Flood Peter McCormack Bitcoin Trading

Bitcoin Trading 101 with Flood – What Bitcoin Did Podcast

Check out the What Bitcoin Did Episode Page & Show Notes

Key Takeaways

  • 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

Resources Mentioned

  • Babypips – A great start to learn the basics of technical analysis
  • Tradingview – A free and powerful charting platform
  • CryptoCartel  – Crypto community founded by Flood, focused on free teachings

Intro

Before You Even Start Trading

  • 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   

Getting Started

  • 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 Trading

  • 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 Trading

  • 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

Trading can be Part-time

  • 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

Take Care of Your Health

  • 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 are Mostly Scams

  • 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

Taking Trades

  • 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

Security Considerations

  • 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

Thoughts on Bitmex

  • 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
What Bitcoin Did : , , , , , ,
Notes By Mostafa Khaled

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