How to Trade Like a BOSS
Mar 17, 2018
There it is... wokka wokka wokka... getting closer... wokka wokka wokka... That damn helicopter.. Why! Why are they just barely moving?? AUGH! Making me crazy! ok... starting to pull away now... wokka wokka... almost gone... finally.. back to silence. I pop a zanny and let its chemical serenity wash away that burning ball of angst in my chest...
This could be you. This is what a lifetime of intense stress can do to you. For those of us that love the chase, the highs and lows, even the suffering because it feels so good, there is little escape from your worst enemy: you.
These days, I'm a hodler. Why? Because my most valuable asset is a low-stress life. I've worked very hard to get here, it's been a long journey. Even still, I have to keep on top of my stress levels because I go from 0 to 10 in a matter of seconds; a result of a lifetime of beating back stress until there was nothing left to beat back with. Now I'm living like a hermit in a soundproof cave, keeping the noisy world at arms length. I don't drive, I can't really, I'll end up axe-murdering someone eventually. I shop when a store first opens to avoid the crowds. I have my group of friends, but I really enjoy my alone time. Give me... silence.
I still need money though, and without a doubt, hodling is the stress-free way to make money, assuming you have time on your hands and adequate capital. It's slow and unexciting for the most part, but if you did your homework, you can easily make more money this way than working like a shmuck for the rest of your life.
Still, there's a little devil guy on your shoulder saying, "But there's so much more to be made if we'd actively trade!" The little angel guy on your other shoulder says, "Don't do it, you don't know what you're doing!". The devil tells you, "But how hard can it be? Buy low, sell high! A fucking child can do it!". The angel says, "But how do you know where the lows and highs are?? It's just too risky!".
The devil walks over to the angel's shoulder and says, "We got this bud, now piss off ok?". The angel laughs, "Ya, you got it alright.. like when you tried to race that unmarked police car; real genius; I feel safer already". Devil replies, "You can keep bringing that up all you want, but I'm the only one with BALLS enough to take the risks that's going to change our lives forever!". Angel, "No, you're going to gamble away all our GODDAM MONEY, and I'm just not hearing any more of your NONSENSE!" Before Angel even blinks, THUNNGH!! His last vision was the sight of three red prongs protruding out of his chest. He drops to his knees. Devil yells, "Can you hear THIS, GENIUS!!? HUH!!? How's your hearing NOW DICKHEAD!!? That's what I THOUGHT!"
So you've decided to actively trade. Ok, what's your strategy going to be? Is it as simple (stupid) as buy low sell high? Well before you proceed with this approach, tell me, what is my favorite number? Nope, not 10. Not 42. Not a million. It's 1 stupid. You couldn't even guess my favorite number, and it's the FIRST NUMBER!
Guessing doesn't work, but still, many stupid people 'guess' what's going to happen next, and then put their money on the line, and usually lose it. This is the worst strategy ever, but it's the most popular strategy by far, and the whales love, nay, DEPEND upon these suckers for sustenance.
DON'T FEED THE WHALES!!
Then there's the crystal ball of investing, Technical Analysis (the other TA). Lots of more 'advanced' people try to leverage all forms of TA to take some of the guesswork out of investing. Sure, they'll be right sometimes, and will proudly display the numerous TA charts they've created to forge these predictions with, but statistically, you will lose more than you win, because the losses tend to be exaggerated when fees and stop losses are part of the equation. It's taken me a long time to figure out the exact efficacy of charting and TA; it approaches zero if you're not using bots, because you're competing with bots; end of story.
So how is it possible to get an advantage over the rest of the suckers? How do investment firms, hedge funds, etc. all seem to have a secret that makes them profitable? A few reasons:
They are large enough to induce their desired price movements (whales) so the market becomes predictable for them
They have insider information
None of these methods are perfect, but over time with multiple iterations, they can provide statistically consistent returns. How does this apply to you? Well, forget about influencing the market, or even trying to get insider information. All you have is #3, hedging.
All professional traders have one thing in common, more money than you. Why? Because they understand what it means to hedge. Hedging is so powerful that the entire 'hedge fund' industry has sprung up to capitalize on this technique. The concept is simple, but the many forms of execution can be very complex; yet it doesn't have to be. I'm going to show you just one example of hedging that you can start using today.
Before I begin, I've been avoiding writing this article because there's always some bonehead out there that screws it up, loses their money, and is looking to blame someone else (me). So, I present this method solely for educational purposes alone, and if you choose to use it, you take all the risks and blame upon yourself. I didn't force your hand, I didn't guarantee anything, it's not flawless by any means, and I certainly didn't charge you anything for this information so no refunds.
Now I'll begin.
Here I go.
I can almost see you falling out of your chair, lol.
Alright, for real, here we go.
There's very few things that are consistent in the crypto space, but if we were forced to identify something, ANYTHING, that's is consistent, what would that be? Ding! It's the fact that all the major cryptos pretty much move in lockstep! Now why is that? Well, whales diversify their massive holdings over multiple coins in order to have better overall fluidity in and out of their overall positions, and this means when they buy or sell, they buy or sell ALL the cryptos at the same time. Hence, all the cryptos move together.
How does that help us? It gives us a platform for hedging. The basic trick is half your funds are 'long' on your desired coin that you honestly believe is going to the moon some day soon because it's just the most incredible coin (let's use XRP as an example). The OTHER half of your funds are going to be applied 'short' against the "market" (I'll get to that).
Let me explain shorting. When you buy a coin from an exchange, you are going 'long' on that coin, meaning you hope the price increases. Now instead of buying coins to hold, imagine you instead SELL coins that you don't even have! Freaky huh? This is called shorting. Lots of exchanges offer shorting (do your own search, each exchange has their own method for shorting, not always easy neither). It's the wackiest, most counter-intuitive thing but it's the magic sauce that makes most of professional trading possible.
