Making money requires at least 60% discipline and 40% cognitive level; in extreme cases, discipline can account for 100%. What about luck?
I believe there is none. Why? You should think for yourself.
Bull markets must be approached with caution! The cryptocurrency bubble has deceived countless people, leading them to invest without hesitation. Some even choose to quit their jobs, pouring all their savings into the cryptocurrency wave, then recording their trading diaries online.
It is certain that those who start trading cryptocurrencies often find it easy to profit, and this quick money-making feeling is addictive, further igniting their greed, hoping to earn more wealth. However, even if the cryptocurrency bubble does not burst, speculators still face significant risks of loss.
Next, let's take a look at the seven most common 'ways to die' for cryptocurrency traders!
First type: Died from contrarian buying.
The sharp decline in cryptocurrency prices often becomes a litmus test for traders' greed. Some traders joyously see the market drop, impatiently choosing to catch the bottom against the trend, yet they do not realize that the so-called bottom is not the end, but rather a bottomless pit.
This pit may hide even more uncertainties and risks, like an endless abyss; once they fall into it, the bottom catchers may find themselves in an endless dilemma, buying in again and again, repeatedly being trapped.
It can be said that contrarian buying is one of the main reasons why many cryptocurrency traders incur losses. In a clear downward trend, some traders mistakenly believe that the cryptocurrency prices have dropped to a level that attracts new speculators, thus expecting a rebound.
However, the reality is often that the more one tries to catch the bottom, the more losses they incur until they can no longer bear it; not only are the previously earned profits wiped out, but the capital can also be completely exhausted. Taking the fluctuations of Bitcoin in 2013 as an example, it soared from dozens of dollars to about $1,000, then plummeted to over $100. This roller-coaster market led countless traders to bankruptcy. The strategy of catching the bottom can only succeed in a fluctuating or upward-retracting market; at other times, such behavior is usually a shortcut to ruin.
This is exactly what we often talk about regarding the importance of operating in accordance with the trend; correct trend-following operations can succeed multiple times during fluctuations, while contrarian operations, even if they are right countless times, may face irreparable losses with just one mistake.
Second type: Died from leveraging.
In the cryptocurrency bubble, some traders tasted the sweetness and were eager to increase their investments to earn more profits. However, lacking extra funds, they began to consider borrowing money or financing to trade cryptocurrencies, thus increasing their leverage.
Currently, the common leverage rate is 5 to 10 times, meaning traders can borrow more funds to invest using limited capital. Taking 5 times leverage as an example, if the capital is 300,000 yuan, the trader can borrow 1.2 million yuan and then purchase virtual currencies with full margin. Whether the price of virtual currency rises or falls, it will amplify profits or losses by five times. Specifically, if the price of virtual currency rises by 10%, the trader's profit is 50%; conversely, losses will also be amplified by five times. This means that as long as the trader's loss reaches 20% of the capital, a liquidation will occur, and both the capital and borrowed funds will be wiped out.
In general, cryptocurrency traders do not start with high leverage, but begin with smaller leverage ratios. However, making money repeatedly can gradually relax their vigilance against risk, leading them to blindly believe that virtual currencies will only rise and not fall, ultimately resulting in total loss. For example, from 2017 to 2018, Bitcoin continuously broke through important price thresholds, reaching a peak of $18,000, and many people increased their leverage during this process, hoping that Bitcoin's price would further rise to $30,000.
However, Bitcoin ultimately fell from $18,000 to about $10,000, and traders using leverage suffered heavy losses. In short, this behavior is seeing some traders become overnight millionaires and then chasing short-term profits, only to bet in the wrong direction.
Third type: Died from candlestick charts.
Cryptocurrency trading uses candlestick charts, and although this knowledge comes from the stock and futures markets, the candlestick charts for virtual currencies cannot be fully applied with the experiences from the stock and futures markets. Due to various uncertainties, relying solely on charts for cryptocurrency trading may lead to serious losses.
For instance, in 2013 and 2017, the Chinese government cracked down on virtual currencies, leading to a sharp decline in prices; in 2017, the South Korean government also took action against virtual currencies, similarly triggering a significant drop in prices.
In short, virtual currencies cannot obtain formal recognition from central banks around the world, and the lack of a legal identity makes them susceptible to various policy shocks. These shocks cannot be predicted in advance through candlestick charts, making it difficult to avoid risks. In addition, illegal activities such as price manipulation and market making exist in cryptocurrency trading.
In the formal stock and futures markets, such behavior is explicitly prohibited and regulated. However, cryptocurrency trading is in a relatively wild era, with all kinds of demons rampant; the role of candlestick charts in this environment is relatively small and can potentially become a tool used by these demons to lure traders.
Fourth type: Died from chasing highs and selling lows.
Due to the instability of candlestick charts and the lack of other more reliable trading methods, the vast majority of traders tend to adopt the strategy of chasing highs and selling lows. It is well-known that chasing highs and selling lows may yield substantial profits in the short term, but in the long run, the probability of losses is greater.
