Please click the link to listen to the 40th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Comments and critiques welcome.
External Podcast Links:
Two Minute Crypto – Riding the Bull Part 2 of 5
Welcome to Two Minute Crypto – the first episode in this series discussed information flow and the importance of assessing the quality of and the incentives behind your ‘go-to’ sources of information.
This installment focuses on planning. Whether you are an active day trader, a long-term horizon investor or a bit of both, planning is a critical component of achieving your market goals. Crypto investors in my experience are generally woeful in this area. A common statement by otherwise competent people is ‘I’m just HODLing for the next bull-run’. This is not a plan – this is the genesis of a plan but no more.
A market plan has 4 basic components – drafting, initial execution, iteration as necessary and final execution. Most crypto enthusiasts seem to achieve only one of these four elements – the buy order. There are many reasons for this inept manner of deploying capital but no doubt, one of the primary is lack of experience in other investment fields. Once you’ve bought a property or two and bought and sold shares over a number of years the importance of planning becomes self-evident. If, however, this is one of your first forays into wealth building then you are learning as you go.
Unfortunately, crypto is a particularly punishing market in which to earn your stripes. It’s exceptionally volatile and full of start-ups – your capital is most certainly not ‘safe’. Loss is the crypto norm, not profit. If you reject this – then perhaps you need to reflect on your own understanding of the crypto markets – BitMex, for example, is littered with liquidated retail accounts for every big winner there are many more losers -deep down you know this – but it just isn’t what most crypto participants want to hear.
Back to planning – let’s keep it simple because it is – as a day trader note in writing why you are taking a particular position. The why of a trade is critical – has the asset hit long-term support, is it over-bought, due a correction and so on. If you find yourself unable to coherently express the why of a trade don’t take it. Write down your entry and exit point. Note your risk-reward ratio and you are done. Personally, I let my trades run, they either fail or succeed though in some cases I adjust the stop-loss to break even – if that’s an option I note it before I take the trade. All simple stuff but nonetheless fundamental to reliable trading outcomes.
Planning an investment is similar but with a much longer time horizon and as such, it’s even more important to write down your objectives with the position. Note in some detail- why you are investing -record your loss tolerance and your profit target. Schedule a reassessment of the position say every three months or whatever time preference you prefer. Record the parameters of that reassessment -how exactly will you judge success or failure? Set an alert for price movement in your entry or exit range and then move on.
Moving on is fundamentally important. Let’s say I invest in Bitcoin and it’s a ten-year hold but I don’t lock that down. Well, inevitably given the volatility and high-profile of BTC, I’ll find myself fretting over it and more or less daily checking the price. Now if my intent isn’t to add to my position – this is a complete waste of time and energy.
If you are both day trading and investing - planning is even more important. Conflating a trade with an investment is a great way to lose money and incredibly easy to do unless you track and record everything you do in relation to both. A plan is perhaps the easiest way to gain a minor edge in the market as most current participants don’t have one!
Planning facilitates directed outcomes a lack of planning significantly reduces the likelihood of success bull run or not.
Thanks for listening.