Why You Should Reconsider Day-Trading Crypto
If you’re a day crypto trader, you might want to read this.
The odds are, you might be in a costly dead-end road that will set you back big time over a long period of time.
I’m going to explain why — don’t worry.
And if the only thing you’re going to take away from this article is the awareness of what I’m about to tell you, I will be happy.
The difference between trading and investing
Before I explain the difference between being a trader and an investor, let’s take a look at the definition of both.
A day trader transacts within a market to long or short positions and closes them within the same day.
An investor, however, builds a portfolio of assets to hold long-term and his exit strategy is driven by a pre-planned time horizon.
The difference between the two affects the quality of life and the actual profits.
In short, it’s easier for a long-term investor to show profit than for a trader. Also, the peace of mind that the investing philosophy brings to the table just simply doesn’t compare to the one of a trader.
What I mean by that is that most traders are on a constant roller-coaster of mood swings that might affect their quality of every day life.
Only a small fraction of people are able to maintain a calm and focused approach when trading and won’t be affected by it. The vast majority of us, however, don’t have it.
It might sound like an exaggeration, but I’m sure that those who have been trading for at least a year, will agree with this. To somebody who’s just starting out to make a living in trading, it’s something that they are yet to face.
Why is it easier to make a profit in investing instead of trading
This one is tricky and doesn’t apply to every one, but it certainly does to the majority of people.
Trading requires a high level of self-discipline which boils down to controlling one’s emotions to the dot. One might maintain a good win rate in trading for a long period of time, but once things start going wrong, even the best of the best might lose their rag.
It’s incredibly hard to remain focused and disciplined when money is being lost on several consecutive trades. It’s not always the case that a good stop loss will save the day.
When they’re hit too quick and too often for one’s liking, they might be the actual trigger for one’s emotions to take over.
Another thing that goes against day trading are the time frames used for the actual trading. An intraday trader operates on small time intervals such as 1, 5 and 15 minute.
Whilst it’s important to analyse all time frames available — even macro frames such as daily, weekly or even monthly, it’s still not enough.
Macro analysis will surely help to establish the direction of a trend, support and resistance areas and other important aspects of technical analysis, but once the intraday trader goes back to his micro time frames, all that information plays a much less significant role due to the price movements within a day that don’t necessarily correspond with anything that was found on the macro charts.
As a general rule of thumb, the smaller you go on a chart, the more unpredictable and inaccurate it gets. Since day traders use the smallest frames, it gets extra tough for them to show a constant profit over a long period of time.
The odds are that you’re more likely to make money in cryptocurrencies if you were to hold long-term instead.
It’s easier and more profitable, especially if the required level of self-discipline isn’t something that you have developed.
But that’s not all.
I’ve mentioned at the start of this article, that I would like you to take away at least one thing from it. It’s to be aware of what I have to say below. It exists and it’s a major hurdle never to be jumped over for most traders. But at least being aware of it might have a drastic impact on your trading approach.
What is a trading edge and why you might not have it
Before I tell you what the real edge is, answer this to yourself: what is your edge in trading and whom do you have it over?
You might have an edge over the other market participants. And that’s true. Surely you know more about trading and technical analysis than somebody who’s just started yesterday.
Your knowledge is your edge and you have it over somebody who knows less than you. That’s a fact and nobody can dispute it.
The next question you need to ask yourself is who moves the market.
Retail investors who don’t necessarily posses the required knowledge of trading or multiple entities with large capital?
It’s the latter and that cannot be disputed either. But that’s just half a story. Here’s the scary bit.
In the recent week, most crypto-enthusiasts (traders included) were happy to see that Fidelity is about to enter the crypto space.
Who is cheering here is the people that hope to see Bitcoin and other coins shoot up in value. Whilst this might be true, most traders might not realize what it actually means and what consequences it carries with itself.
Fedelity manages assets of their clients in excess of $2.1 trillion as of 2017.
This means that they are trusted by a lot of people and they surely know what they are doing.
Fidelity employs 45,000 people.
A good chunk of their employees graduated from Harvard, MIT, Stanford, Oxford and other top-dog universities in the world.
They have access to the best market analysis available provided by their own employees. Fidelity, apart from their own market analysts, works in partnership with Goldman Sachs and JP Morgan, who respectively employ 37,300 and 234,000 people.
Sure, not all of them are working with Fidelity, but at least a good fraction of them do. I don’t know to what extent, and probably nobody does. You get the drill, though.
Fidelity also uses an army of expert trend analysts who spot potential challenges for all financial markets. They use a sophisticated pattern recognition software and other complex systems that aren’t available to the public. They have a large number of dedicated experts who analyse the finest detail of the price movement and everything that is related to it.
All of those experts communicate through operational managers and the team who’s responsible for pulling the trigger to enter the market is presented with a complete and comprehensive report on how to do it, when to do it and for how much.
When they do it, they know the analysis is sound and the odds are with them.
Do you think you have an edge over Fidelity or similar large market operators?
Most traders don’t and it’s important to re-evaluate it for yourself.
Perhaps you’ve developed a working strategy that works right now and makes you money. The real struggle is that a positive profit and loss sheet might be extremely difficult or even impossible for some traders to be sustained over a long-term period of time.
It’s crucial you’re honest with yourself whether you actually have an edge and make constant profit or not. This could be measured by time you had spent trading.
For example, if you’ve been trading for the past 6 months and have not much to show for it, chances are that it has nothing to do with how much you know about trading. It’s most likely the first sign that you might not have an edge to make it at this moment in time.
And that brings you at a crossroads: you either pursue to develop an edge and hope you might achieve it or you can make a conscious decision and start trading long-term.
To me, it’s that binary. You might not agree with it. But trust me, the more macro you go, the more accurate you get with your analysis and the easier it is to actually make consistent profit.
Have you ever wondered why you constantly read about long-term investments being more profitable than the mid or short term investments?
That’s exactly what I’m talking about in this article.
The shorter you go, the harder it gets in terms of profit yielding sustainability.
Buy and hold long-term. That’s my advice to you today. It will pay off ten times fold. Otherwise, good luck and I hope you find your edge!
BCH – qrr63e483sl5c0rzqjf8pnds26pegex0h52gc6tndx
ETH – 0x2F678cF4A0bc4B2D6F4e22A3A1bfC4BA746BDDBe
BTC – 3DsiPb26ugH4N7urkq6P3T9meSp2NMNqan
LTC – MU4iw9ydysAu9egDsp6gmiQ45DX6ujYBqQ
Disclaimer: You should do your own due diligence, research and analysis before you invest any money in cryptocurrencies. Cryptocurrencies are highly volatile and classed as high-risk investments. You should never invest any money unless you’re prepared to lose your capital. The author of this article holds the said assets and might be biased towards them.