The cryptocurrency bubble has confused countless people, prompting them to invest without hesitation. Some even choose to quit their jobs, pouring all their assets into the cryptocurrency wave, then documenting their trading diaries online.
It is certain that those who start trading cryptocurrencies usually find it easy to profit, and this quick-money feeling makes it hard to stop, further stimulating their greed, hoping to earn more wealth.
However, even if the cryptocurrency bubble doesn't burst, speculators still face immense risk of loss. Now, let's take a look at the six most common 'methods of dying' for traders!
First type: Die from bottom fishing against the trend
The sharp drop in virtual currency prices often serves as a litmus test for traders' greed. Some traders eagerly see the market decline and impatiently choose to bottom fish against the trend, but they do not realize that the so-called bottom is not the end, but a bottomless pit.
The pit below may hide more uncertainties and risks, like an abyss. Once fallen into it, bottom fishers may find themselves trapped in endless dilemmas, buying in again and again, and repeatedly getting stuck.
It can be said that bottom fishing against the trend is one of the main reasons many traders incur losses. In a market that is clearly in a downward trend, some traders mistakenly believe that the price of virtual currencies has dropped to a level that attracts new speculators, hence expecting a rebound.
However, the reality is often that the more one tries to bottom fish, the more losses they incur, until overwhelmed. Not only are the previous profits wiped out, but the principal may also be completely consumed.
Taking the volatility of Bitcoin in 2013 as an example, it skyrocketed from a few dozen dollars to about $1,000, then plummeted to just over $100. This roller coaster market led countless traders to bankruptcy.
The bottom-fishing strategy can only succeed in a fluctuating or upward market, while at other times, such behavior is usually a shortcut to a dead end. This emphasizes the importance of trading with the trend; correct trend-following can lead to multiple successes in fluctuations, while counter-trend trading, even if correct many times, can lead to irretrievable losses if one mistake is made.
Second type: Die from increasing leverage
In the cryptocurrency bubble, some traders tasted success and yearned to increase their investments for more profits. However, lacking extra funds, they began to consider borrowing money or financing to trade cryptocurrencies, thus increasing leverage.
Currently, the common leverage ratio is 5 to 10 times, which means traders can borrow more funds for investment with limited principal.
Taking 5x leverage as an example, if the principal is 300,000 yuan, traders can borrow 1.2 million yuan and then buy virtual currencies with full margin. Regardless of whether the price of virtual currency goes up or down, profits or losses will be magnified by 5 times.
Specifically, if the price of virtual currency rises by 10%, then the trader's profit is 50%; conversely, losses will also be magnified by 5 times. This means that as soon as a trader's losses reach 20% of their principal, a liquidation will occur, and both the principal and borrowed funds will be wiped out.
Generally, traders do not start with high leverage but begin with a smaller leverage ratio. However, repeatedly making money can gradually relax their vigilance against risk, leading them to blindly believe that virtual currencies will only rise and not fall, eventually resulting in total loss.
Taking the period from 2017 to 2018 as an example, Bitcoin constantly broke through significant price points, reaching a peak of $18,000, and many people increased their leverage during this process, hoping that the price of Bitcoin would rise further to $30,000.
However, Bitcoin ultimately fell from $18,000 to about $10,000, and leveraged traders faced severe losses. In short, this behavior is about seeing some traders become rich overnight and then chasing short-term profits, only to bet incorrectly.
Third type: Die from candlestick charts
Cryptocurrency trading uses candlestick charts. Although the knowledge in this area originates from the stock and futures markets, the candlestick charts for virtual currencies cannot be entirely applied to the experiences of these markets. Due to various uncertainties, relying solely on charts for cryptocurrency trading can lead to severe losses.
For example, in 2013 and 2017, the Chinese government cracked down on virtual currencies, causing prices to plummet; in 2017, the South Korean government also took action against virtual currencies, similarly leading to significant price drops.
In short, virtual currencies cannot obtain formal recognition from central banks in various countries, and the lack of legal identity makes them vulnerable to various policy shocks. These shocks cannot be predicted in advance through candlestick charts, making it difficult to avoid risks. Additionally, illegal activities like market manipulation exist in cryptocurrency trading.
In regulated stock and futures markets, such behavior is explicitly prohibited and monitored. However, cryptocurrency trading is in a relatively wild stage, with various dangers rampant, and the role of candlestick charts is relatively small in this environment, possibly becoming a tool used by dangers to bait traders.
Fourth type: Die from chasing highs and cutting losses
Due to the instability of candlestick charts and the lack of other more reliable buying and selling methods, the vast majority of traders tend to adopt strategies of chasing highs and cutting losses. It is well known that chasing highs and cutting losses may bring substantial profits in the short term, but in the long run, the probability of loss is greater.
In the stock market, the probability of long-term profitability is about 10%, including some value investors. In the futures market, the probability drops to 1%. In contrast, trading virtual currencies is even more difficult.
Although many traders currently claim to have made certain profits, whether the proportion that can sustain profitability will exceed 1% is a high probability issue. Most cryptocurrency traders may ultimately lose money in the market.
Moreover, although some individuals realize the instability of chasing highs and cutting losses 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 inconsistencies between actual operations and rational expectations.
Only a very small number of people can overcome this nature and conquer greed and fear. However, most people cycle through their mistakes repeatedly, akin to a goldfish's 7-second memory, making real change difficult.
Fifth type: Die from not stopping loss
For some traders, they firmly believe that no matter how much the price of virtual currency plunges, it will ultimately rebound. They hold onto the belief of not selling, even claiming they won’t sell even if they die, remaining calm in the face of any drop, believing that miracles always exist.
However, for certain virtual currencies, refusing to sell even when dead may indeed lead to heavy losses. Take Zhonghua Coin as an example, which once fell from a peak of 35 yuan to 0.5 yuan, followed by a collapse and being investigated for pyramid schemes, resulting in the disappearance of 260 million yuan in funds. This can be said to be one of the most tragic ways for traders to die.
Easily deceived traders mainly fall into two categories: one is newcomers who, due to ignorance, are unaware of the brutal nature of this method of dying, leading to their funds being inexplicably consumed;
Another category consists of seasoned traders who have been in the trading circle for a while, have experienced multiple trades, and generally have made some profits.
For virtual currencies, extreme rises and falls have become commonplace, and some even view sharp declines as opportunities, becoming bolder, yet failing to realize the multitude of virtual currencies and the risks of encountering liquidation or collapse.
Many tokens have experienced liquidation due to policy crackdowns, resulting in a sharp decline from previous gains.
Sixth type: Die from high-frequency trading
Many cryptocurrency traders are keen on high-frequency trading, frequently buying and selling to pursue considerable profits through price differences. However, the results often lead to continuous losses.
Why does this happen? Theoretically, earning 1% on each trade means that as long as you successfully make a profit once a day, the daily return rate is 1%.
In one year, this could yield a profit of 365% or even more. If the compounding effect is considered, that number is even more staggering. However, in reality, achieving the goal of successfully trading once a day seems simple, but it is an extremely difficult task.
This is because cryptocurrency prices are highly volatile, making accurate predictions difficult for short-term trading, and high-frequency trading leads to a decrease in success rates.
A decrease in success rate leads to more losses, and increased losses affect traders' mindsets. A deteriorating mindset then further leads to more and larger losses, forming a vicious cycle.
For instance, 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 virtual currencies is similar.
Additionally, high-frequency trading can lead to more transaction fees, and the actual money earned may not cover these fees, which is a common problem.
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