Module #8 - Key Tips and Reminders
Congratulations if you have made it this far. Hopefully, you are well on your way down the Bitcoin rabbit hole and you have:
Created an account with Xapo
Purchased your first Bitcoin
Created rock-solid security procedures
Have managed to move Bitcoin from Xapo to your hardware wallet
Have focused on continuing to learn more
Still, you have only scratched the surface, and you should expect a long journey. You should always be learning and always be improving your skills and knowledge.
This course is meant as the most basic of introductory lessons into Bitcoin, and I hope it has been helpful. I would appreciate any feedback you have; I am not precious, so give me a shout if things do not make sense or you think I should improve on certain aspects of it. Also, please feel free to reach out if you have any questions, my email is email@example.com.
For this final lesson, I want to leave you with some final tips and reminders for if you are thinking of becoming a trader. By the way, from my experience, I do not recommend trading, it is really hard and most people lose money. If you choose to ignore me and become a trader then hopefully this will help.
1. Educate Yourself
If you are going to become a trader then you need to educate yourself and learn everything you can about trading. There are so many resources out there and you will need to find a trading style for you. You should be aware of market cycles, both bull and bear, and how they play out.
Having spent 18 months as a trader I know I am not cut out for it and I do not have the time. It really is a full-time job and you are also trading in a very volatile market, up against more experienced traders, trading bots and market makers who have more information than you.
2. Do not invest more money than you can afford to lose
This is the first thing you will hear from most experienced traders, why? Well, you can lose most and if not all of it. You can do this in many ways, especially early on in your investing journey:
You can buy something at the wrong time and the price crash
You can over leverage yourself and get margin called
Get sucked into buying into scam projects
Start trading altcoins without experience and lose money
You can get hacked
You can lose access to your wallet
Or any combination of the above. I spoke with one lady you had traded $100k down to $20k with her husband. I wrote about this on my blog. They started investing, made some gains, decided to put everything they had in and lost nearly all of it. Even if you start small, if you make some early profits you might get overconfident and start throwing more money in, don't. Every trader, will at some point experience a significant drop in their portfolio, you should be very careful with how much money you invest.
Further, it is important that if you are going to trade without emotion as best possible. If you are over-invested and start losing money, this will affect your trading decisions, and you will make silly mistakes. The best way to invest is to do so as neutral as possible, both with gains and losses as decision making becomes more rational. I wrote a piece on my blog explaining how to trade without giving a fuck; it is worth a read.
3. Be Prepared for Volatility
If you have decided to become a Bitcoin investor, you will need to get used to volatility pretty quickly. He price can drop massively from their all-time high positions; Bitcoin has lost +70% six times from an all-time high. If you decide to trade other cryptocurrencies then the volatility can be even crazier with most assets having lost +90% of their all time high value. Assets can drop double figure percentages in a single day and climb triple figure too. Crypto markets are crazy.
4. Don't short (just yet)
If you don't know what shorting is, then I recommend you read about it here, essentially you are betting that the price of an asset will fall, therefore if it does, when you close your position you will have made gains based on the size of the drop. The challenge with shorting is that if the market does the opposite and goes up, there is no limit to how high the price of an asset can go and therefore no limit to the losses you can make, You can employ a stop loss, but we'll cover that another time.
I don't have any fundamental issue with shorting; I think it is a useful tool within all markets for driving accurate pricing, whether stocks, Forex or Crypto Assets. Shorting can be good in Bitcoin too, a great way of growing your investments when the market or an asset is falling. I don't recommend doing it now. You are still new to Bitcoin and new to investing, so you are better off finding an entry price you are happy with and holding a long-term position.
Save shorting for now until you become a more experienced trader.
5. Don't Margin Trade (for a long time)
Again, I would never say don't margin trade ever, it is an excellent tool for experienced traders, but now you are new, and it is the quickest way you can lose lots of money.
Margin trading is trading with leverage, so, for example, if you have a 10* leverage, if the price of an asset you are margin trading long goes up by $100, you will make $1,000, but equally, if it drops by $100 you will lose $1,000. Margin trading essentially breaks discipline rule number 1 as you are investing money you can't afford to lose.
6. Be Careful What you are Investing In
As I have explained, I no longer trader altcoins and tokens. I just don’t believe any of them right now are a long-term viable investment, due to many reasons. Still, some of you will get the itch and will want to invest and this is where you need to be real with yourself and understand what you are investing in.
The sister of Technical Analysis (TA) is Fundamental Analysis (FA), which is the analysis of the intrinsic value of the project and thus the value of the token or coin. In its simplest terms, the fundamental analysis of currency coins would say that Bitcoin is the strongest as it has the most well-known , the most significant infrastructure and the highest market cap. Therefore you can argue that fundamentally it is the most sound cryptocurrency you can invest in.
