After experiencing ten years of ups and downs in the cryptocurrency market, I have made substantial gains during bull markets and fallen to the depths twice, nearly facing financial collapse. Now, I can live off trading cryptocurrencies. This journey has not been easy, all due to perseverance!
The cryptocurrency market is a battlefield where opportunities and risks coexist; some people become rich overnight, while more lose everything. To win in this game, one must strictly adhere to the rules and stay clear-headed.
Always remember the 'three don'ts' in the cryptocurrency market:
Do not use high leverage (contracts are a game for professional players; ordinary people playing equals suicide).
Do not AIl-in + one coin (BTC + ETH occupying more than 50% of the position, remaining allocation depending on personal risk preference).
(The volatility is too great, and the mindset can collapse) The most important thing in investment is to establish your own stable profit system and then make it big and strong without borrowing money.
These four major 'bankruptcy shortcuts' are the ultimate nightmare for speculators. Many people only realize what 'comes quickly, goes even faster' means after falling into these traps. The instructor breaks down the logic and lessons behind these fatal 'shortcuts':
1. Chase rising prices and cut losses: emotion-driven, addicted to cutting losses.
Human weaknesses are laid bare in the market. When prices soar rapidly, everyone rushes in, fearing to miss the 'last bus', resulting in buying at a high point; once the market falls, they cannot bear the paper losses and irrationally sell out, becoming the 'bag holders' at the low point.
Fatal points:
Emotion-driven, losing rational judgment.
In market fluctuations, retail investors are often the last to receive information; chasing rising prices and cutting losses essentially means sending oneself to slaughter.
Response:
Avoid blindly following the trend; always remember: the market can rise quickly and fall even harder.
Set reasonable take-profit and stop-loss levels, plan buying and selling strategies, and stick to execution.
2. Futures leverage: Doubling quickly, but liquidation is even faster.
Futures leverage amplifies profits, but also amplifies risks. If the directional judgment is wrong and the market reverses, account funds can be instantly 'liquidated'. Even more frightening is that losses may exceed the principal.
Fatal points:
Leverage is a double-edged sword, especially in high-volatility markets where it is easy to flip.
An imbalanced mindset leads to increasing losses and gambling, ultimately exhausting oneself in a cycle of 'increasing positions - liquidation'. Response:
Learn to control positions; do not fully invest or leverage to extremes.
If you do not have rich trading experience and strict risk control awareness, try to stay away from futures.
3. Financing and cryptocurrency: Borrowing to lay eggs can lead to losing the principal.
Investing with borrowed money may seem like a good way to 'amplify profits', but in essence, it's using others' knives to cut your own flesh. If the market does not meet expectations, the dual blow of financing costs and principal losses leads one into the abyss.
Fatal points:
Fund leverage ruthlessly amplifies losses.
Borrowing money for investment creates a significant psychological burden, making it easier to make irrational decisions.
Response:
Investing must use spare money, avoiding using borrowed funds for operations.
If financing is used for speculative operations, it is basically equivalent to 'gambling'.
4. Short-term divine operation: A thought can lead to heaven, another can lead to hell.
Short-term trading may seem like 'high-frequency profit', but it actually tests technical skills and psychological quality. A slight misstep can lead to being spun around by the market's volatility. Most people do not find it hard to earn, but rather hard to hold onto what they've earned.
Fatal points:
High-frequency trading requires strong execution and discipline; emotional operations are deadly.
Accumulation of trading costs (fees, spreads, etc.) leads to net gains being swallowed. Response:
If you are not a professional trader, avoid frequent short-term operations.
Long-term investment is more suitable for ordinary people, as time is the best friend.
Summary
These four 'bankruptcy paths' are, without exception, amplifications of human nature: greed, fear, impatience for quick gains, and luck. The market cruelly educates us that the mindset of pursuing quick riches usually leads to faster bankruptcies.
