First and foremost, this is not financial advice or guidance on how to trade. You can lose all your money trading.
I have purchased stocks which have become delisted, seen certain cryptocurrencies never recover from their all-time high to become almost worthless.
When I say investing, please note that any form of trading is speculation and I define investing as gambling. You do this at your own risk.
This article shares some of my experiences "trading" cryptocurrency.
A bit about trading psychology
The news, especially mainstream financial media, desensitises you from investing in assets because;
- The asset is highly volatile.
- The asset is increasing or decreasing in value significantly.
- You don't know when to enter or exit.
- The fundamentals often run contrary to the movement in the asset price.
- Retail investors don't have the toolkit to accurately assess risk.
- We believe that fund managers and other financial professionals have the skills to manage our money better.
- Traders, financial experts, and financial media gives long term predictions meaning you wait for these targets to generally miss those targets.
The reality of markets is as such;
- We will probably see a massive decline in value of most asset classes we believe to be holders of value.
- We are anchored to specific asset classes because they have generally been to the upside.
- Most central bank policies are putting forward negative interest rates which completely changing the dynamic of the markets ability to perform how they did before.
- Most people believe in the same narrative they always have.
- Markets accentuates the benefits for the wealthiest (1%) and fail to deliver for everybody else.
I implore you to watch this documentary by Raoul Pal Raoul Pal .
Once you realise that there are many sensible people doing the right thing, but the market is not capable of satisfying all their needs, we will turn to socialism, Modern Monetary Theory or any other government intervention to solve these problems for society. Unfortunately, the people we elect are promising things they can never deliver on.
You can do the simple maths;
- The UK has 10 million plus over 65 year olds.
- Wages have not increased.
- Most wealth gets retained in stock buy backs and other long term assets which reduces the velocity of money.
- How much are banks lending to small businesses.
I recommend you take some time to view data on the ONS, Central Bank websites, demographic breakdowns, jobless figures. Then do your own calculations;
- The government claims the unemployment rate is X% but I know loads of people not working.
- The government claims inflation rate (price inflation not Austrian Economics inflation) is X% but it looks like Sainsbury's increased its prices by 8% yesterday.
When choosing to invest, we either;
- Entrust our financial responsibility to professionals.
- Do it ourselves and lose.
The reason we fail is because we;
- Don't have the time to invest in researching markets.
- Can't afford to pay for expensive software and data feeds to analyse this information.
- Can't understand the hidden charges (even though they are published) from financial experts.
- Don't understand the implications.
- May have an awareness that government is stifling certain go-to investments - such as buy-to-let, property, running small businesses.
- Have a day job, families, lifestyles to run.
- The government is supposed to solve these issues.
- Are told to be good actors and everything will be okay.
Once we look under the hood, we recognise that;
- Our pensions never/rarely track the best indexes.
- The best indexes are not comparable to the performance of higher performing assets.
- The financial industry, is itself fully committed to traditional assets.
Personally, I don't think we should be expected to be financial gurus, yet, once we start to investigate the world of finance, there is literally - "My way or the highway".
Once we consider all the above, and the numerous other considerations, we are catatonically trapped.
The final icing on the cake is - government cannot afford for everybody to be successful. I don't know why, it would be great if people went to work having a roof of their heads just doing their job, and profiting from their ability. Repeat "I don't want socialism".
This post is my approach to trying to gain some kind of capital behind you whilst still being part of society, contributing and adding value.
Is it a conspiracy?
Honestly, I don't think so. The efficient market hypothesis states that the market prices reflects all known information - but for most people, the information they have is stale, piecemeal, and obfuscated. No question, financial practitioners has access to better information which pulls profits towards them and away from the 99% - but there are ways to avoid this.
How to get into markets without feeling bad
Appraise what is happening in the markets
Right now, you are either reading this hearing that Bitcoin is going to the moon or that it has dropped ridiculously. There are people claiming certain assets will drop to zero, and yet;
- Look at Tesla, Apple, Microsoft.
- Look at Bitcoin and Ethereum.
- Look at Deutsche Bank and many other banks.
- Look at the amount of rehypothecation and derivatives. Please note - most derivatives makes complete sense and are not the demons presented by financial conspiracy theorists.
Once we look at what is happening versus what is in the news, there are contradictions everywhere;
- The person with multiple houses has a high amount of debt to equity.
- The person with a great car has it on higher purchase.
- Living in certain properties incurs high rent, high taxes.
- People who appear frugal are successful (I wish that was me).
- The people suggesting a specific strategy often have counter trade lined up.
So how do I enter a bull market?
All bull markets become bear markets and all bear markets become bull markets. "Hard times create strong men, strong men create good times, good times creates weak men."