In the cryptocurrency market, the probability of long-term profitability is about 10%, which even includes some value investors. In the futures market, the probability of long-term profitability drops to 1%. In comparison, trading virtual currencies is more difficult. Although many traders currently claim to have achieved certain gains, whether the proportion of those who can sustain profits will exceed 1% is a significant question, and most cryptocurrency traders may ultimately incur losses in the market.
Additionally, although some people realize the instability of chasing highs and selling lows and wish to hold virtual currencies for the long term, human nature is inherently greedy and fearful. They feel fear towards falling prices and greed towards rising prices, leading to a discrepancy between actual operations and rational expectations.
Only a very few people can overcome this nature and conquer greed and fear. However, most people repeat their mistakes in a cycle, just like a goldfish with a 7-second memory, making it difficult to truly change.
Fifth type: Died from not cutting losses.
For some traders, they firmly believe that no matter how much virtual currency prices drop, they will eventually rebound. They adhere to the belief of holding and not selling, even claiming they wouldn't sell even if they died, maintaining calm in the face of any crash, believing that miracles will always exist.
However, for certain cryptocurrencies, refusing to sell even at a loss can truly lead to significant losses. Take Zhonghua Coin as an example, which fell from a high of 35 yuan all the way down to 0.5 yuan, then collapsed and was suspected of being involved in a pyramid scheme, with 260 million yuan in funds evaporating. It can be said that this is one of the most brutal ways for cryptocurrency traders to lose their money.
Traders who are easily caught up can be broadly divided into two categories: one is those who have just started trading cryptocurrencies, as ignorance breeds fearlessness, completely unaware of the brutal nature of this way of losing, leading to their funds being inexplicably drained; the other is veterans who have been in the trading circle for a while and have experienced multiple trades, overall achieving some profits.
For the volatility of virtual currency, traders have become accustomed to it, even viewing crashes as opportunities, becoming bolder, yet not realizing the diversity of cryptocurrencies, where carelessness could lead to liquidation and collapse. Many tokens have experienced liquidation due to policy crackdowns, causing previous surges to plummet.
Sixth type: Died from high-frequency trading +
Many traders are keen on high-frequency trading, frequently buying and selling, aiming to obtain considerable profits through price differences. However, the end result is often continuous losses. Why does this happen? Theoretically, earning 1% on each trade, as long as there is a final successful trade every day, the daily yield would be 1%.
Within a year, this could yield a profit of 365% or more; when compounded, the number is even more staggering.
However, in reality, achieving the goal of successfully trading once a day seems simple, but the actual operation is an extremely difficult task.
This is because the price of virtual currencies fluctuates greatly, making accurate predictions difficult for short-term trading; high-frequency trading leads to a decrease in success rate. The reduced success rate leads to more losses, which then affects the trader's mindset; a deteriorating mindset further leads to more and larger losses, creating a vicious cycle.
For example, imagine the consequences of frequently changing lanes on a highway; almost everyone knows that such behavior will eventually lead to trouble. The principle of high-frequency trading in cryptocurrencies is similar. Additionally, high-frequency trading generates more transaction fees, and the actual profits made may not cover these fees; this is a common issue.
Seventh type: Died from blind following.
Many traders lack a deep understanding of virtual currencies; they come hastily just hearing that money can be made. After getting involved, they often blindly worship some influential figures' statements, such as Bitcoin eventually becoming fiat currency, the limited supply of virtual currencies will not devalue, and the future of the 21st century belongs to virtual currencies. This viewpoint is widely present on social media platforms like Weibo, Xiaohongshu, and Zhihu, forming some ‘spiritual leaders’ who promote cryptocurrency trading.
Many people believed it, some even quit their jobs to trade cryptocurrencies, and some even sold their homes and borrowed money to invest. However, the end result was that they didn't make any money, and their jobs and careers were wasted. For example, the famous figure in the cryptocurrency circle, Li Xiaolai, once promoted the token EOS, helping it raise $185 million in just five days. However, later EOS released a statement clarifying its relationship with Li Xiaolai, denying him as a co-founder or director of the project, which was shocking.
Many cryptocurrencies claim to enhance their own value by bringing in influential figures, leading traders to mistakenly believe that the technology of the virtual currency is solid, has broad prospects, and will experience explosive growth. For the fictitious recommendations from influential figures and the blind faith in the promising future of newly hyped virtual currencies, this is often just a prelude to death.
This is the trading experience the captain shared with you today. Many times, your doubts cause you to lose many opportunities to make money. If you do not dare to boldly try, to engage and understand, how can you know the pros and cons? You will only know what to do next after taking the first step. A cup of warm tea, a piece of advice, I am both a teacher and a friend you can talk to.
Acquaintance is fate, and knowing each other is a bond. The captain firmly believes that fate will eventually lead to acquaintance, and those who miss each other are destined by heaven. The road of investment is long, and temporary gains and losses are just the tip of the iceberg. One must know that even the wisest can make mistakes, while the foolish may find gains amidst their mistakes. Regardless of emotions, time will not stop for you. Lift the burdens in your heart, stand up again, and move forward.
