
July 15, 2020
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
- Flood (@ThinkingUSD) is a Crypto margin trader
- Host: Peter McCormack (@PeterMcCormack)
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”
- “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
- 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.
- For instance, deposit 1 bitcoin and trade 10x leverage instead of depositing the entire 10 bitcoins
- 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