The essence of investment lies in rationality, patience, and self-discipline. If you want to win the market long-term, you might as well remember one phrase:
"Less is more, stability is king." If you want to reach the peak of life, remember four principles: 1. Work diligently: A solid foundation leads to smaller storms. 2. Invest spare money: Money makes money, more diligent than people.
Growing assets through investment is an important means to achieve financial freedom.
Investment is about "managing expectations", not "pursuing quick profits".
Investing spare money can reduce psychological pressure and help you face market fluctuations more calmly.
Remember, the essence of investment is long-term optimization of life, not a gambling style of becoming rich quickly. 3. Long-term holding: Almost all real wealth in the world comes from the compound interest effect of time.
Life is not a sprint, but a long-term hold that tests patience, faith, and trend judgment. 4. Eat and sleep on time: In a marathon, only those who reach the finish line are winners.
The three major 'fatal points' of losses: 1. Trading system + discipline slackening: unable to control hands, random buying and selling, too many temptations outside the system. 2. Insufficient stop-loss execution: knowing you should stop-loss, yet always holding onto luck, ultimately turning small losses into large ones. 3. Emotional trading mischief: after losses, unwilling to accept, leading to revenge trading, resulting in even greater losses.
Solution: Establish and strictly execute your trading system!
1. Clearly define your trading system and make it "written down": Don't just think about it in your head; write your trading system down clearly. A complete trading system should include at least:
Trading target range: Do you only trade mainstream coins? Or do you also pay attention to potential altcoins? Or do you only trade coins within the ETH ecosystem? Clearly define your trading range, narrow your choices, and focus on research.
Entry signal: What indicators do you use to determine the entry timing? Is it candlestick patterns (e.g., breakout patterns, reversal patterns)? A combination of technical indicators (e.g., MACD golden cross + moving average bullish alignment)? Or is it driven by fundamental events? Choose the entry signals you are familiar with and trust.
Stop-loss and take-profit strategies: Where do you set your stop-loss level? (For example: a certain percentage below the entry price, below key support levels). How do you set your take-profit target? (For example: fixed profit ratios, key resistance levels, technical indicators being overbought).
Position management rules: How much position do you invest in each trade? Is it a fixed position or adjusted based on risk? What is the maximum loss per single trade? Reasonable position management can effectively control risks. Trading time frame: Are you doing short-term, intraday trading, or medium to long-term swings? Different time frames have different trading strategies and focuses. 2. Create a "trading system checklist" and check each item before each trade: Turn your trading system into a checklist, and before preparing to trade, check each item as if a pilot checks a plane before takeoff. If it doesn’t meet your system requirements, absolutely do not trade! 3. Block out external noise and focus on opportunities within the system: In this information explosion era, various communities and KOLs' messages are overwhelming. Newcomers can easily be disturbed by various "insider news" and "get rich myths", shaking their trading systems. Learn to block out this noise and reduce unnecessary interference. Focus your energy on researching and seeking opportunities that meet your trading system's requirements, patiently waiting for your "prey".
4. Systematic recording of trading logs, regularly reviewing and optimizing: A good memory is not as good as a bad pen. Record every trade in detail including: trading currency, entry point, reason for entry (whether it meets the system), stop-loss and take-profit levels, trading results, and thoughts and emotions during the trading process. Regularly review the trading logs, analyze which trades met the system and which were 'arbitrary' trades outside the system. Continuously summarize experiences and optimize your trading system.
Stop-loss execution: the indispensable "safety airbag" In a highly volatile market like cryptocurrency, the importance of stop-loss cannot be overstated. A stop-loss is like a car's airbag; it might not be needed often, but once a collision occurs (market volatility), it can save your life and prevent significant losses. That friend has recognized the necessity of stop-loss and proposed the decisive stop-loss principle of 'exit when the position is reached', which is fantastic! But knowing is easy, doing is hard; in actual trading, many still find it difficult to execute stop-loss decisively, mainly due to the following psychological barriers:
Unwilling to accept losses: Human nature naturally detests losses. Stop-loss means admitting judgment errors and accepting losses, which is psychologically difficult to accept.
