How I Transitioned From Investing in Crypto to Being a Full-Time Trader
Since starting the blog, I have received many emails covering a range of topics and one thing that keeps coming up is how I transitioned to being a full-time trader. I have been avoiding writing about this too much as it is hard to write without sounding like a total wanker, but I'll do my best.
If I am honest, the majority of this is down to luck, and its continuation will also rely on a certain amount of luck too. I am trying to increase my reliance on strategy and skill yet I will need a couple of years trading behind me to fully appreciate where on the skill/luck spectrum I am.
I had mentioned before that I first started trading Crypto back in 2012 where I quickly made a whole bunch of money and just as quickly lost it all again trading Bitcoin CFDs on Plus500. I then attempted trading tech stocks using the same platform and epically lost £20k in around four months, at which point I quit as a trader vowing never to come back before feeling sick and thinking of all the things I could have bought with £20k.
I started trading Bitcoin and Crypto again by chance at Christmas last year. I had to buy something online where the only payment option was Bitcoin (cough cough), so I bought one on localbitcoins.com when the price was £717.91. The leftover Bitcoin I had from my purchase was going up in value, so I decided to take another look at Crypto as an investment vehicle.
The market was very different from 2012 when we only had Bitcoin, Litecoin and a bunch of nonsense coins. I decided to buy a few more Bitcoins but found localbitcoins.com a pain and after some research, I found Coinbase where I invested an initial £5k. I bought a few more Bitcoins and some of this other coin they had called Ethereum which I knew nothing about, picking up around 15 of them for £8.55 with my leftover Bitcoin investment money.
Both Bitcoin and Ethereum started to make steady gains, and the more I read, the more I realised that while high risk, this was maybe a once in a lifetime investment opportunity. My pension was a load of shit, for £830 a month I would get £55k at 60 and then around £6k a year. On top of that, I had to give half to my ex-wife as part of my divorce settlement.
I binned off the pension.
Researching Crypto again it felt like we were in a very different place from 2012 and that the Blockchain itself had become a tool for a new layer of Internet applications, as such the utility of particular coins had intrinsic value. I decided to make a bet that my pension investment would be served better in Crypto, so I partitioned a portion of my savings and built a random portfolio of coins without any real buying strategy:
- More Bitcoin
- More Ethereum
Essentially an index fund built around some of the top performing coins.
As the market rallied, and by total luck, I had found myself in the position where my portfolio had doubled in the first three months. April went parabolic, and my investment jumped another 150% on the back off a few massive moves by Ripple, Ethereum and other new investments like Digibyte.
I was already on a year off work, following the breakup of my agency, and the realisation that I would need to enter the world of work again was in the back of my mind. During my year off I had travelled (Thailand *2, America *2, Italy and India), reduced my stress levels, spent time with my sick mother, time with my kids and just enjoyed life.
I hated the thought of getting the train in and out of London and working 60 hour weeks again, so I decided that I was going to give Crypto a chance, see if there is a way of creating an income stream from my investments.
It was at this point I started to get serious about my strategy and change my risk profile.
When trading Crypto for my pension there was no real goal, all I wanted to do was make as much as I could for my retirement, whatever that would be. Also, there was no penalty for mistakes as all I was doing was building a pot and if it failed then so be it.
Now I'm trading for income; I have a clear goal of what I need to take as a draw down, which allows me to design a portfolio for that. Requiring a drawn down each month, therefore, requires focus and discipline and modest growth is the priority over chasing 10* punts. I also need a portfolio and strategy that allows me to ride through market volatility without ever panicking.
I won't share my actual numbers, but to show the sums I am working with I will use as a good round number that I need as £5k a month to cover all outgoings and travel. I, therefore, need a portfolio which generates a minimum of £5k a month in profit.
In simplified terms this means if I had a £50k pot which performed at 10% growth per month then this is the £5k required, If my fund is £100k then I'm buying an additional month of draw down on top of my required month. This is where compound growth is my friend.
