The cryptocurrency bubble has confused countless people, leading them to invest without hesitation. Some even choose to quit their jobs, investing all their savings into the cryptocurrency wave, then documenting their trading diaries online.
It is certain that those who begin participating in cryptocurrency trading typically find it easy to make profits, and this rapid profit-making feeling makes it hard to stop, further igniting their greed and hopes to earn more wealth. However, even if the cryptocurrency bubble does not burst, speculators face significant loss risks. Now, let's look at the seven most common 'ways to die' for cryptocurrency traders!
The first type: dies from bottom-fishing against the trend.
The sharp decline in cryptocurrency prices often becomes a litmus test for traders' greed. Some traders, excited to see the market drop, impatiently choose to bottom-fish against the trend, not realizing that the so-called bottom is not the endpoint but a bottomless pit.
There may be more uncertainties and risks hidden beneath this pit, like an endless abyss; once one falls in, bottom-fishers may find themselves in an endless predicament, buying in again and again, repeatedly getting trapped.
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 trending downwards, some traders mistakenly believe that cryptocurrency prices have become low enough to attract new speculators, and thus should rebound.
However, the reality is often that the more one bottom-fishes, the more one loses until it becomes unbearable; not only is the profit previously earned completely lost, but the principal may also be entirely eroded.
Taking the volatility of Bitcoin in 2013 as an example, it skyrocketed from dozens of dollars to about 1,000 dollars, then plummeted to over 100 dollars. This roller-coaster market left countless traders bankrupt.
The bottom-fishing strategy only has a chance of success in a fluctuating or upward retracement market; at other times, such behavior is usually a shortcut to a dead end. This is exactly the importance of trend-following operations we often mention; correct trend-following can achieve multiple successes in fluctuations, while counter-trend operations, even if done correctly countless times, can lead to irretrievable losses if done wrong just once.
The second type: dies from leveraging.
In the cryptocurrency bubble, some traders have tasted sweet rewards and eagerly seek to increase their investments to earn more profits. However, lacking excess funds, they begin to consider borrowing money or financing to trade cryptocurrencies, thus increasing leverage.
Currently, the common leverage ratio is 5-10 times, meaning traders can borrow more funds to invest with limited capital. For example, with 5 times leverage, if the principal is 300,000 yuan, traders can borrow 1.2 million yuan and then invest fully in cryptocurrencies. Regardless of whether the cryptocurrency price rises or falls, it will amplify profits or losses by 5 times. Specifically, if the cryptocurrency price rises by 10%, then the trader's profit will be 50%; conversely, the loss will also be amplified by 5 times. This means that as long as the trader's losses reach 20% of the principal, 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 lower leverage rate. However, earning money repeatedly can lead them to gradually relax their vigilance against risks, blindly believing that cryptocurrencies will only rise and not fall, ultimately causing them to lose everything. For example, from 2017 to 2018, Bitcoin continuously broke through significant price levels, reaching a peak of 18,000 dollars, and many people increased their leverage during this process, hoping the price would rise further to 30,000 dollars.
However, Bitcoin eventually dropped from 18,000 dollars to around 10,000 dollars, and leveraged traders faced liquidation, encountering painful losses. In short, this behavior is akin to seeing some traders becoming wealthy overnight and then chasing short-term profits, only to bet on the wrong direction.
The third type: dies from candlestick charts.
Cryptocurrency trading uses candlestick charts. Although this knowledge originates from the stock and futures markets, the candlestick charts for cryptocurrencies cannot be completely applied to the experiences of the stock and futures markets. Due to various uncertainties, relying solely on charts for trading cryptocurrencies may lead to severe losses.
For instance, in 2013 and 2017, the Chinese government cracked down on cryptocurrencies, leading to a sharp decline in prices; in 2017, the South Korean government also took action to suppress cryptocurrencies, similarly triggering significant price drops.
In short, cryptocurrencies cannot obtain formal recognition from central banks in various countries, and their lack of legal status makes them susceptible to various policy shocks. These shocks cannot be predicted in advance through candlestick charts, making it difficult to avoid falling into risks. Additionally, there are illegal activities such as market manipulation and price manipulation in cryptocurrency trading.
In regulated stock and futures markets, such behaviors are explicitly prohibited and monitored. However, cryptocurrency trading is in a relatively chaotic era, with various evils rampant; the role of candlestick charts in such an environment is relatively small and may even become a tool used by evildoers to bait traders.
The fourth type: dies from chasing highs and selling lows.
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 the strategy of chasing highs and selling lows. It is well-known that chasing highs and selling lows may bring substantial profits in the short term, but in the long run, the probability of losses is higher.