To execute a short trade, you simply go to an exchange that allows shorting, and you 'sell' coins that you don't own (it's actually lent to you by the exchange, but those finer details aren't needed here). You receive the money for that sale, but it's countered by the debt of owing those coins you borrowed, net zero. Here's the best part though, if the market value of those coins drop in price, say 50% for example, then you can buy back those coins you owe, for half the price, and get to keep the rest! That means you made 50% net profit. Imagine, you're making money because the price went down!
So by themselves, long trading and short trading, are no less or more risky than each other, but by using these types of trades in "combination", you can achieve something much more. A simple example would be to place 50% of your cash long on XRP, and 50% of your cash short on XRP. Then if XRP goes in either direction, the profits of one position offset the losses of the other; essentially locking in your current value!
Now you may say, well what good does that do over just selling the damn thing and sitting all in cash? Isn't that the same thing? Yes, it would be in the example I created, but I wanted to highlight the function of one trade balancing out the other to stop all your losses (and gains for that matter). These are the "brakes" that lock your net worth in and protects it from all volatility.
Now for the golden egg. We've established that cryptos move reliably in lockstep, and we've also demonstrated how to apply the 'hedge' brakes to the volatility against your net worth. The final piece and overall objective is to pit your favorite coin against the 'market'. For the most part, XRP will move in whatever way Bitcoin does, and pretty much all the alts will do the same, in the same percentage.
At this time, BTC is a solid indicator of the overall crypto 'market', meaning that if BTC gains 10% for example, then most of the significant alt coins will also move up 10%; not always perfectly, but for the most part, BTC's movements usually determine how the other alts gain or lose. Thus, BTC is not just the BTC indicator, but it's a somewhat reliable representation of the entire market (thank you whales for being so stupidly predictable).
Therefore, if you expect XRP to experience another parabolic someday, you want to be positioned in XRP before that happens, but the sad part is the whales keep grinding the overall market down and you are watching your net worth being helplessly eroded while you wait for that parabolic. If you instead take 50% of your XRP and convert them to a SHORT BTC position, you have just applied the BRAKES!. With this setup, if the entire market drops, your XRP will lose value, but your short BTC gains it all back at the same time!
Yes, you will also not make any gains if the entire market moves up, because your short BTC will lose any of the gains your XRP has. Doesn't make sense? I get that. So let me put up a couple scenarios to highlight the point of this setup.
You do things the old way, you have a pile of XRP, you win some, you lose some; net zero. You're entire strategy depends upon XRP's perpetual climb in value in order for you to make any money. You can try exiting and re-entering XRP but that's just guessing, with no better odds than flipping a quarter. Statistically, without perpetual increasing XRP market value, you are stagnant, at best.
You are 50% long on XRP, and 50% short on BTC (percents always apply to cash equivalent). The market moves together in sync, and you miss out on 10% gains because your positions cancel each other out. Dammit, you didn't make a dime. The market moves down 40%. Woohoo! You didn't lose a dime. Your net worth is relatively safe, and you occasionally rebalance your holdings so that you're back to 50/50, shifting profits from your BTC shorts to purchase more long XRP. Then, after months of listening to other people's non-stop whining about how much money they've lost because BTC keeps dropping the whole market, XRP inexplicably blows through the roof! Your long XRP position doubles, your short BTC position is unchanged. Profit.
Sure, scenario 2 dilutes the XRP parabolics because you're only half in, but for the entire time between parabolics, you've been protected from overall market losses, meaning a lot more capital is working for you, probably compensating for only being half in. You may even be quick enough to catch a parabolic by getting out of the BTC shorts and dumping all in XRP long for the ride up, but generally, your goal is to capture your gains, not gamble them. When it starts getting scary high, put the brakes on by going 50% long and 50% short on XRP, locking in your net worth. This is preferable to cashing out because you'll be positioned to only trade half your net worth instead of the whole thing on the next step, making it quicker to maneuver.
And finally, wait until XRP corrects down fully to its new plateau (might take days), and when it seems to have locked back into BTC's movements, take out your 50% XRP short and move it into BTC short. Your cycle is reset, you are now 50% long XRP, 50% short BTC, waiting for the next parabolic. Put pencil to paper and follow each step so you really understand where things are moving.
Also, very important. Some exchanges won't allow you to hold both long and short on the same coin, so either find an exchange that does, or use two different exchanges. I know I know, it's not the easiest thing to pull off, but it's a lot easier than working 9 to 5. At least I left out the part where you had to do all this standing on your head.
Using this approach, we are no longer playing for perpetual rise in price, we are now playing for XRP breakouts relative to the market, all the while being protected from overall market losses. In simplest terms, hedging turns the cycle of win-lose-win-lose (net zero), into half-win, no-loss, half-win, no-loss (positive net growth), for the same market conditions. You wouldn't use this strategy in a 'rising' market, only an uncertain or sinking market, which tends to be the most common. Also very important, try to remember that this strategy only works as long as BTC represents the entire market. Once BTC loses that driving role, then you'll need to diversity your shorts onto other coins that average out to the general market movements that XRP follows.
Nothing about what I've laid out here will reduce the INCREDIBLE stress associated with constantly trading. Ask yourself before you try to actively trade if you really want to chip away at your ability to cope with constant stress, or even to be able to cope with normal life! Every trade, every loss, every missed night of sleep, takes another chunk out of your humanity. You will cuss uncontrollably, yell at your kids, stare down your dog till she looks away; you will become a monster.
...wokka wokka wokka...
Sons of bitches.
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