10% growth per month will hit my income target but does not create financial freedom, any drastic change in the performance of the market would put this at risk. So, therefore, I need one or a combination of the following:
- Greater than 10% performance
- A larger pot to outperform the £ target
I also need to be practical about growth:
- Market growth for this year to date has been 1,133%
- Market growth for last year was 140%
- Market growth for 2015 was 32.7%
- Market growth for 2014 was -48%
As you can see the trend is up, but we can at any point hit a bear market or trade sideways. I need to build enough income to ride out any change in market conditions and also keep improving my knowledge and trading ability to allow me to make money in a sideways or bear market.
On average I have outperformed my required number by *3.5 per month, so if I liquidate today, I have the next three years covered. If the market crashes tomorrow, then the 5% for 25% money off table rule gives me nine months to figure out what next.
The mindset for financial freedom is completely different from just making money. When investing as a side gig, you don't have an upper limit, but you do have fear over losses. With financial freedom, you have a target, with a target you can build a portfolio and strategy around it.
- A solid investment in stable growth coins
- Researched speculative investments in smaller coins which may deliver exponential growth
- Completely removing FOMO from my thought process
I don't rely on the speculative investments, all they do is buy me additional months when they happen. Smart/lucky Crypto investments can give you 10* returns if you catch the right coin at the right price but hunting those coins is hard. My approach used to be to take 10% of my portfolio and split that between 10 which felt solid. Wait a couple of months and see which exploded, take profit and repeat.
My entire approach is different now. I want to average 10% growth per month which means looking for stable growth coins and then driving exponential gains through researched investments. As such my risk profile is different. Currently, around 66% of my portfolio is now in what I call stable growth coins.
This is the basis for building my portfolio, and I am looking for coins which grow within a range and are not subject to huge pumps and dumps, as such I love the following:
- Bitcoin (range is wide but a safe bet, if the market is growing then most likely Bitcoin is growing)
- Ethereum (just scraping in, has pumped hard but has the right ecosystem for long term growth)
Now some of these pumped hard during the April/May run but they have maintained a tight range out of that compared to others.
When deciding which coins are part of my stable growth gang they have to be one of the following:
- A leading form of crypto payment which has a high possibility of becoming a wider accepted form of currency
- A leading service token which supports an Internet application with likely high levels of business or consumer adoption
If we take a look at the Dash chart below, you can see that this year it has grown within a tight price range, which is why it is the largest coin within my portfolio, ahead of Bitcoin. I believe that Dash will become the second largest form of Cryptocurrency behind Bitcoin but has the potential even to beat it. The structure of the mining rewards and reinvestment into marketing and the ecosystem is growing the awareness of Dash and helping retailers adopt it as a form of payment.
Similar to Dash, Monero is another stable coin I talk about often, for me it is the leading privacy focused cryptocurrency and for me has more utility than something like Litecoin, and as such I expect it to overtake Litecoin within a year. Until recently it had also been growing at a stable rate within a tight range and had only recently started to break free and gain in value, mainly as it was massively underpriced.
Augur, Factom, MaidSafeCoin, and Ethereum are all token based services using the Blockchain to build real world Internet applications and as such the tokens have utility and value. Specifically looking at the Factom chart below, although it pumped during the April/May pump it survived the correction well and has continued to make gains within range.
It's easy to make money in a bull market if you time it right. As such I fully appreciate this may not go on forever. There will come a time where either:
- The market turns, and I'm not skilled enough to play it
- My strategy proves false, and I can't find one which works
When that time comes, then I will reassess life, but right now I have three years mapped out where I wake up and do what I choose, travel and spend time with the family.
I may also start to diversity Crypto investments into more traditional dull markets or managed portfolios to derisk financial freedom. As an example, a financial advisor has been calling me and trying to get me to signup for their wealth management portfolio which can deliver around 9-12% returns. If I had £1m, I don't, but if I did, then I would put it in this because their returns would provide financial freedom as the annual profit would cover my cost of living. Job done. Then any crypto money on the side could be used for additional stuff like Lamborgini's (joking).
I hope this explains why my strategy focuses on:
- Stable growth
- Lifestyle over money
- Not being glued to the markets
- Not being concerned about volatile market moves
Any questions, then please ask.