel this post is well overdue, and considering the current market standing in cryptocurrency it couldn't have come at a better time.

Today's post will be an eye opener for many, and others common knowledge. I hope you guys gain a lot of value from my insights and use this to your advantage in the markets.

The following educational post relates to the trader behind the charts, it is not specific to one financial market meaning it applies to all but today, I will be talking about this in relation to the cryptocurrency market.

The Major Impact of High Risk Trading

Right now, the cryptocurrency market has lost 50%+ of its overall value, meaning a lot of new and existing traders are suffering huge losses (to anyone who comments "you only lose when you sell" - we'll talk about this later in the post) and their portfolios are in the red.

I receive a lot of messages on a daily basis, recently they have been of the following context.

Follower: "I'm holding XRP ( BTC             , ETH, TRX             , ETN             , LTC, the coin doesn't matter, the message does) from $3 and it's now at $0.70, should I sell?"

I know most of these messages are out of panic, looking for an option, hopefully advice on how to regain those losses.

Do I tell people to buy or sell? Of course not, it's their investment, however I do provide my insights on where the market is heading next to help them understand their situation.

If you are this person, there is good news... You've already held through a serious correction, why are you thinking about selling now?

Take a look at the chart shown, as you can see I have illustrated "percentage loss" which is of course the amount you have lost on one given position or your entire portfolio.

We have "percentage difference from previous loss" now let's say for example you're holding XRP at a 33% loss and this quickly changes to a 50% loss, you can agree the difference is 17%.

And finally we have "percentage gain to break-even", this points out the required increase in capital to regain the losses that have occurred. If you invested $1,000 in XRP $2 and sold at $1, you can agree this is a 50% loss in capital and you now have a $500 portfolio. To regain those losses and return to break-even you would need to gain 100% which is 2x.

Let's start to break down the numbers.

If your portfolio is down 33% you will need to gain 50% to get back to break-even.

At this point, you are concerned but you're convinced the market will pick back up next week, so you don't take any action.

The following week your portfolio declines a further 17% which brings the overall loss to 50%, to get back to break-even you need to gain 100%.

This is when panic sets in, you've went from $10,000 to $5,000 in one month, the entire market is down and at this point you consider selling.

Now, you can see where this is heading.

The market declines a further 16% bringing your portfolio into a total decline of 66%.

At this stage you now need to increase your portfolio by 200% to get back to break-even.

What do you noticed when you get further and further down the list?

The percentage difference becomes smaller but the percentage gain to return to break-even increases drastically.

If you lose 83.3% of your portfolio, which I have witnessed, you will need to increase your portfolio by 500% which is 6x just to get back to break-even, a further 2.4% decline would require a 600% increase which is 7x.

Am I telling you to sell? No, not at all, there is an extremely valuable lesson here.

Let's say you are the person who has bought Ripple (XRP) at $3 and it's your only crypto, you're now holding at $0.70 which is a decline of 75%+ meaning you need to increase your portfolio by 300% to regain initial losses, which is 4x.

Buying high is a rookie mistake, many people can't think of anything worse but I definitely can.

Buying at the top followed by selling at the bottom.

I will need to continue this idea in the updates section, it's too long.
评论: Continued...

At this stage you have two options.

1. Sell at a 75% loss and re-invest capital in other cryptocurrencies.

2. Hold coins in a significant loss until it returns to break-even.

Selling Ripple for example at $0.70, would mean you now need to trade/invest other cryptocurrencies to regain those losses, losses which stand at 75% of your initial capital meaning if you invested $10,000 initially you have $2,500 now.

This is why "HODLing" amongst new traders has become so common, individuals fail to recognise the early warnings and leave it too late to sell therefore the only logical reason is to wait until the next market cycle begins.

I'd like to point out, I understand many people hold investments long term over a 5-10 year period and do not concern themselves with intermediate cycles... However, in this situation holding is treated differently, and more specifically directed at those who are continuously buying market tops.

This strategy has been successful to date, those who bought Ripple at $0.40, waited and waited and then finally price broke out in December 2017 followed by a new all time high above $3.

The next cycle, many traders estimate Ripple will be worth $10, providing a 200%+ increase on their portfolio.

Will this continue for those buy the top at $10?

I believe this method will become ineffective in the future, once the market is worth trillions and coins are overpriced, people will incur significant losses if "HODL" is their only option, this entirely depends on the coins they are holding... Many will return to their original value but we will definitely see a lot of coins drop off in the future.

However, on the other end of the scale, I see individuals who sell their coins at a 75% loss after buying a market top and they decide to start off fresh. They invest all of the remaining capital into another cryptocurrency such as Dash and then that declines 33%, guess what, they sell again.

This cycle repeats itself until they have no capital left to invest.

Why is this? Because they buy a coin that looks good, cross their fingers and hope for the best.

These further losses are typically followed by a new market cycle, and they see their previous coin Ripple has increased by 1400% and they missed the move so they try to get back in... Not realising they've just bought another market top.

So what choice do you have? Should you just HODL? For most traders out there, right now, that is their best option... Just be aware that the further your portfolio declines, the more you'll need to gain to get back to break-even.

