Why Pro Traders Have Problems with Bitcoin
It’s because of this:
Before I started trading crypto seriously in late 2017 (and moved full-time into trading in 2021), I was your average retail investor.
From 1998 to 2020, I traded in traditional stock markets, especially in the TSX venture and the Canadian Stock Exchange(CSE).
When dealing with volatile assets, two important rules are in place that are necessary for survival:
1. Don’t fight the trend. If the asset drops below 10% of your buying price, dump it.
2. Wait for the upward and then buy in. Don’t catch the falling knife.
For twelve years, I followed the two rules above, and most times when I ignored those rules, I paid for it.
But those rules don’t apply to Bitcoin and most other crypto assets.
From 2017 to 2024, a span of almost seven years, Bitcoin has gone from about $1000 to $50000. But more than 50% of the time, the trend has been negative (downward).
If you don’t believe me, let’s look at last year’s price chart:
Note that in 2023, Bitcoin went from $17,500 to $45,000 an increase of more than 150%.
But you can see that at least of the time, sentiment was negative.
So how did Bitcoin manage such a spectacular comeback? God candles:
There were five "God Candles" in 2023 with regard to Bitcoin.
The price action was significant and violent, meaning that if you weren’t already invested in Bitcoin, there was no time to "catch" the trend and buy in.
If you are a long-term reader of this newsletter, this theme should be familiar to you. Back in 2021, I wrote the story The Purgatory of the Successful (Long-Term) Cryptocurrency Investor
This type of price action is a real disadvantage to pro traders who sector-rotate or traders who like to move from sector to sector, chasing the hot trade of the month.
And this isn’t meant to be a post slagging pro traders.
I was a "pro" trader for about 10 years, chasing whichever sector is hot, trying to catch any uptrend, and fading any asset that dropped 10% in value.
That strategy worked for me for a long time (most of the time). I just had to unlearn it when I started trading crypto.
But What about Trading Charts?
There are traders out there who swear they are doing well by watching the charts. I am skeptical:
https://twitter.com/Eug_Ng/status/1757745559471898720
This week, my Twitter feed has been lighting up with the chart guys saying that Bitcoin is oversold and we are due for a correction AGAIN.
Obviously, they have been getting slaughtered.
I have noticed through the years that most of the big names on Twitter who talk about crypto (Peter Schiff, Jim Cramer, Capo, etc.) tend to be bearish on Bitcoin.
I guess it gets engagement.
One BIG problem with technical analysis, I think, is that it draws on the data collected on assets other than Bitcoin, like stocks.
In case you haven’t noticed, Bitcoin doesn’t trade like an equity. It doesn’t trade like gold, silver, or Vancouver real estate for that matter either.
In my seven years of watching crypto Twitter, I have yet to see a TA guy last more than six months before making a very bad call that wipes him out or makes him lose all credibility.
Conclusion
At this point, you might be curious to know, what is my trading strategy?
Well, I don’t really have much of my net worth in equities anymore. Most of it is in Vancouver real estate, and then crypto. Traditional stocks are a very distant third.
Can an investor make money in sectors other than crypto? Absolutely. But not me.
Secondly, I pay myself at least one year in advance. That is to say, at the beginning of the calendar year, I dump enough cash in my savings account to last me one year.
The only exception to the above rule is when I dump enough cash in my savings account to last me TWO years.
Lastly, I don’t sweat ten percent corrections. If it’s a bad day in the markets (and with crypto, there are a LOT of those, even in good years), I just go for a walk and a coffee.
If the market gets in your head, you are dead.
DJ