In the stock market, the probability of making a profit over the long term is about 10%, which even includes some value investors. In the futures market, the long-term profit probability drops to 1%. In comparison, the difficulty of trading cryptocurrencies is even higher. Although many cryptocurrency traders currently claim to have achieved certain profits, whether the proportion able to sustain profits will exceed 1% is a significant probability issue; most traders may ultimately incur losses in the market.
Moreover, while some people realize the instability of chasing highs and selling lows and wish to hold cryptocurrencies long-term, human nature inherently carries greed and fear. They feel fear towards falling prices and greed towards rising prices, leading to inconsistency between actual operations and rational expectations.
Only a very few can overcome this nature and conquer greed and fear. However, most people cycle through their mistakes repeatedly, much like a goldfish with a seven-second memory, finding it difficult to truly change.
The fifth type: dies from not stopping losses.
For some traders, they firmly believe that no matter how much the price of cryptocurrencies plummets, it will eventually rebound. They adhere to the belief of holding and not selling, even claiming they would not sell even if they died, remaining calm in the face of any drop, believing that miracles always exist.
However, for certain cryptocurrencies, refusing to sell even when it plummets may indeed lead to significant losses. Take the Zhonghua Coin as an example, which once dropped from a peak of 35 yuan to 0.5 yuan, subsequently crashing and being investigated for alleged pyramid schemes, resulting in 260 million yuan disappearing. It can be said that this is one of the most tragic ways for cryptocurrency traders to die.
Traders who are easily caught are mainly divided into two categories: one is those who have just come into contact with trading, as the ignorant are fearless, completely unaware of the cruelty of this way of dying, leading to their funds being inexplicably consumed; the other is veterans, who have been in the trading circle for a while, experiencing multiple transactions and generally achieving some profits.
For cryptocurrencies, the extreme fluctuations have become commonplace, and some even view sharp drops as opportunities, becoming bolder without realizing that there are many types of cryptocurrencies; a careless mistake may lead to situations like liquidation and crashes. Many tokens have experienced liquidation due to policy crackdowns, resulting in a dramatic drop in previous upward momentum.
The sixth type: dies from high-frequency trading.
Many traders are enthusiastic about high-frequency trading, engaging in frequent buying and selling operations, pursuing considerable profits through price differentials. However, the end result is often continuous losses. Why does this happen? Theoretically, earning 1% on each trade means that as long as one ensures a successful trade once a day, the daily yield rate would be 1%.
In one year, this can 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 the actual operation is an extremely challenging task.
This is because cryptocurrency prices fluctuate greatly, making it difficult to predict short-term trades accurately; high-frequency trading leads to a decrease in success rates. The decline in success rates results in more losses, increased losses affect traders' mindsets, and deteriorating mindsets further lead to more and larger losses, forming 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 problems. The principle of high-frequency trading in cryptocurrencies is similar. Moreover, high-frequency trading generates more transaction fees, and the actual profits may not cover these fees, which is a common issue.
The seventh type: dies from blindly following the trend.
Many traders lack a deep understanding of cryptocurrencies; they hurriedly enter the market just because they heard there is money to be made. Upon contact, they often blindly worship the statements of some influencers, such as Bitcoin ultimately becoming a fiat currency, the limited supply of cryptocurrencies will not depreciate, and the 21st century belongs to cryptocurrencies, etc. This viewpoint is widely present on social media platforms like Weibo, Xueqiu, and Zhihu, forming some revered 'spiritual leaders' for cryptocurrency trading.
Many people believed it, some even resigned to trade, and some even sold their houses and borrowed money to trade cryptocurrencies. However, the ultimate result was that they didn't make money, and their jobs were wasted.
And careers are wasted.
Take the well-known figure in the cryptocurrency circle, Li Xiaolai, as an example. He once promoted the token EOS, helping it raise 185 million dollars in just five days. However, EOS later issued a statement clarifying its relationship with Li Xiaolai, denying that he was a co-founder or director of the project, which was shocking. Many cryptocurrencies seek out prominent figures to endorse them to mislead traders into believing that the technology is solid, has a broad market, and will experience skyrocketing prices. The blind faith in the recommendations from fictitious influencers and the supposed limitless future of emerging cryptocurrencies usually only precedes death.
Mountains do not stand on preferences, hence they can reach their heights; rivers and seas do not select small streams, hence they can become rich. In the cryptocurrency circle, one must be learned and then introspective to become a master.
Follow Brother Jie, eat nine meals a day! You choose whether to earn more or less, but I only give the opportunity once. If you want to get on board, hurry up; don’t wait until others have made their profits before you regret it!
The market waits for no one; hesitation means missing out!
