My trading strategy during this current Bitcoin bull market - cryptocurrencies

**disclaimer** not trading advice and is opinion. This is simply my approach.

Do not follow my advice or take assertions as fact.

At some point, as markets starts to collapse, banks start to charge customers for deposits, pensions no longer work, and people realise their pensions won't exist let alone they are beating inflation - you will start to trade cryptocurrencies.

Even if you don't trade them yourself, you may have some exposure in a fund, or your bank may be getting interest by investing in a fund.

This article assumes you have some understanding of trading, but it is still worth a read.

Who moved my cheese?

Read it. A very short book on stagnation, misperception on value, and hoarding mentality.

Removing the myths from the cryptocurrency trading market

Cryptocurrency is a scam

The most common thing I hear from people is that cryptocurrency is a scam. I get emails from all kinds of scammers every day. I get telephone calls doing boiler room scams. Then there are phishing scams - people pretending to be from your bank for example.

Another classic scam are companies who phone you, set up a website in Wordpress to look like a legitimate company. Having worked in finance - I can spot these scams immediately, but I can see many people falling for it.

Of all the attempts to scam me, Bitcoin scams are tiny.

There isn't enough trading data history

I have this friend who has so many narrowminded views on most things - he actually believes this. There are a number of theories on historical prices, including Random Walk, the Efficient Market Hypothesis, Market Pricing theory (Supply and Demand). These theories may support or disprove the need for significant heavy data. 

There is plenty of historical price data for trade price analysis if you need it. There has been several cycles of highs and lows, we have seen the repeated drops from all time highs to 20% of original value..

Cryptocurrency isn't like any other markets

Cryptocurrency is just like any other market. They have differences of course, but share these characteristics;

  • Can suffer from manipulation.
  • Have good actors and good actors.
  • Can see tickers collapse to zero - just as many companies go bust.
  • Has fundamentals.
  • Can be analysed using technical analysis - just like any other market.

A comparison of the property market to the cryptocurrency market

This is the second most important concept to understand from this blog.

People don't know when to sell, take some profits, and are overly optimistic of the future.

Once I connected this, I viewed property completely differently. 

 Statement Property Crypto Property True? 
 The market keeps going up. Bull  Bear/Bull   False
 The market is too volaile? Bull  Bear/Bull   False
 I can't sell now, or I can't get back into the market. Bear  Bear/Bull  False 

Certainly, we find that property increases significantly over time. My theory is, it may have neared a physical maximum as salaries have not increased enough.

We realise that property is volatile, is less liquid, has longer settlement period, has more updays than down days (like crypto), but we could assert the following to be true;

  • There are times when you could have purchased a home significantly below fair market value.
  • There are times when you should have sold your house to take profits.
  • The property market is volaitle, just that we need longer time horizons to see that volatility.

So what is your latest cryptocurrency trading strategy?

Take profits - do not fall into the trap of believing you can never get back into the market. I have exactly the same attitude to property now. If I sold my house in Manchester, do I believe there will never be a chance to buy in Manchester again? No way. What about London? Again, no way. Neither should I care. Often what seems important, really isn't.

Below is a table showing a theoretical selling and buy approach. Imagine, I had been lucky enough to buy 1 Bitcoin at £4000 (I said imagine). By laddering buys and sells, there has been the opportunity to get some cash back on that original £4000 purchase.

What ifs?

What if the price didn't continue going up?

Don't sell. Just hoddle.

What if the price went to £14000 like before?

Be happy you took £780 back. You should be selling all the way up and will probably have sold most of the Bitcoin before it gets to £14,000.

What if the price went to 20,000 like before, but never dropped again?

One approach to do, is to hodl/hoddle 80% of your portfolio, and trade the 20%. That is what I do. Another approach is to hold some major altcoins. For example, Litecoin was as low as £30 recently. It's rate against Bitcoin is low. There is a chance Litecoin will swing back. So buy a few Litecoins and hodl those. There is a high probability Litecoin will gain on Bitcoin in the future.

Removing emotion from trading?

In some ways, a regimented approach - like dollar cost averaging is a great way to not ride the rollercoaster of highs and lows emotionally.

Conclusion on taking profits

The first thing to say is. This depends upon what country you are in. We have to consider cyptocurrency as a form of gambling. I don't think it is good from a psychological point of view to buy something at say £10,000, see it reach £20,000 and to then sit on £8,000 for a couple of years.

I see this happening with property. The same experience cryptocurrency traders encountered will befall the real estate market. The difference is - cryptocurrency's baptism of fire into highs and lows teaches to remain vigilant.

Property owners are fully bullish on property, see there being that perfect exit strategy to downsize in retirement. I don't see it. People buying a house for £700,000 (probably way more than they can afford), think they will be selling their house for £1.5 million and take a huge profit to live like kings.

A house is a home, but always see sense when a market feels over-inflated.

 

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