When deciding to make any investment, you should undertake some fundamental analysis:
What is the function of the coin or token?
What problem does it solve?
What is unique about it?
Do you believe there is a market need for it?
Who is the team behind it?
If you find fundamental flaws, you don't believe in the project or agree with it then pass on it and move on.
7. Don't chase the market or coin moves (UPDATE THIS SECTION AND CHART)
Also known as FOMO (Fear Of Missing Out), I also covered this in my blog. This is a mistake which lots of people make; we saw it with Bitcoin last year when the price went parabolic. The price of Bitcoin was all over the news, lots of people started getting interested and wanted to buy as they were worried they were going to miss out.
Look at the chart below, everything bought above the blue line is currently a loss-making trade (the beige zone). If you bought near the top, above $16k, you are over 50% down. When something is moving parabolic, the only people trading this should be the day traders who know how to scalp. The chances are the price will find a peak and then fall, this is where you can get trapped. Entries and exits are so important.
Think about it like this; if something goes up 20x in a short space of time, it has to do another 20x from the original position for you to achieve a 2x. There are always other trades out there.
8. Be Careful With Advice From Others
There are plenty of excellent resources for researching Bitcoin, from Twitter to Reddit, but you need to be very careful and always do your own research. Just because somebody claims that the price will go up or down, it doesn't mean it will; this is usually their bias. This is not to say you can't use these resources for research but you should always maintain the discipline of your previous training:
Is this a good entry position?
What is the maximum downside I am willing to swallow?
How long are you willing to hold this investment?
9. For each investment you need an entry and exit price
Your exit price should also consider a negative exit, though I don't personally use these. With entry you want to either be:
Buying Bitcoin and be prepared to hold for years
Aware of how to read basic technical analysis and thus understand a good entry
With entry, you want to recogniae market cycles and look for something called an accumulation period, where the price does not look like it will fall anymore, is going sideways, ready for price growth.
Regarding exit, this is tough. As I don’t trade anymore, I have made the decision to hold my Bitcoin for years and not worry too much about prce.
If you have decided to become a trader then picking your exit will come down to experience, and over time you will become better and better at spotting both entry and exits.
10. Be careful with stop losses
Some traders and investors swear by stop losses, especially those who trade over shorter timescales. A stop-loss is whereby you automatically sell a position if the price drops too much. I don't operate a stop loss for two reasons:
Because you, therefore, need to keep your Bitcoin on an exchange for the stop loss to activate
More importantly, I have been stopped out of a position due to a flash crash.
To create a stop loss, on the exchange you set the price at which you want a position to close. For example, you maybe bought Bitcoin at $8,000, believing the price will go up but you set a stop loss at $7,500, and therefore if the price drops to here, your position will sell. Investors use this to limit their exposure per trade. A flash crash is where the market price can dump and immediately recover, thus my main issue with them is that they can unnecessarily close a position.
The chart below highlights how this can happen. I would never say not to use one; it is a personal choice, I just don't use stop-losses.
11. Don't day trade (just yet)
I have written about this specifically, though I expect some of you will have this as a goal. What I mean by day trading is trading most days, looking for short-term entries and exits. Day trading is much more about the technical understanding of the market than fundamentals. It is hard and can be stressful, and you may feel a need to make trades when they aren't there.
I expect most people using this tutorial have jobs and families and probably don't have the time to dedicate to day trading. I still don't, though in time you may feel this is something you want to do. I believe you can make substantial returns on longer-term investments and therefore do not need to worry about day trading yet.
Module #8 Summary
It is important to maintain discipline with your Crypto investments: there are 10 key tips here which you should follow
You should always be learning: therefore keep reading and improving your knowledge
You have completed the investment course: and hopefully you are fully armed to invest safely
Now you have completed the course, you should refer back to it from time to time. I will be looking to pull together intermediate and advanced courses.
Here are some other resources I have available:
Blog: where I write about Crypto related things
Beginners guide: though you probably won't need it after this course
Strategy: which I update every few months
Email list: where you can subscribe to updates
Twitter lists: where I track important people worth following
Well done for making it this far. I hope you enjoyed the course and I welcome any feedback, good or bad, just email me on firstname.lastname@example.org. So what now, well I hope you feel like you know a lot more about this crazy world of Crypto right now and feel comfortable making investments. If I leave you with three things, let it be this:
Make security your number 1 priority
Always be reading, learning and increasing your knowledge
Be patient with everything