🧘♂️4 Profit Tips
Market Meditations | April 28, 2021
It’s the same mistakes every time.
Sharing 4 easy methods to level up your trading.
Read, enjoy and share with your network. Let’s all build wealth together.
Crypto. Bitcoin’s recovery rally has paused as the closely watched two-day Federal Reserve meeting wraps up Wednesday afternoon. Hitting new all time highs, Ethereum has certainly stolen the show. More on this later…
Legacy. U.S. equities were mixed as investors parsed the latest batch of corporate earnings reports and awaited clues on the timing of stimulus tapering by the Federal Reserve.
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Losses are impossible to avoid for any trader. Even the very best are prone to errors. Critically, the best are not scared of making mistakes or even losing money in the markets. They understand that each mistake is an opportunity to learn: both about themselves and the marketplace. Recognising that the marketplace itself is nothing more than a culmination of ideas, mistakes and beliefs. All that being said, it can help to be prepared. If you have some knowledge of common trading mistakes, you can face them in a calm, open-minded and rational manner.
In today’s article, we will warn you of common trading mistakes we have come across these last years and how to address them.
? Letting Your Losses Run
“The simple truth is that most people are risk-averse in the realm of profits—they prefer a sure, smaller gain to a wise gamble for a larger gain—and risk-seeking in the realm of losses—they prefer an unwise gamble to a sure loss. As a result, most people tend to do the opposite of what is required for success. They cut their profits short and let their losses run.” – Market Wizards
MISTAKE. When it comes to trading, protecting your capital is always the top priority: no matter what, you will need to live to trade another day. Perhaps we would all do well to change our mindset from winning to not losing.
SOLUTIONS. Set a stop-loss on your exchange. All your trades should have an invalidation point that is predetermined before you put your money (and thereby your emotions) into play. Respect your stop-loss level given your invalidation point. Don’t end up in a position where you are holding a losing bag. Accept losses while they are still small and deploy your time and energy into other trades. If you would prefer not to use a stop-loss, you can also reduce your position sizing. Such that you enter with a very small position size that you are willing to let go to zero.
? Cognitive Biases
“Every day I assume every position I have is wrong.” – Paul Tudor Jones
MISTAKE. There is a saying that traders have an easier time divorcing a spouse than they do a position. This point speaks to cognitive biases. Our biases can heavily affect decision making, cloud our judgement and limit the range of possibilities we are able to consider. As far as possible, it is essential to keep an open mind. Market conditions change very quickly. In fact, change is the only certainty. So we would do well to recognise and adapt to changes.
SOLUTION. Have a range of technical and fundamental resources that you check regularly. Use these resources to try to take the other side of your trading strategy. As far as possible, look for potential weaknesses in your current bias. When your confirmation is no longer there you are left with but one option and that is to close your position. Close it confidentially, logically and unapologetically. Time is your most valuable asset, don’t waste it on a losing trade.
RESOURCES. If you rely mainly on technical analysis you may want to consider fundamental indicators such as On-Chain Analytics. Nansen.ai is a great place to start for this. Beyond this, dive into twitter, discords and telegrams to gauge market narratives and hot topics.
? Overtrading and Revenge Trading
“Do Not Trade Everyday of the Year” – Jesse Livermore
MISTAKE. Overtrading is a sin we all may be found guilty of. Particularly in bull markets, where there is a heightened sense of FOMO and missing the next big altcoin pump. This is also more common amongst newcomers who are very eager to trade to be active in the market. It’s important for all traders to remember that you don’t need to trade everyday. In fact, a lot of the time, it’s best not to trade. Contrary to popular opinion, trading involves a lot of analysis and a lot of patience. Some traders enter a handful of trades a year and make significant returns. In a similar fashion, revenge trading entails immediately trying to make back a significant loss.
TIP. Beginners would do well to note that low time frames produce a lot of market noise and may tempt you to enter trades more often. Lower time frames are risky and analysis done on higher time frames tend to be more reliable.
