In my beginners guide to Bitcoin and Crypto investing, I outline two primary strategies used by traders:
- Holding
- Day trading
My strategy is one I call Hold Trading, in summary, I buy coins to hold for the medium to long term, but I rebalance my portfolio based on the performance of my investments. For example, if a coin is in a rally and I think its price gains have run out of steam, I will sell part of my position and do one or a combination of the following:
- Move into a new coin I have on watch
- Load up one I am holding which I think has growth potential
- Load up one of my stable long term growth coins (Bitcoin, Dash, Monero)
- Convert into Fiat as part of my 5% for 25% profit skim
I outlined in a post a couple of days ago why holding isn't a strategy on its own; you need an exit point. Today I am going to outline why I don't day trade.
Firstly, I want to outline why the portfolio rebalancing has worked for me. My original investment was just in Bitcoin with a small amount of Ethereum, but as my investment grew I started to sell Bitcoin and buy others. During these early days, I blindly invested in a few other coins, Golem, Augur, Steem, Dash and Monero, but with no real strategy. Over the first couple of months, my portfolio made some modest gains.
Every now and again an investment would fly, I would skim some profits off and buy something new. I setup an account on an exchange and started building an index portfolio. I started buying up the top 20 coins which I thought had value and taking punts on smaller coins.
More coins would fly, and some of the returns were huge. Ripple and Digibyte were two of the best. Then during April and May, things started to get insane. Everything was flying, in May alone my portfolio jumped +158%. If someone had offered me that for the year when I started, I would have snapped their hands off.
At some point, I'll write about the journey from casual investor to an accidental full-time crypto trader, but it was around this time I was starting to consider crypto trading as my job.
Back in 2012, I tried day trading stocks on Plus500, a CFD platform and I got badly burnt. I started small and made some nice gains, and as my confidence increased, I was trading more. I was using the volatility of tech stocks to go long and short based on the movements in price. Some days I would lose, some days I would win, and some days I would win big.
One day specifically stood out, I was trading Tesla long and short all day and had made around £2k. I didn't manage to close out a short position before the day had ended and overnight Tesla announced record car orders. I was trading leverage, and when the market opened in the morning, I had lost £4k. My heart sunk and I felt sick.
Following this and into 2013 Plus500 added Bitcoin. I was going long at night and waking in the morning to see my money go up and up, but one night the price crashed, and I got margin called. Over the next two months, I was chasing and kept losing. Finally when my losses hit -£20k I closed my account. I felt sick, and I reckon it took a good month to get over, maybe longer.
When Crypto started flying I knew I needed a strategy; I didn't want to be in this position again, as such I took the following lessons forward:
- Stable growth is good
- Don't be greedy
- Don't be over invested
- Don't leverage
The job was to avoid being in a position of panicking, making emotional decisions and chasing the market. Or worse, chasing losses.
And from this, I wrote my original strategy. I still don't know if I am smart or lucky, anyone could have made money this year in such a bull market. I guess the smart ones made a better %. I am pretty self-aware that different decisions would have led to an entirely different outcome. If I hadn't have bought Ripple, I would probably be a couple of months behind where I am now. If I had doubled my Ripple investment, I could be a couple of months ahead.
So this brings me to why I don't day trade, and there are two streams to this. One is lifestyle, and the other is strategy.
THE LIFESTYLE REASON I DON'T DAY TRADE
Day trading takes time, patience and dedication. When I was day trading stocks in 2012/2013, it consumed a lot of my time. When day trading you are looking for a point to enter a trade and a point to exit a trade. The goal is to use the information you have alongside the charts to find an opportunity to make a profit. You may hold a trade for a matter of minutes, hours or days. Rarely though are you long term investing. Your investment timescale is usually based on the signals the charts are giving you.
You have to have a constant eye on the market, following prices and movements and reacting. Yes, you can setup automated buys and sells but realistically it becomes an obsession.
When I was day trading my time was used as follows:
- Pre market: looking at my trades and the market, assessing my strategy for the day
- Market open: glued to my screen looking at the markets, trading in and out
- Post market: assessing the day and looking at the news for new opportunities
It was taking over my life and it was stressful. If I got in a bad trade, I could be sucked in and chase. If I missed a trade, I would kick myself. Also when the markets closed, I would be stressing about any trades I was holding.
I was going through all different emotional stresses. For what? A quick buck?
