Blockchain technology has amazing applications, from tracking the supply chain of medicines to guarantee authenticity to delivering a digital universal basic income, from the decentralised, unregulated and uncensored internet to blockchain-based trust for leasing your car. Its ability – or, usually, potential – to solve real-world problems gives it perceived value, which translates to real value for any corresponding cryptocurrency when people invest in it or mine it.
In the grand scheme of things, I know almost nothing about crypto trading. I know more than the average person, but in the grand scheme, I know very, very little. I have made low four-figure net profit by trading crypto since 2017. Depending on how you look at it, that's not very much at all, or a significant sum of money – to me, it's significant. But when you break that apart, I have made some significant gains, but also some significant losses.
Like almost every amateur trader, I have made loads of mistakes, and wanted to share them as a word of solidarity and insight to those who are dabbling, or thinking about dabbling, in the murky world of crypto trading.
This isn't financial advice. I am an amateur trader sharing my mistakes and experiences.
My overall strategy is medium-term wins. I try to be selective, executing at most one or two trades per month. Bear in mind that everyone's strategy will be different. You'll have different goals to me, and a different approach to risk. When I started investing in crypto, I was looking for medium-term wins. My strategy was certainly not HODL, but I didn't want to get into short-term trades lasting days either. I was looking for more gradual progress, planning exit strategies contingent on performance and sticking to them.
This post is about a few of my biggest, pivotal failures and the lessons learned from them. After all, the best way to learn lessons is by proxy..!
1. I got emotional and lost money
It's April 2017, and I believe Ethereum is going to blow up. I've bought in at roughly $85, and I've spent countless hours late at night researching blockchain, cryptocurrency, trading principles, all that jazz. I had a clear plan, with an exit strategy and a stop loss. The price rose steadily to start with, until reaching a high of $290 roughly late May. Then it started to plummet down to $200.
Panic. Had I been hoodwinked into buying a dream? Was I about to lose all the money I'd invested? Sell.
My stop loss wasn't even close. I bought back into Ethereum at roughly $260 and sold it again around $350, bought it back at $400, and eventually sold for an overall decent profit near its all-time high. But not before panic selling the coin twice on the way up. Despite the fact that the technical analysis could have told me my choices were poor, despite the fact that selling when those patterns occured was not part of the plan devised for the type of trader I was, I let my emotions lead me and they ate into the profit I made in the end. Just one example... I have done this numerous times!
2. I forgot what kind of trader I am, and I lost money
As I mentioned before, my strategy is medium-term wins, making selective trades. But in 2018, I started to forget what my strategy was. By mid-2017, I was getting confident. Too confident. Frequenting CryptoPanic and CoinTelegraph, learning (theoretically) how to read technical indicators, all that stuff.
Truth is (and I'll get onto this topic later) a little knowledge is a dangerous thing. It triggers overconfidence. I had a few of big wins in the likes of Icon, Ontology and particulary EOS, which I got into right at the very start and sold at pretty much the right moment.
By this point, I'm overestimating my knowledge and ability. I'm excited. My emotion is getting the better of me, and this led to me impatiently trying to spot opportunties, trading too much, even for small wins that played out over a day, all the while paying commission on trades. But as a casual trader, I certainly did not really have the time, knowledge or understanding to do a good job of this.
I forgot what kind of trader I was, and what my plan was, and what my goals were, over an expensive period of a few months. Sure, I had fun doing it – but it didn't turn me a profit..! To this day, I am constantly resisting the temptation to stray from my strategy.
3) I jumped on a bandwagon, and I lost money
I know, I know... if it's news, it's probably already too late.
But FOMO is real.
One example, then. The big one. Ripple exploded in early 2019. And I was kicking myself because I had wholeheartedly believed in the project, bought it and eventually sold it about a month earlier. And then I committed the cardinal sin. I got emotional. I told myself it wasn't too late to invest. Needless to say, it came crashing down, taking my Ripple from a few hundred quid to a pittance.
Having (hopefully) learned this lesson by 2021, I have, thus far, resisted the tempation to buy Dogecoin...
4) I thought I was a self-certified technical analyst, then I lost money
Spoiler: I wasn't.
I'm a bit of a nerd, and I loved learning about technical analysis. Anyone who knows me professionally will know I love data. Technical analysis is a data nerd's dream. Hours of videos were consumed, countless blogs read.
Before I got into reading fancy graphs, I had a reasonably simple strategy which I stuck to (except when I got emotional!) that involved selling the coin when I was happy with the returns, and not being greedy. As soon as I thought I knew better, I spent time constantly trying to outsmart people who do this stuff for a living.
Every trade has a winner and a loser. Experienced traders are far better at winning. As an amateur, you're a tiny fish in a huge pond and you are probably going to make the wrong choices. Someone else is there to benefit from those choices. As soon as I started trying to play the game, I started losing.
What I do differently now
Trade like I'm stupid
I always assume that the people trading out there are smarter than me about crypto, have more time to manage their trades, have more expertise and follow news and developments far more closely, are better connected. Therefore I never try to outsmart the market. I keep my limitations in mind.
Plan every trade
Based on my own goals and attitude to risk, I know the conditions upon which I would buy a coin and the conditions upon which I would sell a coin. I know what I'll do in a few scenarios, whether the trade goes well or badly, and have timescales in mind. I remember what kind of trader I am and I try not to get caught up in fast excitement.
Watch my emotions
I'm vigilant of my impulses. Problem is, trading is fun so it's tempting to do more than I plan to. I try to keep my head, whether a trade goes badly or well, and stick to the plan. Trading brings emotions to the forefront. Don't let them take over! Sometimes the profitable thing to do is nothing at all but it can also be the hardest thing to do. Over-complicating things or getting "in too deep" when you're not equipped time-wise or knowledge-wise can lead to an increasingly unhealthy lifestyle.
Shave off profits
It's about risk management. I don't want to get wiped out. I am not looking for a windfall, but decent profits which make trading worthwhile. When I invest, I have an idea of the target % profit margin I want to make. When I get there, I shave profits. Your goals might not be the same as mine, so ensure you understand your goals and how you're going to get there.
Buy coins I believe in
I'm not a day trader, and most amateur investors shouldn't be! Because I hold coins from anywhere from weeks to years, I usually try to learn a fair bit about the coins I buy, from the people behind the project to their product development plans to the ethical implications of their project. I pretty much ignore the news. They are invested views and clicks, not my finances. That's not to say that profit can't be made from coins which don't meet these criteria though – it depends what kind of trader you are! If you HODL your coins because you believe in the long term potential of a project, this matters, but long-term "hope" isn't necessarily a good strategy for short- to mid-term goals.
Diversify my portfolio
Not all of my investments need to be a success for me to make a profit. After all, the vast majority of projects will fail and the value of their corresponding coins will fall to zero. Very few coins will actually end up solving real-world problems. I'm investing in the idea of something's future potential. Which is very risky!
Don't get caught in hype. The people who got rich in crypto are, often, very lucky, not necessarily very clever. And a huge portion of people who did "get rich" didn't sell at the top and lost it all. Carefully understanding your attitude to risk and investing only what you can afford to lose is key. Be aware of your limitations, and try never to make the same mistake twice. Making mistakes is absolutely normal (if you manage not to make any, the world would like to know your secrets..!) so I try to accept this and learn fast, understanding where the edges of my knowledge are and understanding how to mitigate the risks involved with not having that knowledge.
None of this is financial advice. I'm an amateur, sharing my experiences. Your capital is at risk and you might get back less – even signficantly less – than you put in.
What lessons have you learned trading crypto? Do you have another viewpoint? Let me know at @RuthYMNg on Twitter!