Luck mentality: always thinking the price will bounce back, waiting a bit longer might just break even. This mindset can lead you to procrastinate on stop-losses again and again, ultimately turning small losses into large ones, even leading to liquidation.
Solution: Overcome psychological barriers and mechanically execute stop-loss!
1. Pre-set stop-loss levels and clearly document them in the trading plan: Stop-loss is not a spur-of-the-moment decision, but something predetermined in the trading plan. Before opening a position, you should set stop-loss levels based on your trading system and risk tolerance, and document them in the trading plan.
2. Mechanically execute stop-loss like a robot, never letting emotions interfere: Once the price reaches the stop-loss level, execute the stop-loss without hesitation, like a robot. Do not look for any excuses, do not harbor any fantasies, do not intervene artificially. Remember, stop-loss is to protect the principal, avoid greater losses, and leave space for future profit opportunities.
3. Use tools to assist stop-loss: You can use the stop-loss function on trading platforms to set stop-loss orders in advance. Or set a phone alarm to remind yourself near key stop-loss levels.
4. Review stop-losses, positively reinforce stop-loss behavior: After each stop-loss, do not feel discouraged; review and analyze whether this stop-loss is reasonable. Was the stop-loss executed correctly? Summarize experiences and lessons. After each successful execution of a stop-loss, give yourself some positive psychological hints, such as 'I successfully protected the principal', 'I adhered to trading discipline', reinforcing the correctness of the stop-loss.
Emotional management: Taming the "wild horse of emotions". The cryptocurrency market trades 24 hours a day, with extreme price fluctuations that can easily lead to emotional ups and downs. Especially during consecutive losses, it is easier to fall into the emotional quagmire and make irrational trading decisions, such as revenge trading. That friend openly admitted to being influenced by revenge trading emotions, which is commendable. Many people know that revenge trading is wrong, but after losses, when emotions run high, they still find it hard to control themselves, resulting in even greater losses.
Solution: Identify emotional triggers and establish an emotional pause mechanism!
1. Identify your emotional triggers and prevent them in advance: Record the time, situation, and emotional state of each emotional trading occurrence, and find the 'triggers' that lead to your emotional loss of control.
For example: Is it easy for you to lose control of your emotions after consecutive losses? Does seeing others make money trigger your FOMO? Do extreme market fluctuations make you panic? Does long-term monitoring tire and irritate you? Understanding your emotional triggers can better prevent and respond to them.
2. Establish an "emotional pause mechanism" to force calm: When you feel emotional fluctuations, immediately recognize it and force yourself to pause trading. Step away from the computer screen and do some relaxing activities.
For example: deep breathing, meditation, exercise, walking, listening to music, reading, chatting with friends and family. Give yourself time to calm down and let emotions settle. Do not make any trading decisions when emotions are high.
In the trading plan, preemptively set response strategies for losses and emotional fluctuations. 3. Pre-set response strategies to prevent problems before they arise:
For example: if there are a certain number of consecutive losses, stop trading for a day or a week. If you feel emotionally agitated, take a forced break and do not make any trades. If you feel confused about the market, reduce your trading frequency, or even stay out of the market. Preparing a response plan in advance can help you follow a guideline when emotions arise, preventing panic.
4. Use small positions for trial and error to reduce emotional impact: If you really can't resist trading, try using an extremely small position for simulated trading, or small position live trading. This reduces trading risks and minimizes the emotional impact on funds. Summary and action guide. Professional trading, the road is long and obstructed. Losses are not terrible; what is terrible is repeatedly falling in the same place.
A calm surface may hide great waves beneath, reminding us to stay alert and not be deceived by surface calmness, and to keenly perceive potential risks in the cryptocurrency market.
