Crypto Trading Losses? Here's How You Can Avoid It

The answer to this question is the same as the. The same question in stocks, right? If you ask me, why do most stock traders lose money? Why do most crypto traders lose money? More or less the same answers. But the trouble is, in crypto, it's magnified. And so let me talk about why. So traders lose money for a whole bunch of reasons. In crypto, one of the biggest things is we don't know who the winners are yet, right? There are. There have been some winners to date, no doubt, Undoubtedly. And. But if you buy a selection of coins or tokens or whatever now and hold them forever, most of those are probably going to be worthless. And if you bought a whole bunch of new coins in 2017, when there was a whole big flurry of activity on the ICO front, most of those are now worthless. And so buy and hold as a strategy, generically in crypto is kind of bad. And I know a lot of people are going to freak out and say, oh, no, but if you bought bitcoin and you held that since the beginning, you'd be a billionaire. And yes, that's true. Right? You would be a billionaire probably, if you put a decent amount of money in. But this is hindsight now for Bitcoin. And if you try and pick a new coin now and hold it forever, chances are it's not going to be the bitcoin, right? We've already got one, so. So buy and hold as a generic strategy is dangerous. If you buy and hold the blue chips, sure, maybe you're going to make money in the very long run. But there's another problem. The other problem in crypto is the volatility of the market is so huge. The bull market's really big. Hooray. That's fantastic. But the bear markets are extremely brutal, and if anyone's been trading crypto for a little while, they would have seen massive, massive price drops. And it kind of takes a pretty much a superhuman cyborg to sit through one of those drawdowns and do nothing and have no emotional reaction. And that's really tough. So buy and hold is really challenging. Second thing is, most traders, if we're really honest, are not doing much more than gambling. If you look in the chat forums and the Facebook groups and the WhatsApp groups and all the discords and whatever, most people are just hyping something up, hoping that that's going to get them rich. And gambling in any market doesn't work. You know, there's always great stories of, oh, I bought this, and it went to the moon. But that's the one story you hear. You don't hear about the five other bets that the person took that lost all of their money that went to zero or close to zero. So most traders are gambling and you need something more than just a hot tip. And we'll get into what that is, I think in the nature, in the course of this discussion.

Third one is we already touched on emotion. When price swings are so big, we can't help but get emotional. And when something is pumping, we get the feeling of greed. When something is collapsing, we have a feeling of fear. Now, if you have the feeling of greed, what do you want to do? Throw more money at it because I'm going to get rich. But the trouble is, a lot of things in crypto pump and then dump. Not everything continues to go to the moon forever. And so if you throw more money in it, chances are you're getting close to the top and the dump is going to get you hurt. And then with fear, again, very powerful, powerful emotion. When things are falling, we're driven to either hold on because we don't want to take that loss and we hold on for too long, we end up with a bigger loss and eventually we go, can't take it anymore and we capitulate and hit the sell button.

Or you just make completely irrational decisions because you're scared. As soon as you get into fear, the. The brain goes into fight or flight mode. You've heard about that. Um, and in fight or flight mode, the blood gets diverted away from the brain into the muscles. You get ready to fight or run away from the tiger or lion or the bear in this case. And in that mode, you're not thinking clearly. You don't make intelligent decisions. All you have to do is think about the last time you had a fight with someone, your spouse or your, you know, a friend or whatever. But you don't say the most sensible things, right, because you're in fight or flight. Emotion. Next one. Position size. Position size is a killer. Oh, this is the. This is. This one is going to change the world. It's going to change. This is the future. This is going to go to the moon. I'm going all in. It's like all in is the stupidest thing I have ever heard out of a trader's mouth. Okay, you should never be all in because we don't have a crystal ball. It might go to the moon, but it might go to zero or it might just go nowhere. So all in is just. It is the dumbest thing Ever. So position size is really critical. You've got to play slots of small, evenly sized trades because some of them will be successful, some of them will be unsuccessful. We can't go all in on one because if we happen to get the unsuccessful one, and let's face it, you know, we're not, we're not all geniuses. I'm certainly not. I have lots of losing trades. We can't risk having a big bet on a losing trade. Bad outcome. And then the last one is leverage, because this is the most volatile market on the planet. I don't know what makes traders think they also need 100 to 1 leverage. And that just makes no sense. You've already got an asset class which is moving, you know, huge amounts minute, hour by hour, let alone day by day or week by week. And what happens is traders think about the profit potential of the leverage first. It's like, oh, if I buy this and it goes to the moon and I leverage this much and then I'll make that much. But that's the last thing you should be thinking about. The first thing you got to think about is the downside potential. If I buy this much and I put on that much leverage and it drops, what will happen to my account? Will I survive trading that way? And you'll get a pretty different outcome if you think about it like that.