Trading for newbies – Why Technical Analysis is not enough
Many people thinks that cryptocurrencies are just speculative assets, where you could become millionaire if you bought Bitcoin prior to 2017 and now you can make money only by betting on remote Altcoins. I personally think that a bigger lie has never been told.
By Michele Zilocchi
Cryptocurrencies are just like every other business field: before operating into the markets and building big expectations, train your mind with strategies and learn from errors made from other people.
When I first start operating our Company’s money, with a size that is allowing me to get good incomes, I had a 10% drawdown in the first days. When the CEO of the Company gave me the access to manage funds I considered myself as a profitable Trader, with some years of Trading Background. When I faced that drawdown, trust me, I felt completely lost. Losses with other people’s money are totally different: you start feeling guilty, trying to recover the loss as soon as possible. Sometimes you will tremble and you start doubting even about what you should eat at dinner.
Anyway I think that managing other people’s money is one of the best opportunity to become a stronger and braver person. Furthermore, the more your money management and wisdom will increase, the more profit you will produce. Since those days, I can say that every day I am becoming a better Trader. I am constantly trying to deploy new methods and developing already existing ones since Technical Analysis will never be my Panacea.
At the beginning, I was really focused on RSI, plus different Averages with the help of Ichimoku Clouds. These indicators have been really useful to make me understand that they were just not enough, and Mney Management was another key to open the profit way. If I only focused on profit when the market was going in the forecasted direction, what about a market going in the opposite way? What should be the exit strategy?
This is the point when I started “buying the dip”: with a stationary market I could even try, wait and hope that this was going to work, sooner or later. When you will face huge movements of the market, you better brace yourself since “buying the dip” can cause you tremendous losses. Some altcoins dropped almost 90% of their initial Bitcoin Satoshi value, since the last 5 months and if you have bought a few dips, I think that your balance is crying with no free Bitcoin left.
In my opinion, “buying the dip”is like a Russian Roulette: the more shots you use, the more risky it gets. The more dips you buy, the less available balance you will have. The less available balance, the less trading power.
So, after some years of experience, what is my approach to these scenarios?
Stop trying to close all your positions in profit.
Trading can provide you money to live if your balance increases in the last period: this means that in the last period the overall gains should overcome the overall losses. To achieve this goal you should separate your emotions from your trading operations: if the market turns into the wrong way, you must be cynical enough to reconsider you opening position. Loosing 1% is better than loosing 10% or more!
This attitude is called Money Management.
In my opinion, when you know the full strategy of your position and you are emotionally stable, you will be likely on the right way to become a successful trader.
We will look at Stop Loss in next articles, since now I want to spend a couple of words for what I defined “the strategy”.
90% of beginners in trading are 100% focused on the Entry Strategy. Still, they do not consider that gain or loss requires the position to be closed. So, what about your Exit Strategy?
I can assure you that with a correct Stop Loss (or Stop Limit if you prefer) you won’t have to worry anymore about big drawdowns. And you know what? A big investor once stated: if you focus on your profit and you manage to reduce your losses, your business will provide you enough money.
So why the majority of people is not gaining with trading?
At first, there are too many misleading advertisement of fake trading platforms that just spill money from people’s pockets, and then Company disappear.
Then, many traders pretend to gain huge amount of money, and instead of living by their own trading activity, their main income is the Course Sales. And if someone does not live by trading, he does not own the rights to sell that knowledge.
Trust me, no magic will lead you to success into Cryptocurrency Trading so I can just tell you what worked for me. Maybe another experience may inspire some of you: find your own quiet spot to trade, breathe deeply when you feel nervous for a tricky market behaviour, follow the Volumes and in the end…
do not trust anyone! Build your own idea, so when you’ll find yourself in a difficult trading position, you will learn how to solve it.
What platform do I use?
I personally use Binance (https://www.binance.com/en) since its beginning, when creating new accounts was not always possible and trading fee was 0.005%. I started using Binance because of the lowest commissions among all the Crypto-Exchanges.
I still use Binance, because is one of the Exchanges with the highest Trading Volume and it has a wide choice for Trading Pairs. What I mostly like from Binance, it’s the ecosystem they are creating: an Incubator for Blockchain Start-ups, Launchpad to launch IEO (Initial Exchange Offering) directly on the Exchange. Furthermore Binance has also its own Academy and a Charity Program. Much more than a simple Exchange!
In conclusion, I want to leave with you one last hint: learn the discipine of doing what is correct, and not what your ego and your emotions tell you. Consider Trading as a business: emotional patterns should be used to get advantage on other traders, not to influence your business. Separate feelings from money, and you will be a successful entrepreneur.
If you want to stay updated on operations, I often publish ideas, trades and results on our website, amicaborsa.com (https://www.amicaborsa.com/category/criptovalute/cripto-trading/)
In one of the next articles I will tell you about how I won a couple of trading competitions on Binance in full summer, with some math help!
Have a great day!
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