🧘♂️The Most Important Thing
Market Meditations | March 11, 2021
Close your eyes and try to think back to a year ago today. What were you doing? And, what were you seeing? Ah, yes, there it is: a giant red candle ?
Just last year, on the second Thursday of March 2020, crypto markets experienced one of their most violent crashes as Bitcoin, Ethereum, and nearly every other coin plunged 40%-80% in the span of a few hours.
What better day to remind ourselves of what it takes to be a successful investor and/or trader ✅
Read, enjoy and share with your network. Let’s all build wealth together.
Crypto. Whilst Bitcoin continues to stay strong, NFTs and Digital Currencies stole the show today. 11th March 2021 marks the largest ever known sale of an NFT: Beeple NFT sold for a record setting $69.3m at Christie’s Auction. To put this into context, the most expensive painting ever sold (a Leonardo da Vinci) went for $450.3m. As for digital currencies, Chinese banks have piloted digital yuan at Shanghai department stores.
Legacy. U.S. stocks jumped to an all-time high today, driven by a renewed rally in tech shares. This comes as concern about inflationary pressures ease and Biden’s $1.9 trillion spending bill moves closer to law. Twitter and Facebook jumped more than 4% while Tesla continued to rebound from last week’s dip.
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The Most Important Thing
It was Warren Buffet who encouraged Howard Marks to write: The Most Important Thing: Uncommon Sense for the Thoughtful Investor. A book that provides helpful guidelines for those aspiring to be successful investors or traders ✅ Let’s take a closer look at these timeless lessons today.
Market cycles will always exist because the markets are never completely rational; try as we may, investors and traders don’t just bring their money to the table, they also bring their emotions ❌
Howard Marks describes market cycles as a pendulum that swings from one side to another. The extremes are the turning points at each end and the pendulum is almost always swinging between these extremes. On the one side we have euphoria, greed and over-priced assets ? and on the other we have depression, fear and under-priced assets ? The market is never stationary or fixed, it is constantly in this motion. The sooner we understand this, the sooner we will stop:
Thinking that every bull phase is parabolic and will never correct
Thinking every bear phase is the end and that the asset is doomed
And the sooner we can start recognising where we are in the broader context of a market cycle and how we can best predict and profit from future turning points ?
2️⃣Risk and Randomness
It is essential to first understand risk. For example, higher risk does not guarantee higher reward. Then, we need to be able to recognize risk. The market does not always reflect an accurate reflection of risk ? so it is critical that we do not take things at face value but rather, we determine our own risk identification strategy. To draw on a recent example, there is a lot of hype on NFTs right now but does that make them a guaranteed short term success? Check out our ? video ? on why we think this is more of a long term play.
Finally, we need to control risk. Good trading or investing is more about minimizing risk and losses than it is maximising gains. A big part of this is appreciating the role of luck. Sometimes good decisions create a loss and sometimes bad decisions create a profit. The best way to mitigate this is to protect your downside. Many people can achieve this through a stop loss which we have a full video guide on.
We need to combat greed, fear, envy and ego. Or at the very least, we should understand that they are influencing our decisions. As impactful as they can be on an individual, the impact is tenfold when a whole group gets behind it ? For instance, when FUD takes over twitter during a dip. Even if you were bullish in the morning, the force of the herd when you check your homepage can be enough to turn you bearish due to fear. Commonly known as confirmation bias.
If we refer back to the pendulum examples, if times of fear and doubt convey a market extreme or tipping point, wouldn’t it in most cases be more wise to pre-empt the pendulum swinging back? In fact, contrarianism often yields the most profits ? Whilst many prefer to follow the trend, those who dare to take a contrary view can sometimes yield serious returns.
? If you’re serious about trading and investing, consider joining our community and gaining access to the full range of insights and analysis ?
CRYPTO NEWS & ANALYSIS
One Year Later
Just last year on the second Thursday of March 2020, crypto markets experienced one of their most violent crashes as Bitcoin, Ethereum, and nearly every other coin plunged 40%-80% in the span of a few hours. In a single daily candle, the crypto market cap lost nearly $30 billion.
No matter how many support lines or symmetrical triangles traders may draw, a black swan event – rare and unpredictable events that leave a profound impact on the market – will make technical analysis less useful. Remember, markets are simply a visual representation of people’s fear and greed. One year ago today, more fear in the market than ever before caused a liquidity crisis where people ran to liquidate any and all assets they could find for cash.
What can we as traders and investors learn from this?
✅ For Investors: Whilst Bitcoin did drop 40% to $4000, we all know what ensued: a massive face melting rally to $50,000 and beyond. Now of course, this is in hindsight and an asset that drops that aggressively never HAS to recover. That’s why as investors it’s important to have conviction in your fundamental thesis — that way, when sharp drops occur you have the confidence to HODL and perhaps even add cautiously on market dips. Have a listen to this ? podcast ?, Investing Strategies from a $200m Crypto Fund with Jason Choi!
✅ For Traders: this event taught us just how crucial risk management is. Imagine the feeling in your stomach if you traded leverage without a stop loss? Or if you didn’t position size correctly and blew 90% of your account. Make sure to check out my FREE risk management ? course ?
Understanding ratio is key to being key to being a profitable trader. Lets dial it back to basics and see if you can get this one.
It is evening and Koroush AK, who is 2m tall, casts a shadow of length 6m. If Koroush AK stands on the Market Mediations Yogi’s shoulders, which are 1.5m above the ground, how long a shadow will Koroush and the MM Yogi cast? Scroll down for the answer?
Crypto Enthusiast in the SEC?
Hester Peirce, who is in line for the Chair of the United States Securities and Exchange Commission (SEC), has demonstrated support time and time again for cryptocurrency and the digital asset space ??️, quite the heretical stance relative to other officials.
The Senate Banking Committee voted 14-10 in favor of Gensler’s nomination being sent to the Senate floor. In a recent interview ?with the Thinking Crypto podcast, Peirce states “I think we have missed the boat a bit on crypto…[because of a] failure to provide clarity in our rules.”
Pierce has taught a course on blockchain education at the prestigious Massachusetts Institute of Technology ? and states directly that she believes “in the power of decentralization.”
Why is this relevant to us as crypto traders and investors? Responsible trading means we need to understand the overall trend of the market we are working with from a technical and fundamental perspective. When designing a long term portfolio, for example, confirmation of Peirce’s appointment may just give you the confidence to dedicate a part of your portfolio to crypto if you didn’t previously have exposure. Her ability to dismiss the fear that crypto is for illicit activity could bring more retail into the market and allow it to mature overtime ?
As traders, this type of news helps us form a macro bullish ?or bearish ?bias. Don’t forget, however, to have a technical and/or fundamental point of invalidation ❌
The ratio of height to shadow length is 1:3. So the length of their combined shadow would be 3 x (2 + 1.5)m = 10.5m
As a trader the Fibonacci Ratio (often) helps us on a daily basis, but how many of us understand the principles behind it? This puzzle brings you back to the basics of ratio and proportion, two things that, when trading, you may use daily.
Remember it is important not to just to know how to do something, but also why. For more on the Fibonacci Ratio, check out our Beginner’s Guide ? to Trading Fibonacci Retracements & Extensions
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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.