Profitable trading requires a lot of effort. You may be one lucky bastard who feels where the wind blows but if you want financial investments to deliver returns systematically, you need to act like a grown-up and set some rules for yourself.
Below are the most important rules of every trader’s discipline and priceless experience of those who made a fortune on the market.
The Cider House Rules
Most day traders have brief days, working two to five hours per day, The Balance says. Five hours of trade is high. Add on a few minutes each day for preparation, and review at the end of the day and week, and day trading still isn’t very time-consuming. You will have lots of time to focus on other interests. This is the result of a lot of practice and discipline, though. It often takes a trader five months or more of solid practice every day and on weekends before he or she can navigate the market easily. Most successful traders get to know their preferred markets for years.
The easiest thing to start with is trading hours of the market you work. Nominex is focused on cryptocurrency, and this market works 24/7 so you need to anchor yourself to something. There are several big forces that affect prices of Bitcoin and other main crypto assets:
- the USA and its policymakers’ newsflow;
- China, Korea, and other main Asian investors;
- EU news, to a lesser extent.
Thus, rapid moves generally take time in working hours of those time zones, especially when they overlap. When you build your trade plan, reserve some normal time for your sleep and other activities. Being conscious and thinking clearly is the most important thing to react reasonably.
Key steps during the day are:
- update the prices;
- check your open positions and orders;
- study overnight changes or moves that took place while you were away;
- decide on your today’s direction;
- start the day trading;
- on the market close or when you leave the screen, decide on your open positions, risks and stop limits.
Nominex provides a solid variety of tools that may help you act even not being in front of the laptop. Those are stop orders, stop-limit orders, and more. You may study the market and make a set of bets/bids to come into force if the price move is over the normalized levels, or if the trend changes.
Reactions: Keep Calm And Follow The Plan
Other factors to affect prices on the crypto market may involve macro news and forex moves. Day trading involves active browsing on the newswires and being generally aware of what is happening out there. Some traders believe that the key to success is elsewhere.
They stick to the concept that a graph of prices and volume illustrates all the past decisions made by market participants (going long and short, building and closing positions). And this data, in turn, is sufficient as it will influence future participants’ choices in two ways:
Psychological: What they all did in the past determines how you approach future cases. For example, some traders typically focus on the price at which they acquired the asset, and if it goes down, they want to unload when it goes back to break-even.
Reflexive: Other traders identify tendencies and chart patterns which are typical, and act accordingly (taking on and off positions). If a sufficient amount of participants follow this logic, it is anticipated that these chart patterns will move towards the expected result and that the trend will likely be supported by more and more people joining the trend.
Trading discipline presumes that you act the way you planned to. For example, you open a long position in Ethereum at $150. You expect the coin to go upwards, and there is some target you believe it will reach. Let’s assume it is $153, i.e. +2% — this very basic set of numbers is your simplified trading plan. Trading psychology is tricky. Every time the markets act like you didn’t expect you are very tempted to wait and see the world to prove you were right. Well, that’s the worst way you can go!
One of the ways you may use is the averaging down trading strategy which means you are adding to a losing position but reducing the price at which a bounce-back returns a profit. This works well for a long-term investor when the share price has time to recover.
Don’t Fall Deeper Into The Rabbit’s Hole!
Let’s skip the serious part for a while and pay a bit of laugh to those popular sayings from 1998 and 2008 financial crises. They are children of global market volatility and many people’s losing trades:
- This is a Good Buying opportunity, Good-Bye savings, Good-Bye house, Good-Bye wife.
- Lately, I am sleeping like a baby, I wake up every two hours and cry for an hour.
- Markets can remain irrational longer than you can remain solvent.
- The most dangerous words in investing are: But this time it’s different.
- There are two types of investors, those that don’t know, and those that don’t know that they don’t know.
Successful trading strategies always rely on clearly measuring of your risk. Being a day trader or stepping into the forex trading, keep in mind these simple rules (we specifically selected the most important ones):
- Don’t bet 100% on one horse whatever stallion it may look like.
- If the market proves you’re wrong, admit that and move on.
- Fix your losses and start new trades to recover your balance.
- Don’t pick your bets with your heart, use the grey mass in your head instead.
Day traders who imply strict risk management deliver better results. Earlier we were looking at Ethereum trade you opened. So, when you build your trading strategy decide on potential risks and losses. For example, limit every position and bet you make with 10% of your portfolio.
This may sound weird at first: why allocate 10% in the market and leave 90% in cash (USDT or another basic asset). But if you run numbers carefully, this may be smart enough.
If you buy 10% worth of something into your portfolio and make a 1% net on this bet, your total is up by a tiny 0.1%. But if you replicate this good trade only once a week, your annual return will be 5.3%. If you happen to do this one time a day (which is not something impossible), you’ll get an astonishing return of 44%. If you diversify your bets to 3 or 4 a time (10% each), statistical probability, this heartless bitch, will average down your income but increase chances of not losing.
In any case, always make a decision on the point to turn sides. And write this number down on paper on in Excel sheet. 1 ETH bought at $150, and I’m ready to double on that at $145. If the market crashes to $140, I’m taking my money off the table and waiting for the next entry point. That’s the trading style the most cash-heavy and experienced trading sharks use.
