How do I trade Gold, Silver and Bitcoin?

Hard money is a concept alien to most people. Traditionally, hard money is a store of value. Indeed - hard money is a concept alien to almost everybody. We can think of hard money as being incorruptible and immutable. This is opposed to what governments create which although a bit of an exaggeration is literally printed out of thin air.

This article should not be constituted as financial advice and is simply my own opinion and experience on not only trading hard money but other assets. What this article will try to do is to present a way to understand why these assets are important despite the almost minimal mention of them in mainstream financial media. Please take this article as an introduction into trading and do your own research.

Finally, I am not a mega trader or rich person. The goal, for me, is to have some profits whilst I work on my technology solutions during this recession/depression. My belief is sensible balanced approaches can help calm people improve their financial position slightly.

Market cycles and trends

Leading hedge fund managers - Ray Dallio is huge on market cyles. He, for example has a compendium of online content relating to the credit cycle. When we look at property, we can see supply and demand in terms of over-supply and under-supply of property leading to peaks and troughs in the market.

Hume's Law, Hume's guillotine. "You can't get an ought from an is". We can determine that something has happened or is in existence, but it doesn't mean we should or ought to do it. Just because Gold Is going up now, doesn't mean we should buy it. Just because CNBC or Bloomberg are going nuts over the rally in the price of Bitcoin or Tesla almost definitely means you shouldn't then buy it. Would I buy Gold now? I would be shit scared. Would I buy Bitcoin now? Only with a strategy and this post covers this.

Security of assets

Should I physically hold my assets?

If we listen to so-called "conspiracy theorists", you never own an asset unless it is physically in your possession. Are you comfortable holding an asset at home? Not me. Am I comfortable leaving an asset in a safety deposit box, not sure? Am I happy leaving it with a custodian or storage facility - yes? Could a future government seize these assets - possibly so? Having a tiny amount of an asset to understand it is nice but risky. For this reason, you need to consider storage costs with an asset.

Should I hold cryptos in cold storage?

We have heard the term - not your keys, not your coins. You should hold some cold storage. Leaving everything on an exchange is risky. However, MountGox is not other more recent exchanges. Always do your research.

What about virtual physical assets?

These are things like SLB - paper versions of precious metals. The issue with these is they don't represent real ownership. A lot of cynicism is placed on these by physical proponents because paper forms of assets manipulate the price of physical.

Is anything safe?

Common sense tells me no. Cryptocurrency is only accessible if somebody gets access to your keys. We have all watched Ocean's 11 etc. There are a lot of bad people out there.

Realise that centralised trading exchanges will not offer liquidity when you need them most

Remember when Oil dropped to below zero and the market tanked due to covid-19? Most retail investment accounts couldn't trade. My ISA did this. Whilst retail investors are getting screwed, many professional investors made a killing.

My trading strategies

Please be aware - these are my approaches. You must take your own approach and learn the strategies that works best for you.

How to acquire a position in an asset which feels too high in price

If you want to acquire an asset, use dollar cost averaging. This means, you may decide to pay $100 a month for an asset. Typically, the price will fluctuate over a year and you will have bought that asset over value and under value.

The importance of trading fees

Buying stocks through an ISA normally carries high fees. Imagine you decided to buy $100 of Tesla. If it costs $12.50 to buy and $12.50 to sell, that is $25. That means the Tesla stock would need to increase by 26% to make %1. The downside risk is huge. Every dollar decline in value really hurts.

Trading assets with low fees is essential to maintaining potential profits and reducing the impact of losses. This is why, cryptocurrency is so appealing. The fees are tiny compared to stocks.

Granny trading

Nope, not selling a granny to the zoo. The idea is to start by buying small positions, setting sells higher, and once sold putting lower buys in. Over time, by continually repeating this you will accumulate profits. The only risk is asymmetric, in that the asset could go to zero. However, you will end up with cash at certain points. 

Cryptocurrency is great for this due to low fees, BUT there is a risk which few consider. The asymmetric risk of holding fiat.

Losing emotion

You can get frustrated with markets when they aren't going where they should be going. Get frustrated, but never risk so much that you feel like making an impulsive trade. 

Avoiding stop losses

This is almost sacrilege to almost all traders. The stop loss. Setting stop losses probably will save many people from disaster. If, you believe in the asset and have researched it, then you believe it will rebound. I never set stop losses. I cut my losses when I really think I have to. This means that maybe 1:15 to 1:20 trades goes bad for me.

