Hello, world.
For the past few months I’ve been actively trading Bitcoin and other cryptocurrencies with a very small account, mainly to train. This recap was originally meant for myself as I find that writing things down organizes the thoughts one can have.
Although this six-month period has only resulted in a small gain of money (1%, boohoo), I gained in knowledge and practice. Sure, a bigger win would have been been nice, but I’m in it for the long haul.
First let’s look at a quick state of the market. Bitcoin trading is easy to get into. You can get started with less than $100, I recommend at least $50, which is a lot less than for stocks. Bitcoin’s market cap is currently $19.256bn, above E*Trade’s market cap for example. The recent financial incidents/crises around the world (India, Venezuela, China) have created a bigger demand in Bitcoins. The potential arrival of a Bitcoin ETF from the Winklevoss brothers pumps the price even higher, currently to around $1225 per Bitcoin. The currency is also used in some stores around the world, it even has ATMs!
If you don’t know about Bitcoin by now, you should go check it out, even if you don’t do anything with it. It’s always good to know what’s around.
Now we can move forward, so here it goes:
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Tim Sykes, thank you for pointing out to keep a trading diary. Without it, I wouldn’t be able to write all of this from memory.
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When starting out, don’t aim to break even, commissions included, focus on making good trades on good setups. “Over, and over, and over, and over”™. I sometimes got eaten up by commissions, so that I would hold my positions just to be able to break even. That caused a lot of unnecessary stress.
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Don’t use market orders unless it’s to chase a breakout or breakdown.
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If a big price movement has been going on for more than 20 minutes, don’t chase it.
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Avoid chasing. I’m too young to get a heart attack.
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I wish I would have found a chatroom like this earlier. Not necessarily at first, because I would just have been following picks and alerts, but to confirm or invalidate my ideas.
There’s some noise, but also great value to be found in the chatroom. That’s how I learned that the Bitcoin price follows this simple rule: “stairs up, elevator down“. Just from that quote and confirming with the chart (always confirm with the chart!), you could theorize swing-trading the way up over a few days and scalping the drop in a few minutes.
Once you’re in there, pay attention to “BTCVIX” and “Saj le great”. They have great setups.
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Like stocks, there are two sides to Bitcoin: investing and trading. On a bull run Bitcoin can gain 2% or more per day, for days in a row, which is a great investment opportunity and a good longer-term trade.
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The longest short I held was for two weeks, I made 5% ROI on it and took in some pain. Since cryptocurrencies are traded 24/7, holding a short (or a long, but mostly shorts because you can lose more than you have) overnight can stress you out because it can move against you during your sleep if you use mental stops.
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However, if you prefer trading Bitcoin intraday, you won’t find that many occasions. There can be 5-10% moves intraday, but it mainly comes back to scalping.
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I find scalping stressful, but the more I do it, the better I get at executing it (spotting entry and exit points, setups, etc.).
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Cryptocurrencies being traded 24/7 can be tough if you hold overnight, but it also rewards you with more trading opportunities. Sometimes there are even so many in a week that I got scared to trade too much, like being afraid of an overdose. This is also why I didn’t experience any FOMO.
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Bitcoin’s 24/7 trading could be compared to Forex trading but with an availability even on weekends, which makes it great for people with a full-time job.
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The best trades I made intraday was while applying methods learned from stock traders:
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If there’s a breakout you didn’t see coming, wait until it breaks the next resistance or starts to dip, or even pulls back. Then look to get in on a dip, or on the next breakout past previous highs.
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A price that goes down hard will bounce a few times on support levels. I scalped the bounce for up to 2% gains and never lost on one single trade out of 10 on this setup.
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At first I had a lot of difficulties cutting losses quickly. I had those moments where I was so focused on my position that I wasn’t able to take a step back to look at the bigger picture. And more importantly, I wasn’t able to have an unbiased look at my risk level, always readjusting it instead of just getting out.
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I’m doing better now. I guess I had to practice to experience it.
I mainly wrote about Bitcoin until now because the same things can be said about other cryptocurrencies (I’ll use the “crypto” abbreviation from now on).
As most cryptos can be bought with Bitcoin, their price is somewhat tied to Bitcoin’s. If for example the price for Bitcoin/USD goes up, the price for Ethereum/Bitcoin might go down, as Bitcoin gains in value. “Might”, because said crypto go the oposite way. And because the traders don’t necessarily react fast enough to replicate a move in a minute on all trading pairs to profit from the market differences. Profiting from these differences is called “arbitrage”. Sometimes the gap is so high, that opportunities up to 5% margins appear.
Let’s take a step back. Imagine two supermarkets: one sells apples at $1 and the other sells the exact same ones at $1.50. As you’re an opportunity-finder, you’ll buy apples at the first store and sell them at the second for a little under $1.50, say $1.40 (the supermarket has to make margins too!). So for each apple you buy and sell, you’ll make 40%. Following basic offer and demand, because of this process the first store has now less apples, so they increase their price to $1.10 an apple. The second store, having more apples, will reduce the price to $1.40 (and will buy them for $1.30). Now you can only make 20% for each buy and sell. The same thing happens with cryptos: the more arbitrage there is, the less it will become profitable over time.
As a software developer, I like to look for ways to automate things, in this case finding arbitrage opportunities. I am currently working on a website that will display these opportunities live, for FREE, hoping it can help better traders than me profit from these occasions.
Since Bitcoin and cryptos are digital currencies that are very easy to send around the world, the trading of these opportunities can be automated. With a potential of endless Bitcoin and crypto exchanges, I think that arbitrage has still a good few months to live.
If you wish to know when my free signal service will be available, make sure to follow me on Twitter.
In retrospect these 6 months have taught me a lot. I am now less stubborn with my positions and review them constantly. I think that this experience has been a good training for me towards being a better trader and will help me in my stock trading journey.
My next step trading Bitcoin will be to learn about Bitcoin futures and contracts and trying new exchanges.
Thanks for reading!
Looks cool fella like ur on the right track - most important thing is self-analysis and taking those good trades.
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