What should I do going forward?
评论: 1. Diversify. I don't want to hear about people investing solely in one coin, it's insane. Spread your risk across various cryptocurrencies, I understand many individuals are "only investing $200" so they feel the need to buy one coin to make it worth their time... No you don't.

Compounding, it's your best friend.

This way you will limit the possibility of wiping your portfolio, if you are put in a HODL situation you have more options. Not all of your coins decline at the same rate, many hold above a 60% correction whereas others decline as much as 90%. This also means you are not depending on one coin to cycle again but rather 3 or 4.

2. Develop your technical skillset. I'm not talking about trading harmonics, trendlines or channels but rather analysing charts from a different perspective, being able to identify when a market is euphoric.

Identify when a market is at its peak, know the times to stay out and the times to get in. Take a step back from the 30m chart and start observing what is really happening on the daily or weekly chart, it will help see the bigger picture.

You can follow these ideas below to help get you started.

Bitcoin.



Ripple/Stellar.



Altcoins.



I will continue these pointers shortly.
评论: It was midnight when I posted this so after some well needed sleep I'll leave you guys on one final point.

3. Manage risk accordingly. This again relates to point number 1, diversification will help you to limit risk by spreading across various assets therefore you are not depending on one coin to cycle. What I mean in point number 3 is by managing your positions or investments as the develop, whether that be positively or negatively.

Set clear targets before you invest in Ripple (XRP) for example, know where you're getting out before you get in. Where are you going to sell? For me personally it was always $1, I set this target when price was trading below $0.03... 8 months later price reached my target.

Many people buy a coin and hope for the best, let me tell you that is not a strategy, you may make money now but you will suffer significant losses in the future.

You also need to identify where you're getting out of your position if it goes into a negative or will you hold through the entire cycle? As one of my followers mentioned in the comments below and thank you for your contribution in this post.

@mfgex: "I step back and honestly ask myself: "if I was not currently holding this coin (say XRP), would I want to buy it right now?" If the answer is no, then it's time to consider going "risk-off" - meaning reduce holdings of that particular coin. If the answer to the question was yes, then the obvious move is to continue holding, or even buy more & average down (as I did last night)".

The above is exactly the point I'm putting across in this post. Do you see value in the coin you're holding?

Cost averaging down is another strategy you could consider if you are a good trader and you can identify key levels to buy and sell therefore lowering your average price of the coin you're holding.

All of the above should be taken into consideration, especially if you're a new trader and you're in this situation right now.

I hope you have all gained value from this point, thank you as always for the support and I wish you all the utmost success in your trading!
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Lots of good points, but I'd just add that when we're talking about an emerging asset class, the market cap is going to grow far faster than with established markets. For example, if someone had bought at the top before the drop of bitcoin in Jan 17, yes, it would require a higher percentage return to get back to break even. But a quick look at the chart shows that is not nearly as serious of a problem as if that had happened to stocks or gold, because we saw so many new entrant to the market.

So I'd ask people who are underwater now and are trying to decide whether to hodl or cut their losses: do you think we will continue to see new entrants into the crypt space at levels we saw in 2017?
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Thanks a lot for your great work! As a bloody beginner after 10 weeks of watching and learning, after gaining and loosing, I am at the point to think about a more simple strategy for my personnel trading future, because working with charts needs a lot of learning time (which I will do next months) and this post of yours did channelize my thoughts in just a few hours in the correct way (I hope - believe).
But there is one question: If you sell some coins because of an oncoming correction, do you cash out in fiat with paying two times fees or do you trust in tether? Or do you use an exchange where you are able to buy altcoins with fiat?
Again thank you for your work!
+1 回复
Thank you for this post! I have stepped back from telling my friends to get into Crypto, as I realize now that unless you're willing to learn Risk Management, it hardly matters when you buy, you'll end up burning yourself.

I would love to see content from you about steps before getting into a position that are obvious to established traders and that most noobs could benefit from. It sounds obvious to most of us who read these kinds of analysis, but when I started out I would enter a position without knowing ahead of time where my stop would be and where my take profit would be.

I'm still a nascent trader myself, but I shudder when I see people shouting "HODL" on twitter and reddit as advice to noobs. Hodling is not a risk management strategy, and for newcomers it can be devastating to their morale to watch their portfolio drop down.

Teaching people why taking a 10% loss is better than enduring a +50% drawdown would be very useful, in my opinion!
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@jonchurch, yeah, they'll constantly be on your back when the market is down and they will rely solely upon you for advice... If anything happens, they sell at a 70% loss, again, they look at you.

Right now I'm in the process of re-creating my courses for students... However, I do aim to create a free cryptocurrency course this year to educate on those exact points.

I agree. Teaching market cycles would not be possible on TradingView, this is why I will create a free course for those in crypto so they can use this to their advantage and get out of cryptocurrency positions before they have a drawdown of 80%.
+2 回复
Definitely one of the greatest must know.
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@moo111, thank you!
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Great info, thanks for the post.
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@Acel, you're welcome :)
+1 回复
Thanks for the post. I'll be sharing it around.

I cringe everytime I hear "HODL". I think it genuinely began as a positive thing, but so many crypto traders use it as a trading strategy, which is insane. It's even worse when they then sell out once their losses become too severe! Worst of both situations.

Keep up the good work.
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