Bitcoin & Cryptocurrency Trading: "Before Winning, You Must Learn Not To Lose"
From 10th to 25th April 2020, Binance hosted an international team trading competition, the Binance Futures Tournament. All kinds of traders, from the newbie Bitcoin trader to the Finance pro, had 15 days to take each other on and win a share of the BNB prize money worth around three-quarters of million pounds! Some European teams shone in the competition, and among them, Rakoon Academy, headed by – as you may have guessed – the Master Rakoon who lay his teaching hate aside for a moment, to head down to the trading dance floor, accompanied by ‘a small team of aspiring traders’.
More than 30,000 participants entered the competition and out of 3,000 teams, the Rakoon Academy finished in 147th place, after over two weeks of fierce competition. A pretty honorable result for a first-time participation. Today’s article pays tribute to them, and their team leader who bit the bullet and put forward some lessons to progress in the art of Trading.
The aim of the competition
Objective of the competition: to trade perpetual contracts on Binance in order to generate the most USDT possible. The top 20 teams who manage to obtain the highest amounts of USDT win a share of the BNB reward.
Clearly, this is a bit unfair: unfortunately, a team’s performance is not measured as a percentage of the total starting capital but instead in the amount of total dollars earned. In other words, the real competition were the teams of hedge funds that manage several millions, even tens of millions of dollars.
Due to this competitive disadvantage, the Rakoon Academy decided to focus on exchanging knowledge around derivative products such as futures.
About forty active Rakoons opened wallets, with the vast majority, only containing 10-20 pounds at most.
The team set up a rather animated Telegram discussion group on different trading strategies, complete with a live morning meeting every day at 9:30 am to refine the main strategy to be put in place during the day. There were also discussions on the Rakoon Facebook group.
They started with around £7,500 and after days of euphoria, disappointment, twists and turns, the two weeks of competition ended with a respectable capital gain of £1940.
However, more importantly many beginners were able to learn to trade futures, to short during bear markets, to handle leverage, to place limit orders, stop losses and so on… while some lost, others won. One thing was sure, the entire team undoubtedly acquired a huge amount of experience and knowledge… (the best investment there is)!
The lessons to be learned
When trading, psychology is a primary reason for your success or failure. The natural bias is often to let losses run but take gains quickly. However, you should do exactly the opposite.
The art of being average
‘Averaging down’ when the market is proving us wrong, hoping to have a decent average price is another type of behavior which cost some Rakoons dearly.
The hardest thing to do, when the market proves us wrong, is to admit that we made a mistake and take the losses on the chin. There are losses that should be allowed into any trading strategy before you have even entered any position on the markets.
If you increase your position, you are increasing your exposure to market risk… which can have catastrophic consequences when you are leveraging. If you want to fully understand what leverage is, take a look at this video.
Learning how to let go
By increasing the risk of an already losing position, you only deny yourself the chance to find new opportunities that arise in the markets. In other words, we no longer hold the position but it is the position that holds us. It’s an opportunity cost. We are frozen, like a raccoon in front of a car’s headlights – dazzled and bewildered.
The rules of responsible trading the Rakoon way
Staying in control and remaining objective is essential even in an environment of great stress and extreme volatility. To achieve this goal, several rules are in order:
- Have a full-proof trading strategy with each trade (i.e. entry price, exit price including your profit, exit price including losses) and FOLLOW IT
- Don’t trade with a lot of leverage – if you are a beginner don’t use it at all
- Never average a losing position
The rule book on how to avoid losing all your capital
As I have mentioned before, don’t use any leveraged product even with small amounts. Only take positions you psychologically handle with confidence. Finally, think in terms of percentage performance, and not in pounds.
Despite all this, you may end up finding that all the energy and hard work you put into, is paying you too little because you don’t have enough leverage. So, if you have honed your strategy, you know how to manage your losses as well as your gains and especially your emotions in the face of a crisis, more importantly, however, if after several months of trading regularly allows you to be more ambitious, then only, only then can you increase your capital.
This is when, even though your percentage success will remain the same, your earnings in pounds sterling will be more substantial.
The Ten Commandments of risk management
- Thou shall not use leverage (I repeat, no leverage)
- Thou shall leave your ego in the changing rooms
- Thou shall stay disciplined, never give up on it
- Thou shall remain disciplined, every second of everyday
- Thou shall not look to get a rich quick
- Thou shall cut your losses
- Thou shall stay focused
- Thou shall not seek the perfect moment
- Thou shall stick to your trading strategy
- Thou shall never sigh “the market is against me”
Playing against the market: a destructive natural bias
As amazing as it may sound, far too many traders fight the market.
An asset is more likely to continue its trend line than to reverse for a simple reason: a trend goes on X number of times, but only reverses once. It is a matter of probability.
Newbie traders far too often look for the perfect timing, in other words, looking for the highest or lowest point of the trend. So it’s much more obvious, simpler, and more comfortable to follow the trend.
As such, it should be apparent that in a horizontal consolidation phase, a given asset is more likely to exit in the same direction as the previous trend than to initiate a reversal. However, be careful this should be taken with a pinch of salt as inherently trends don’t last forever.
Don’t flog a dead horse, once your plan has failed, move on, to another asset, or come back the next day once you have had a chance to step back from the trends.
Why? Because despite everything that we might think and anticipate, the market is always right.
The market isn’t against you
If you are starting out and things go badly, it is far too easy to say it is the fault of the market because it is complicated, because it is “coming for your stop-loss” and that you are “unlucky”.
Instead, you should ask yourself whether your trade was good enough, or your trading strategy was poorly balanced given the trends, perhaps you took a FOMO trade without consulting your overall strategy…
It’s never the fault of the market, it’s your fault. If you can get past this constant frustration and you do not have the capacity to question yourself relentlessly, then you will never progress and improve your trading style.
Nevertheless, there is no miracle method, to understand this mindset, you have to analyse the markets, analyse your own psychology and finally, analyse your past mistakes to draw conclusions to put in place for future improvements.
I recommend starting a trader’s diary where you write down your trades, including losing ones and the reasons for these failures. This exercise of hindsight, humility and honesty will help you improve. Controlling emotions and evoking these principles can only be achieved with time. In the beginning, do not set yourself goals that are too ambitious, because before you want to win, you must first succeed not to lose.
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The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.