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March 05, 2018, 10:40:57 AM |
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Seeing all these posts of people suffering huge losses due to an attempt to trade on the blockchain assets market, I felt its time to shed some light on why that is.
Most people enter into the world of trading whit almost no background in finance, the main issue here is the lack of understanding in regards to risk management, basic and fundamental value analysis and the concepts of market cycles and trends.
All these aspects are absolutely essential when attempting to setup a long term viable trading strategy and not to fall into the 80% of traders who end up losing money. Yes you read that right, only 20% of traders are actually making money. That is comparably a very small number when looking into other industries. Its somewhat comparable to the startup economy, where less then 10% succeed.
There are three main areas which you need to focus on:
Emotional discipline
Don't fall into the trap of greed, stick to your plan and don't diverge from it, you'll make a mistake, and again and before you know it you are in deep red losses.
Risk management
How often are you able to make mistakes without falling too deep and not being able to recover? A 50% loss takes a 100% gain to recover from. Your absolute priority shouldn't be to make as much money as possible but to not lose it. Until you figure out a sustainable path of creating an Alpha (profits). A good rule of thumb is don't risk more than 1 % of your capital into a single trade. This allows you to bet wrong 10 times in a row and still being able to recover. This is especially important during your learning curve.
The trend is your friend
Stick to following the trend, don't bet against it also don't fall too short realising that the trend of the market has changed direction. This is where you'll probably will be making most of your losses. Even the very best traders often fail here, they trade the trend for months and get complacent, then once the wind starts changing direction they keep stacking up losses as they continue to trade what they used to even tho markets are changing. Be aware once this happens and lower your position size to transition into a new mind set. DON'T BECOME COMPLACENT!
Hope this is some helpful advice to all the newbies here!
All the best and safe trading!
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