SOLUTIONS. For the majority of people, a simple buy and hold strategy is advisable. If you do want to trade actively, however, it’s important to determine what style of trading suits you best and to only enter trades that have a higher probability of success. As for revenge trading, the market is no place for emotions. Any guesses what trading immediately after a big loss will lead to? Even more losses. You should only ever approach your trading screen with a clear mind.
RESOURCES. To determine what style of trading suits you best you can take our quick Quiz. For an understanding of risk, reward and probability of success, check our video: Risk to Reward Ratio, Expectancy and Risk of Ruin. Finally, for more on controlling your emotions there is a wealth of Trading Psychology books such as Trading For A Living. Alternatively, you may decide to practise mindfulness: just 10 minutes meditation a day can have serious benefits.
? Herd Mentality
MISTAKE. Entering a trade based on someone else’s analysis may work in the short term. However, if you blindly follow others without understanding the context, you can be sure it won’t work in the long run. Whilst there is much to learn from others, it is essential to only select aspects you agree with and what fits in your own trading system.
SOLUTION. Rather than looking towards others for a trading strategy, consider the free resources available to develop your own. Familiarise yourself with the various tools for assessing the markets and begin to consider and test your own trade ideas.
RESOURCES. We have a free Technical Analysis course available on YouTube. We also provide a step by step tutorial for keeping a trading diary. There are a range of software packages to create trading diaries online such as Edgewonk.
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New All-Time Highs and Digital Bonds ?!
According to data from CoinGecko, Ethereum prices skyrocketed to a new all time high today of $2,735.41
While there are a range of factors propelling Ether’s price, Reuters attributed it to the news that the European Investment Bank is launching a “digital bond” sale using the Ethereum network.
The news likely demonstrates a bullish institutional use case for Ethereum. Further, the amount of Ethereum sitting on exchanges continues to drop lower and has been the lowest in the past year. WIth less supply on exchange available, there’s less likely a chance of a major sell-off. A revival in DeFi-related products and tokens, coupled with a fall in gas prices, could also be driving momentum.
This week, we have dedicated the majority of our time, knowledge and resources towards creating a 2 part Fundamental Analysis Guide.
Part 1: On-Chain Analytics
Part 2: Profit and Financial metrics (whitepapers, tokenomics, market cap, liquidity, supply mechanisms, and more)
If you’d like to receive part 2, be sure to join the Market Meditations community?
Balancer and Gnosis Launch Collaborative DEX
Earlier this morning it was announced that both Balancer, a protocol for programmable liquidity, and Gnosis, known for building market mechanisms, have teamed up to design and create the Balancer-Gnosis Protocol, an Ethereum DEX. Whilst the complete integration is scheduled for July, the protocol is launching iteratively.
Balancer has grown in popularity namely because of its multitoken pools. Balancer, unlike other Automated Market Makers (AMMs) offers pools that contain two or more assets that provide liquidity to the protocol and empower anybody to swap tokens. Gnosis is known for its price finding mechanism which uses a complex objective function to select the optimal price. Check out my FREE Passive Income Guide to see which platforms and protocols I use to earn yield on my crypto and stablecoins.
The DEX aims to combine Balancer Vaults with Gnosis’ price finding mechanism. What are they hoping to achieve?
To build a protocol that offers traders the optimal prices with a clean UI/UX whilst still protecting them from a concept known as Miner Extractable Value (MEV).
MEV refers to a concern whereby miners reorder or omit transactions in order to profit from an arbitrage opportunity. A big drawback of MEV is that it can interrupt consensus and can lead to high transaction fees across the network as arbitrage bots bid against one another.
The CEO of Balancer Fernando Martinelli stated, “By collaboration, we can out-cooperate the competition—traditional finance—and bring traders unparalleled decentralization, transparency, and value. We’re proud to bring two teams known for great engineering.”
Indeed as the world of DeFi matures, it’s inspiring to see different players in the space work together to return the control of your finances from central authorities to you.
Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.