Fundamentally, you have to put in buy orders below the market price, staggered. People claim dollar cost averaging is the way to go, and it is a useful approach if there aren't high trading fees. Once you acquire positions, you have to be prepared to put in sell orders at higher amounts to what you paid for the asset.
What about stop losses?
Unfortunately, most stop losses never get hit, depending upon the trading platform.
When is the right time to sell on a loss?
I rarely sell on a loss. The reason being, I never stake that much on one asset class. If I do stake a higher amount on an asset class, I am in it for the long haul. I believe that asset will rebound.
What about complete losers?
Sometimes - it is clear, you made a complete mistake in your trading. As I said earlier, a certain percentage of a portfolio will fail. If you really feel an asset will fail, move it to a more stable higher market capitalised portfolio asset. For example, I way over-capitalised on Blackcoin cryptocurrency - for good fundamentals. I finally threw the towel in and converted it to Bitcoin at a loss.
Listen to different sectors experts, hear their opinions. Don't become enchanted by their promises. Always sell profits.
Segregate your portfolio
In cryptocurrency, there is this term called hodling. It means to simply leave it alone and forget about it for years, like a pension. But - you don't simply forget about it. At certain points you may realise it is overpriced - and sell some, underpriced - and buy some. There is a more important approach to take.
If you believe an asset has long term asset has long term upside - lock 80-90% away. Forget about it. Trade the 10-20%. Dip into the hodled amount when it is clear the asset is bubbling.
This allows you to ignore long term losses on a hodled amount, but profit on the smaller traded quantity.
Example of getting into a market when Bitcoin is £10000 (I wish) and imagine you have £500 to invest
People will state this is Dollar Cost Averaging
But you are taking some profits clean, and reinvesting. Eventually, the coins you keep, you can hodl. The money you take, stay strong to not put it back in at higher prices.
How do I exit a rising bull market?
This is a subject in itself. FOMO - Fear of Missing Out causes people to panic buy in at tops, when prices are really high and are likely to fall. However, personally, I think there is an even tougher thing to get right, when to sell.
Fear of Not Getting Back In - Not sure if this is a genuine term, but this is the reason people never sell.
We are anchored to sensational stories about how high an asset such as Bitcoin can reach. Imagine, Bitcoin is now at £8,000 and know it was £4,000 recently. We are then told by loads of online zealots that Bitcoin should reach £100,000 by the end of 2021. Nobody would sell. We keep watching the price go up, transfixed, and then it crashes.
Yet the chances of Bitcoin going to £4,000 is multiples higher than it reaching £100,000. The truth is, if we bought some Bitcoin at £8,000 and it went to £10,000 - at least sell some and take some profits. On the imaginary £4,0000 recent low, current price £8,000, I would do something like this;
- Set in buy orders at £7,900, £7,500, £6000, £5,000.
- Set sell orders at £8,500, £8,300, £9,000.
- As those sells get filled. Put in buy orders again, £7,900, £8,100, £8,300.
Ultimately, keep buying and selling. We just don't have years of our lives to wait whilst Bitcoin reaches £100,000. Remember, over time, we will get to accumulate coins or satoshis and can hodl those.
I got into Bitcoin because the whole financial system is going to collapse?
Many people - like Bix Weir, believe that holding Gold, Silver, Litecoin is the only way to survive post apocalypse. People with such intense perspectives hodl to the end. They believe the fiat system is going to collapse and out of the corrupt ashes - the decentralised cryptocurrency phoenix will arise from the flames.
I have changed my views quite a bit on this prediction. The main observation is, we seem to have dramatically hastened the demise of the Westernised financial system, and non-Westernised nations are finding ways to lessen their dependency on our ponzi based fractional reserve system. We cannot say whether cryptocurrencies will or will not be the new financial instrument, but what I see is their importance in terms of;
- Being the money of the internet.
- Offering cross-border exchange.
- Solving complex payment channel processes using decentralised smart contracts, which are reserved to retail and investment banks.
- Offering individual sovereignty. Whether we are globalised or nationalise, being able to exchange capital in exchange for goods and services is a basic right.
To summarise, even if you are a 100% believer in the collapse of the current financial system - have a bit of reality.
Not for one second is it being suggested to not have a pension, not use a financial advisor, not have a job or anything else. But, by taking simple strategies which takes between 10 minutes a day and maybe 30 minutes a day, you can build up capital. Maybe cryptocurrency will become worthless, but by clawing back your initial stake and accumulating cryptocurrency or whatever asset class you chose - this is how you can invest without huge risk.
My promised land is to complete some software I am writing to analyse opportunities - unfortunately I don't have time to complete this which is why what I am suggesting can only be classed as gambling. Buyer beware - be safe.