July 15, 2020

Bitcoin Trading 101 with Flood – What Bitcoin Did Podcast

Check out the What Bitcoin Did Episode Page & Show Notes

Your goal as a trader is to find your edge and outperform the market
- Indicators are just tools to help you formulate your thesis
- Master the emotional aspect to be a good trader
Leverage is a tool to reduce counter-party risk, not to trade more size than you have
- Start with a little percent of your net worth and get consistently profitable before you deploy more capital
Important: your trading capital needs to be completely independent from your everyday expenses
The first step of taking a trade is to set the stop loss
“Trading, if it’s going to be the majority of your income, really is, passively, one of the hardest full-time jobs you can choose.” – Flood
Brush up on your Opsec

Ask yourself, what percentage of your income is trading going to be?
- Do you want to trade full time or passively? This dictates the time investment
Familiarize yourself with all the seemingly-big financial terms
- E.g. Spot, futures, derivatives, exchanges, options, perpetual swaps, and contracts offered
Keep in mind, crypto trading is deceptively easy, akin to driving a supercar with no proper knowledge

Your goal is to find your edge and outperform the market; what’s an edge?
- “Having some sort of formula or theory or why a certain trade thesis would work and provide better returns than the buy and hold method would be how someone quantifies their edge” – Flood
  - For instance, “whenever the market moves x percent, I can buy the retracement and over a long term that will provide better entries”
Use real money when you start trading, here is why:
- Good traders master their emotions and focus on trade execution
- The mental ability to handle draw-downs and losses can’t be acquired by trading fake money
Stick with one exchange at first and understand it inside out
- E.g. how deposits/ withdrawals work, security system. Feel at home with the exchange
- At first, stick with one exchange and with the products you are knowledgeable about
Start with a little percent of your net worth and get consistently profitable before you deploy more capital

Spot refers to buying and selling an asset with money you have, no borrowing or leverage
- This protects you against liquidations, which can only happen in the unlikely event of Bitcoin going to zero
Indicators just visualize data; they help you formulate your thesis
- There is no magic indicator or trading suite that will give you guaranteed trades
- Focus on learning market mechanics and why products move a certain way
A simple thesis is essential to discern your edge

Leverage is a tool to reduce counter-party risk, not a tool to trade more size than you have
- For instance, deposit 1 bitcoin and trade 10x leverage instead of depositing the entire 10 bitcoins
  - Thus, less exposure to risk from exchange hacks, stolen accounts, trading errors, etc.
Leverage magnifies losses and gains, newbies should completely avoid it
- Additionally, it decreases the probability of being right, and increases the need for more accurate timings

Depends on your time horizon
- You could take directional bets on bitcoin’s future price that requires little management and attention
- Whereas quick “scalping” trades will require your full attention
Keep in mind, “Trading, if it’s going to be the majority of your income, really is, passively, one of the hardest full-time jobs you can choose.” – Flood
Staring at a chart 12 hours a day doesn’t make you a trader, that comes from making informed decisions and bets

Traders can keep thinking about the market even when not trading, it takes a toll on their personal lives
- Additionally, trading is not a linear profession, you could do everything right and still lose
Important: your trading capital needs to be completely independent of everyday expenses

Paid groups may not make money trading and don’t have an incentive to trade, they have a guaranteed income from memberships
- That said, if you decide to join, ask the leader for trading history, to prove he is consistently profitable
- Keep in mind, having pretty charts with fancy words doesn’t mean one is a profitable trader
Instead, constantly aim to improve, share information, and engage with smart people to get fresh perspectives
- Become an active member of discussion groups and you will make better connections and achieve much more than joining a paid group

The fastest way to learn is to get your hands dirty and learn from your mistakes
Always set a stop-loss before you even take the trade
Detach yourself from the profit and loss of each trade; focus on managing your risk
Winning or losing streaks can lead to over-trading which is a good way to go bust

Don’t use the same password for everything
Use a different email for your crypto websites
Always use Two Factor Authentication (2FA), preferably hardware based like YubiKey
Even if exchanges’ security is improving, remember: “Not your keys, not your coins”
- That said, account for the risk of placing a percentage of your net worth on an exchange
Brush up on your Opsec by reading these Podcast Notes from Jameson Lopp appearance on The What Bitcoin Did Podcast

Bitmex captured the first-mover advantage with a functional exchange with massive leverage
- “I think Bitmex is still one of the better platforms, if not the best platform” – Flood
Crypto trading is appealing because it requires no broker, anyone can sign up anonymously, and fees are low
Bitmex and other exchanges are a vehicle where money has been transferred from degenerate gamblers to market participants who understand what they are doing
- People getting wiped out would have been wiped out on other exchanges