Another way to look at trading is looking long term. In the world of stock investing, investors employ different strategies for making their investment decisions. Some, as we discussed, rely on mathematical formulas as market predictors, while others rely entirely on investor sentiment to guide their decisions. As a short-term investment strategy, day trading is not for the faint of heart because of its inherent risks, which is one reason that conservative investors have learned the value of holding stocks for the long haul. Same goes well for crypto markets.
To do your trades like this, you must be sure or at least hope that the position you chose is not going to disappear from the market anytime soon. You need to study the fundamentals behind is and set some profit target on a more distant horizon, like weeks or even months.
Any successful trader who uses this type of trading experience must understand what trigger is exactly the one to move this coin or digital asset upwards. This can be some MVP release, an adoption strategy implemented, a strategic partnership or something else.
In the world of traditional finance, there are many people who serve an example of a disciplined trader with a holding or long term strategy, and Warren Buffet may be the most iconic of all. In his latest annual 2020 letter to Berkshire Hathaway shareholders, Warren Buffett focused on companies investing in their core businesses, such as big stock holdings Apple and Bank of America.
While Buffett makes plenty on dividends — Berkshire had $773 million in Apple dividends alone last year — the billionaire investor said reinvestment in leaner, low inflation times is a form of compound interest for an operating company. He believes that business development will overweight any market fluctuations as corporations will produce profits, pay dividends or make buybacks.
This can be translated into the crypto world: if you believe that the blockchain has growing intrinsic value, you are to hold the most vital ones (BTC, ETH and maybe several more) expecting people to use them more frequently as financial services, thus creating demand and causing price uplifts.
What Animal Are You?
Different trading systems can be applied to different audiences. An account worth $1mn and its peer with $100 can’t have much in common. They will have different average position size, frequency of operations and planning horizons.
Be open about who you are and chose the way to understanding fear and making good trading:
- Risk-takers: these are people who expect to make big gains in several moves, they tend to buy riskier assets with lower liquidity and allocate bigger portions of their portfolios to speculative operations.
- Holders: they typically trade less frequently seeking lucrative entrance points, and wait longer for their bets to work or be canceled, the bigger is your portfolio the more “holder” you may become.
- Professional traders make their living by trading stocks, bonds and cryptocurrencies, they are focused on low commissions, high liquidity and volatility that allows doing more small but profitable moves, and don’t like flat or inactive markets.
- Bots developers are interested in more structured markets where technical analysis and trend related moves can be implemented, and it is no surprise that they like low commissions as well because bots do a lot of ins and outs.
Building Up Your Portfolio: Step-By-Step Moves
Trading activity goes hand by hand with your savings and investment policy. Your trading habits mustn’t confront your pension plan, they say. First, decide on your strategy: if you feel like having fun in the market, act accordingly and leave 70% of your funds in some low-risk fixed-income positions.
Your trading performance may add up to your income but making money systematically requires some tenacity and, hm, iron balls in inopportune times. If you are young, have some basic source of income and/or own other assets, your risk tolerance can be higher.
We recommend slowly yet methodically building up your cryptocurrency portfolio: start from moving 5% or 10% of your income to the Nominex cryptocurrency exchange every month, see what results you may achieve, and do your best to improve those over time.
Tolerating Losses: This Is NOT The End
You may find this surprising but in addition to the reading charts, newswires and corporate reports you may want to start on psychology books. How the ‘fear center’ in your brain is driving panic selling and buying in the market, scientists say.
The study of the mind and behavior as it relates to how we invest is a subject that is not only extremely interesting but also greatly useful to investors. Since market moves tend to be erratic and often irrational, self-awareness in a case of trading loss can help us recognize when our instincts are not grounded in clear thinking. Nothing is more unfortunate than losing money despite having the right research at one’s fingertips, simply because of the very human tendency to act and think in certain ways.
You can improve your trading by accepting the mere fact that you will always make negative deals from time to time. The proficiency is in making more profitable and less damaging deals and trades, as well as fighting lack of discipline. Psychology and discipline are the two pillars successful trading rests on. You need to plan, implement the plan and do just as planned if something goes wrong.
And stay calm.
Training + Trading + Entertaining = Entertrading
Have you ever heard of Elon Musk’s Falcon 9? We bet you have. It has recently started successfully catapulting more and more Starlink satellites to the Earth’s space orbit. But before it all became reality, they did many tests.
The first test flight of the Falcon 1 took place on March 24, 2006, on Kwajalein Atoll in the Pacific Ocean but failed just 25 seconds after liftoff. Corrosion between a nut and a fuel line had allowed the line to leak, which caused an engine fire. Later in 2006, SpaceX won a $278 million contract from the National Aeronautics and Space Administration (NASA) for three demonstration launches of the company’s Dragon spacecraft and Falcon 9. Two subsequent tests of Falcon 1 failed, but on September 28, 2008, Falcon 1 successfully entered Earth orbit. Falcon 1 made one more flight in 2009 and was retired in favor of Falcon 9.
Ten years after that, the system is working. What can someone who trades every day learn from that? First, even the bigger guys have their emotions in check. Once you enter a trade, it’s better to understand ‘how this rocket works’ before putting some capital at risk. The same is true for neighboring markets, like day trading futures.Winning and losing can bring zero damage to your wallet if you try everything you want to in a demo mode at first. There is no need to test your craziest strategy with real money, Nominex offers you a demo mode that allows all types of operations with real market prices but with no commitment of funds. And more to that, if you happen to be the best in the demo trade tournaments, you get a chance to earn real money prizes for that. A demo account may help you polish your discipline as well, so the option is worth trying.