6 rules to avoid getting rekt trading crypto markets

For newcomers, crypto can be an intimidating place. From the moment you realise there’s more to the space than simply Bitcoin and Ethereum, you’re quickly overwhelmed with scores of coins and tokens purporting to disrupt the status quo through their unique use of blockchain technology. You spend weeks or even months of scouring through whitepapers, Reddit posts and Telegram chats, and find a handful of projects that capture your interest. You send your hard-earned bitcoin to an exchange you’ve never heard of, market buy their token (invariably at an all-time high), and you’re now an ‘investor’. You can just sit back and wait for 100X, right?

Many a noob has entered crypto with such lofty goals. Inevitably however, after watching their investments hit soaring highs and plunge to devastating lows, the aspiring Warren Buffet feels unsatisfied with HODLing and is lured by a new ambition: to become a crypto trader. After all, trading a volatile market with high growth potential must be a breeze - buy the blood when everything’s tanking, and sell into wide-eyed euphoria when there’s a sea of green. This formula seems so simple, you could be set for retirement by Christmas.

From afar, you may imagine crypto traders spend their day in a Zen-like state; contemplatively analysing past market movements from multiple time horizons and colourfully annotating Trading View charts into something resembling a Picasso painting, all to arrive at the nirvana of an accurate price forecast. In reality, the life of a crypto trader can be gruelling. Trading highly speculative assets in a 24/7 market with little if any solid fundamentals to help guide, traders need much more than simply technical prowess - they need also to master their mental game. It’s only by escaping subjective judgements that traders can begin to spot patterns amid the madness of crowd behaviour and forecast future price action.

To have a fighting chance on the psychological battlefield, here are six rules any aspiring crypto trader should follow:

1. Don’t try and put your will on the market

One thing that differentiates the crypto market from many other financial assets is the intimate connection holders have with their tokens. Traders in commodities, stocks or forex tend to carry out their duties with a steely sense of dispassion – they’re typically professionals and their sole objective is profit. Many amateur crypto traders, on the other hand, make the error of ‘falling in love’ with their favourite tokens, and this personal connection can cloud their judgement on any fundamental value that may exist.

It’s important therefore that you take a step back and don’t think that just because you think a project has a great team and vision that it’s going to go up. Equally, just because you dislike a project doesn’t mean it’s going to zero. Taking a step back and seeing the market as it really is, and not as you want it to be, is vitally important for your survival as a trader.

2. Don’t let your emotions get in the way of good trades (avoid FOMO)

In fast-moving markets, letting your feelings and emotions take hold can ruin a trade. You may see a coin in which you’ve been scaling your position drop well below what you had forecast, or conversely, a coin you thought was going to drop into your buy zone begin to skyrocket. You may stare in disbelief or feel the urge to throw out your strategy and move with your emotions, but this is the road to regret. After all, the market can stay irrational longer than you can stay solvent.

This is where discipline is critically important. Knowing your entry point and price target before you’ve even logged into a trading or exchange platform and sticking to a defined set of rules will keep you on the right path, even when the market tries to throw you off course.

3. Don’t fall for hype

In a speculative market like crypto, mere rumour and speculation can have a disproportionate effect on coin prices. It’s common, therefore, to see a wave of excitement build around a supposed market event that could have far-reaching implications for a particular asset’s future prospects. Where this speculation feels convincing – for example a partnership with an established tech giant like Microsoft or Baidu or a listing on a respected exchange such as Binance or Coinbase – it’s easy to fall for hearsay and jump on the rocket, only to see the trend sharply reverse soon after once the rumour proves baseless.

Cast a sceptical eye over any news and speculation. Unless you’re a crypto A-lister with the inside track assume that any market-sensitive information, such as mainnet launches, exchange listings or corporate partnerships, has already made its way around the inner circles and is baked into the price long before it’s hit your newsfeed. Applying the right news filters to spot macro trends will help you cut through the noise and make more rational decisions.

4. Don’t put your faith in false prophets

As an individual participant, it’s easy to take a warped view of the markets. Perhaps the news sources you read or the Twitter accounts you follow have given you an inaccurate or skewed impression of what’s going on. In many cases it’s harmless – like YouTube ‘experts’ projecting their limited knowledge for clicks. Other times, there’s something more sinister at play. Lacking the protective layers that regulate traditional markets, it’s almost unavoidable that there’ll be powerful individuals who exploit their influence for their own enrichment or to increase their buying power.

In crypto, you need to be sceptical of everything you read and hear. Ask yourself ‘is there a self-interested reason the person holds this view? What is the worst reason they could be making these outlandish statements or predictions?’ As Charlie Munger once wisely said “Show me the incentives and I’ll show you the outcome”. Heed these words and take nothing as gospel.

5. Don’t get left behind

The nature of analysing markets has changed significantly in recent decades. Long gone are the days where traders on the raucous pit floor would analyse the behaviour of other traders for signals on whether to go long or short. In the digital age, data drives trading success. The best crypto traders not only have the right skills and mental approach to profit from the markets, but they also use the best tools and technology available to give themselves an edge.

To optimise your trading performance, you need to continually be looking for new tools to add to your armoury. Applications like Cindicator (crowd forecasting), CoinFi (market-moving news analysis), Coinigy (technical indicators), Coinmarketcal (upcoming market events) and CoinGecko (market rankings and code repository analysis) are just some of the tools that can help enhance your odds of making profitable trades. There are plenty more, either live or in development. Go out and find them.

6. Don’t fall in battle

It’s been said that the market is the fiercest arena of gladiatorial combat. It’s a zero-sum game where the winner gets the lambo and the loser is left holding the bags. What separates the winner and the loser is good decision-making coupled with solid risk management. As with any battle, you don’t want to go into combat unprepared. To navigate uncertain markets, you need to exert caution until you’re absolutely sure the risk-reward ratio is in your favour. Throwing the kitchen sink at a new coin with an all-star advisory team, or going guns blazing on Bitmex at the first suggestion of a new uptrend may feel like the path to untold millions, but without proper stops and contingency planning, you’re crossing the line that separates a well-disciplined trader from a hit-and-hope gambler.

No matter how much larger the crypto market gets over the next five years, you have no chance of benefitting from it if you’ve squandered your capital. Stay in the game, keep your cool and don’t get rekt.

Picture credit: https://www.teepublic.com/t-shirt/2511216-get-rekt

Disclaimer I am not by any means a professional trader. I’m a mere hobbyist and crypto enthusiast. Please do not construe anything I say as financial or investment advice.