If you ignore the fact that I didn't know what the fuck I was doing and I was playing on luck, the whole experience is not one I wish to return to. Sure there are plenty of people who day trade crypto and probably a bunch who make good returns. Equally, there are many who have been burnt and financially ruined themselves. Just search Reddit and you will find many depressing stories.
There are crypto traders out there who sell subscriptions to their private groups where traders are given signals on buys and sells, and discuss their trades. I am a member of one, and while they provide a good insight I know, it isn't for me. The same people are there all the time; I wonder if they even sleep, stressing about entry points, exit points, break even stop losses and so on. They high five on good trades and cry through the bad ones.
Either way having got myself to a point where I no longer have to work a full-time job, time has become the most important thing to me, more important than money. Money is just a facilitator. As such my goal in life is to create as much free time as possible to pursue the things I want to do. As such I do not day trade for the following lifestyle reasons:
- It requires too much time, and I want to work the minimum amount each day, my trading time is less than an hour a day. Yes I now write about crypto but writing is a pleasure, it is one of the things I have always wanted to do. It is using my time for what I want. Just check how often I Tweet compared to the day trading experts. A few a day because I am busy doing other things than looking at the market.
- It is too stressful. Medium to long term holding is working for me and giving me the returns I need for the lifestyle I want to live. Why do I want to get into the stress of entry and exit points, watching the markets continually?
- It requires you to be continually plugged in. If I am away on holiday or offline for a couple of days and can't trade, I don't want to worry about this. I want to be able to not care too much about what happens in the market when I am offline. When I was in LA a few weeks back, and the market crashed, I couldn't trade, out of choice, even though the drops were heavy, my strategy allowed me not to care.
So day trading might be for some, it isn't for me. Time is too precious to be plugged into the markets 24/7 worrying about price movements. I also don't want the stress.
THE STRATEGIC REASON I DON'T DAY TRADE
Whether it is through luck or not, my portfolio is up +1,100% for the year. I have already banked a year of income through my 5% for 25%. My current strategy is giving me the returns I want.
If I ignore all the bullshit which comes with day trading, loss of time, market obsession and stress. Can I honestly say that by day trading I think I would have made more money?
My original strategy was one of believing in the tech, the market and therefore the growth of my portfolio, also being aware that this bull market is a gift. I owned stable, growing crypto alongside small punts. I had no idea Ripple would fly for my first big gain, similar with Digibyte and Bitshares.
Simply put:
- Stable coins give stable growth
- A broad portfolio of punts give exponential returns
Sure the charts can indicate something is about to move and how far it will go, but things don't always go to plan. Remember the Ethereum flash crash earlier this year from a multimillion-dollar market sell. Many day traders got stopped out. While GDAX refunded their position, it is one example of why I don't day trade.
Every day this month one of more of my coins has flown up, +25%, +50%, +100%. Some of these weren't spotted by the day traders so the charts can't tell you everything.
Of the 50 open positions I hold, only nine are in the red and 6 of those are Tier 4 punts where my exposure is low. None of my Tier 1 investments is in the red, and of the two Tier 2 investments which are in the red, one is a tiny leftover Ripple position of under £300, and the other was my stupid BAT entry where I times the market stupidly.
Simply put I have a strategy which is working well with the current market conditions.
We are in a growing market; we could be in a growing market for years. There is no need to day trade. There are amazing returns available from finding a good coin with a solid trajectory, finding a good entry point and holding for the medium to long term until you are in profit. You are then able to liquidate some of your positions and find new entry points.
The problem with day trading you are working against things out of your control:
- Flash news
- Flash price changes
- Whales controlling prices
- Shit that just doesn't make sense
Day trading is hard. Really hard. You are constantly fighting two emotional states, over confidence and fear. Of course, there are successes, but there are failures too. The £20k I lost day trading tech stocks is a constant reminder. It wasn't just the monetary loss; it was the sick feeling at the bottom of my stomach.
The following article, while related to stocks, is a good explanation of the reasons not to day trade:
Eight reasons why you should never become a day trader
Of course, it is up to you, if you do decide to attempt day trading then be careful, test out with a small amount of your portfolio and avoid emotional stress. For me, you risk entering the world and mindset of a gambler. Just see if your day trading is outperforming your hold trading.
Personally, I just don't think you need to. I would love to compare my portfolio performance to some of the best day traders. I reckon there is a good chance I am kicking their arse.
Please do ask if you have any questions.