Never (almost never) sell on a loss

BTC reached $20k dollars in 2017? Imagine if you had bought $BTC and seen it drop to $3k? What would you have done? Imagine if it dropped to $15k and you sold, and then it went back up to $20k and you bought it again? You are now $30k deep for 1 Bitcoin. Selling on a loss is, for my observation - foolish unless it is a firesale.

Patience

If you can't be patient, don't trade. This recent market had been going sideways for months. A few moments it looked like a breakout was happening, but it didn't. Stay patient.

Don't short

When you are long one asset, you are short another. Shorting generally means betting on an asset declining in value by borrowing a stock.

The only way I short is doing something like this. You paid £100 for an asset. The value drops to £90. You sell the asset, because you believe you can buy it back at £65. The risk is if the price goes back to £100 you have lost £20.

Never listen to specific trading advice from others (at least without looking into it)

There are two kinds of advice - professional opinion and friends. Friends are jealous or fearful. They will say things like - ahh, but you haven't taken the profits. If you have a trading strategy, you are buying and selling between assets over time.

When listening to experts on social media and the financial press. Are they giving exact timing? Or are they putting out their own thoughts? Unless you are properly following another trader's strategy, you won't be on the same time horizon as them.

Listen to ideas from others on macro

Spotting trends, as mentioned earlier is perfect. It means you can confidently invest without continually checking the price. You can set targets. This is where hard assets can reward over the long term, but equally kill you.

I listen to macro experts, they could be wrong, but it is useful for different opinions.

Take profits

This is the hardest skill to learn. Granny trading helps remove the challenge of when to take profits. A simple example would be set a sell at 10% above a buy price and a buy at 10% below a current price. As the price moves up and down you will enter and exit positions. Over time you will be long and short an asset - i.e. hold Bitcoin and cash.

Technical Analysis - yes or no?

I have a fair understanding of technical analysis - in no way am I even at intermediate level. Many like to work with exponential moving averages and trends including death crosses, golden crosses, bear flags and bull flags.

I look at charts all the time, but I pay little attention to much more than Fibonacci retracements, support and resistance.

My reasoning is, as a software engineer I will be building my own solution for analysing prices and identifying the time to buy and sell assets. It doesn't mean TA doesn't work, isn't valid, or doesn't make some people a lot of money.

I just don't want to spend my time analysing assets asset by asset, setting up chart after chart. I would rather have some software which can run analysis across a suite of assets and asset classes in near real time.

Setting price expectations

This should be an automated process, but simply looking at a chart, considering the history and taking a guess at  what you think a price should be is a great starting point.

For example, today's Gold Price in GBP (29 July 2020) is £1500. I am setting my first sell price at £2000. This will seem greedy, but it means I stick to a strategy. My next sell would be £2500. If I had sold at an average price of £2225, I could then set in a buy at £1750 to acquire more gold. 

Note, I don't prefer to do this with Gold because cryptocurrency is more volatile, but you get the idea.

Never buy into the belief that an asset will never drop in price

I have learned to completely switch off from all the FOMO zealots who say that Bitcoin is going to £500k. Anybody saying BTC is going to £20k by the end of 2020 can't be listened to. You set your price expectations and keep enough of an asset to sell it as it goes higher. 

To give a really simple example. Imagine you owned 10 Litecoin. You may decide a dream price is £3000. It may be sensible to hold 7 Litecoin and trade with the three. They may be £30 right now, and it is for certain you will be able to eventually increase your holding of Litecoin.

Don't get swayed by the crowd

This recent Cryptocurrency Bull Run saw a lot of people getting excited about 100%, 400% gains in alt coins. Too often, you pile into an asset after the gains have been made. Sticking to a trading strategy is important.

Conclusion on trading harder assets

I hope this has helped give a simple overview on how I trade harder assets and some of the challenges relating to ownership and custodianship. The key goal is to take some profits to leave dry powder for when the price falls again.

Personally, unless you use intelligent software to identify the correct buys and sells, trading is a gradual accumulation process.

Ultimately, by planning a strategy and sticking to it you won't rush in at the top and get burned. I did over-egg cryptocurrency just when the bubble was bursting a little but the worst thing to have done would have been to sold once the bubble deflated.

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