I have always found the Crypto market to be fascinating. The fact that you can gain financial freedom just by thinking was just baffling to me. But it seemed easy. TOO easy. You only need a laptop or a computer and an internet connection!
Well, you know what they say. If it's too good to be true, it probably is.
If you search on Google for how to trade, you'll find more than 2 billion results. You'll discover that the subject of trading isn't as simple as it would seem. There's also a whole culture of misinformation in this matter. People promising impossible results over a very short period of time. Or gurus saying they have "cracked the market" and the lavishing trader's lifestyle.
The game of trading can be approached in two main ways: either you want to gamble with your money, or you want to transform trading into a mean to acquire your financial freedom that will last you a lifetime.
So, the first thing to do, before doing any research or going any further, is to have the right mindset. Then you can start working on the other aspects of trading.
Trading can be divided into 5 categories that are considered the pillars of every strategy:
Trading psychology:
It's not easy to think like a trader. Many advanced traders still struggle with their emotions. Because we're all emotional beings. From a young age, we're wired to think in in a deterministic manner: If you want to have a good job, it's good to have an education. If you work for someone, you will get paid. And the list goes on. That's what I call thinking in certainties.
However, trading crypto-assets is a probabilistic game. A grinding machine with a Market Cap of approximately $1.17 trillion according to coinmarketcap.com. It's a "zero-sum game" where the flow of cash goes always from the losers to the winners. And if you stay in the game long enough, all the principles and absolute truths that you live by will crumble and fall apart. Because they just won't work.
You'll need to learn a whole new way of thinking that will arm you with the confidence and endurance necessary to face the up's and down's of the market. In the words of the great Mark Douglas:
You create your own game in your mind based on your beliefs, intents, perception and rules.
This subject needs to be given the attention it deserves and should be treated with respect. That's why I have addressed it in more detail in my article Trading psychology: It's tricky.
Fundamental analysis:
Fundamental analysis is the interpretation of the market based on economic indicators, news releases, financial metrics, project metrics and blockchain metrics. It is a qualitative and quantitative approach that gives great insights on the big movements and trends, on a long term scale.
However, it doesn't offer an objective and defined way to look at the market. Because, everyone looks at the market differently. And nobody can predict the movement of the crowd when reacting to a certain event. The number of variables is just too big to be taken into consideration.
Bottom-line: Fundamental analysis can only serve as a vector for trading decisions. It only gives insights. Nothing more, nothing less.
For more on fundamental analysis, check out The valuation of cryptocurrencies to maximize profit.
Technical Analysis:
Technical analysis is based on a number of tools, indicators, chart patterns and other methods of evaluating and forecasting the direction of prices.
Contrary to fundamental analysis, technical analysis IS an objective way to interpret the movements of the market. The main downside to this approach is that it only rely on collecting past data to project it onto probable future trends.
Money management:
To accomplish your goal effectively you need to manage your money. There's no other way. You can win 80% of the time and still, if you don't have a good money management strategy, you won't make it.
However, if you take the time to think about your trading decisions. Including entering the trade, exiting the trade and managing it while in execution. You'll find yourself capable of generating a descent return on investment. Sometimes even while wining only 40% of the trades you take.
Risk management:
Are you the type of person that goes to Vegas, plays it all in one night and goes back broke the second day. Because, that's a person with no risk management.
You need to learn the know-how that will allow you to identify your risk and to plan your trades accordingly in order to stay in the game as long as it is viably possible.
If you're interested to know more about risk management and practical ways to implement it in your trading strategy, check out this article: Risk Management in trading: It’s about time!
Each section should be considered with the same degree of importance as the others in order to develop a strong and profitable strategy that will endure the test of time.
Nothing can replace the importance of doing your own research. Including what you found here. It's educational material to help you have some insights or clarify any ambiguities that you might have and nothing more. It should not be taking as financial advice. You are responsible for all the trading decisions that you make. So, please be careful and trade safely.
