TLDR. Buy low, sell high is easy to say but hard to do. These are 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life. These 10 heuristics work independent of how much you have to invest (whether it is 100 or 100 million). These 10 heuristics avoid both extremes – HODL and TA trading. Buy & Hold (or HODL in cryptospeak) is not quite right when you have a such massive bull/bear market swings (better to sell near peak and buy near bottom of each big cycle). HODL at all times may not be right, but neither is frenetic trading using Technical Analysis (machines and institutional investors will always beat you at this). Whatever your timeframe, remember that a) this is a wild west, scary/dangerous unregulated market and b) YOLO (You Only Live Once) and waking at 3am because that is when the big swings are happening in this 24/7 market is not having a life. Standard IANAFA (I Am Not A Financial Adviser) Disclosure. This is for entertainment purposes only. If this is how you get your entertainment – you need to get a life (my lawyer advised me not to say this last bit). Although the statement that this is only for entertainment purposes sounds like legal boilerplate, the intersection of entertainment and nerdy techno financial media on YouTube is part of this story. Read on for 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life.
Heuristic means a practical way to a satisfactory but not optimal solution (aka rule of thumb, educated guess, common sense).
This update to The Blockchain Economy digital book describes the 10 heuristics to make money trading 24/7 unregulated Crypto markets and still have a life:
1. Choose Coins big enough to make pump & dump more difficult.
2. Only invest an amount that allows you to sleep at night.
3. Don’t follow individual TA gurus.
4. Avoid fake valuation science.
5. Assume you only have 10 trades in a decade.
6. Make sure you have “proof of trade” before following.
7. Have some fun with your financial entertainment.
8. Why nearly is a better word than precisely.
9. If you don’t have an edge, don’t trade.
10. Practice safe Crypto.
If you do not understand these points, do more research. If you still do not understand these points after doing more resesarch, stay away from these markets. The old poker rule applies – if you don’t know who the sucker is at the table it is probably you. If you want to trade/invest/speculate in crypto, please read on.
No 1. Choose Coins big enough to make pump & dump more difficult
Pump & dump is a) very profitable for the person pumping & dumping b) a money furnace for everybody else c) totally simple to do with crypto coins that have low trading volume.
Look at the top 3 crypto coins by market cap and then look at 24 hour trading volume. Bitcoin has about 3x trading volume of Ethereum and 20x that of XRP. Bitcoin is a bit safer than smaller coins with less trading volume because a) you need more capital to do pump & dump b) there are more savvy traders/investors/speculators who can counteract the impact of the pump/dump operators.
The trading volume of even the biggest coin (Bitcoin) is a rounding error compared to equities, bonds and sovereign/Fiat currencies and these legacy finance markets are regulated. All crypto investing has pump & dump danger, Bitcoin just has a bit less risk than others.
Despite this risk, Bitcoin has massive upside and trading volatility opportunity, so don’t give up yet and read on to heuristic no 2.
No 2. Only invest an amount that allows you to sleep at night
Bitcoin could go to zero or 10x or 100x higher. Say you bet 100, you could lose 100 (go to zero) or make 900 profit (10x) or 9,900 profit (100x). That is a good bet (known as an asymmetric upside to downside) as long as you only invest an amount that allows you to sleep at night. What that amount is will vary depending on your risk tolerance, which depends on your age and temperament. It will usually be some % of your capital. A low risk allocation could be 1% and some big money putting in 1% may be driving the current bull market (1% of a Family Office with $1 billion is $10 million). Some high risk players are allocating 50% or more of their capital.
No 3. Don’t follow individual TA gurus.
TA = Technical Analysis, aka charting.
Trading is a zero sum game. Your loss is my gain and vice versa.
Exchanges are like casinos. They make money when you trade, whether you win or lose. Casinos will happily give away books on “how to beat the casino”. If Exchanges offer free TA courses, be wary. It is only slightly better than paying your own hard earned money for those TA courses.
TA is a mugs game for retail traders for the simple reason that professional institutional traders will beat you every time because they:
- can trade 24 hours by “moving the book” around the globe. A big swing that happens while you are sleeping, is not a problem for professional institutional traders.
- have better access to data and analytics that cost money.
- have better access to data from exchanges that they can use to front run your orders; this happens even on regulated legacy finance markets.
- can automate strategies to minimise losses during down markets. They can program stop losses but also use manual override if needed, particularly if they can see where Retail have programmed their stop losses by using data from exchanges.
- use large sums of money to move markets at the precise times when the TA crowd makes that price point vulnerable. Let’s say the TA crowd says that 11,650 is a line that if crossed will lead to a big crash. Professional traders working for institutions will deploy large sums of money to short the market to ensure we fall below 11,650 and then buy in later.
You can find plenty of TA gurus who got one or two big calls just right. If you think you found one who is consistently right, look at heuristic no 6.
Following an individual TA guru is usually a mugs game, but you can look at aggregated TA sentiment as one signal (but only one) to help you make the big calls in heuristic no 5. A good source for this is Trading View, with a simple dashboard view (snapshot below).
No 4. Avoid fake science around valuation FA
FA = Fundamental Analysis.
Many have tried to come up with fundamental valuation models. They want to be known for creating something like PE for Bitcoin. Nobody has got this right yet, which is why there are so many different fundamental valuation models. Looking at all of them is one signal to making the big calls described below, for the simple reason that many investors/traders look at these models.
No 5. Assume you only have 10 trades in a decade.
You could simply HODL (Hold) through all the wild bull and bear swings. That is certainly better than frenetically trading every little nervous tick of the market.
Yet look at the Wall Street Cheat Sheet image. How great if you could sell near peak and buy near bottom of each big cycle. There have already been a few wild cycles like this for Bitcoin. 2017 was only the latest, not the biggest in % terms and this cycle is unlikely to be the last.
Today we could be at Disbelief (= buy signal) or Complacency (= sell signal). We probably were at Capitulation around January 2019 but if today we are at Complacency then Capitulation is still ahead of us. Personally I think we are at Disbelief today.
Key to this strategy is:
- not allocating all your capital at once (whether it is 100 or 100 million). For example in the current market (early July 12019), don’t bet it all at once in the hope that we are at Disbelief. Keep some powder dry in case it is Complacency. Then you can celebrate if the market crashes and buy more later at lower prices.
- sitting on your hands unless it is a big one. This is where the mental habit of assuming you only have 10 trades in a decade helps you. For example in the current market, did you waste one of your 10 precious trades as if this was one of the big swings? Although Bitcoin trading is fairly low cost, the more you trade the more likely you will be to get it wrong occasionally. Only gurus claim to get it right all the time (see heuristic no. 3).
If it goes to zero, remember heuristic no 2
The key word is“near”. This deliberate imprecision is explored further in heuristic no 8.
This very occasional trading is a lousy way for brokers and exchanges and content sellers to make money, so it won’t be a popular topic on social media.
All you want to do is decide if the market is at Capitulation or Disbelief (= buy signal) or Complacency (= sell signal). To make this call:
- have a point of view in what range you think the top and bottom of this cycle will be. Start buying/selling as you get into this range. You are only looking for a range not a precise top or bottom This takes fortitude as everybody will be shouting exactly the opposite at this stage.
- Look at signals from both TA and FA to guide how aggressively you sell. The key is to a) avoid emotional herd following b) avoid truing for accuracy and getting the precise top.
No 6. Make sure you have “proof of trade” before following.
Many trading gurus appear on media telling tales from the time they got it right. Unless they offer you a simple “proof of trade” that allows you to follow their trades (and profit from your follow), assume they are only offering financial entertainment.
No 7. Have some fun with your financial entertainment
There is nothing wrong with financial entertainment, but make sure it is actually entertaining. The great comedian John Cleese (who is also scientifically minded and a great educator) has pointed to research that shows that when you laugh is when your mind opens up to new information. So make sure your financial entertainment is actually entertaining. One that I find entertaining is the Max & Stacey Keiser Report double act.
Two types of financial entertainment that don’t cut it for me are crypto trading gurus who:
- do their travelogues.If I want a travel show I will choose a travel show
– parade in front of rented richistan toys (houses, cars, boats, planes) to prove how rich they are (and you will be if you listen to them).
No 8. Why nearly is a better word than precisely
The idea of precisely hitting tops and bottoms means somebody maybe picking your pocket. Hunting for magic tops and bottoms is a mugs game. It leads you to follow trading gurus who got it right once (somebody is bound to get to right occasionally given a big enough sample size of gurus).
No 9. If you don’t have an edge, follow don’t lead.
Lead, follow or get out of the way. If you are not totally comfortable that you know what you are doing, look at heuristic no 6, find a trader to follow, pay the fees and enjoy the time you just won back.
No 10. Practice safe Crypto
Don’t lose you hard earned Bitcoin through one of these dangers:
- The Exchange where you hold your Bitcoin is hacked, your money is stolen and the Exchange will not refund your money.
- A government does not like you or wants your money and orders the Exchange to give it to them.
- You keep your Bitcoin in a safe protected by secure private keys on a hardware wallet but you are robbed or lose it by doing something stupid. Remember, Bitcoin is a bearer instrument.
Despite the mantra of “not your private keys = not your Bitcoin”, practicing safe crypto may mean trusting an institution like Coinbase or Fidelity.
Until and unless you are really comfortable with what it takes to keep your Bitcoin in a safe protected by secure private keys on a hardware wallet, a trusted institution maybe a better solution for you.
Trading, investing & speculating are just words; don’t define what you do by words. Trading is investing with a short holding period. Is holding for 1 year trading or investing? Speculating is just a pejorative word for trading.
Follow these 10 heuristics to make money trading 24/7 unregulated crypto markets and still have a life and then follow the 11th one:
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).