Often, when someone enters fresh into the crazy world of crypto, one of the first pieces of trading advice received, is "buy low, sell high".
It's like the entry level mantra for all traders, even outside in the NYSE Nether-Region.
Buy Low.
Sell High.
Gee, like I didn't think I should make a profit, right?
Yeah, but then why do 90%+ of people leave trading after 2 years or less? Why do most people lose money? There must be more to this thing.
I have been actively trading, going on my 3rd year now, and everyone has the right to come up with their own plans, and own solutions. There is one 'expert' who shared some videos I watched, and they warned that you should never try to trade in a down trend; that you would lose all of your money trying. Well, I only missed a small handful of trades out of literally thousands, but those trades are still 97% down, and represent something that was far too big to warrant a stop loss, and the upside is far too big a benefit to turn away. I would consider myself highly advanced, but my strategy does not benefit from a stop loss... well, except for those, like 7 times it would have.
When a new trader enters in, thinking woohoo! This will be different for me, because IIIII am going to buy low, and then I am going to sell high. Listen, everyone else got the memo as well. And, that is part of the problem. Everyone gets in at a number, and wants out at another number; a higher number. Without getting too deep into specifics, let me explain a principle that I promise is 100% true (and I will cover in it's own topic): It is harder for a position to go up, and it is harder for liquidity that sells than liquidity that buys.
An accompanying piece of parallel advice you will receive, from experts, is to buy when others are selling, and sell when others are buying. It all sounds SOOOO simple, right? Let me repeat from above; everyone is trying to buy and then sell at a higher amount (unless we're talking shorting, which is an even bigger mess). When you are selling your coins, anyone willing to buy them is already more reluctant than when you bought. Unless you bought at such a remarkably low price that it is a no-brainer others will want it at any price when things start to switch upwards, all buyers are bargain hunters, and someone else likely always got in lower than you did.
Now, let me break down a little math in the most sloppy and un-scientific manner possible (okay, it actually isn't all that bad). I promise, once again, this be the truth.
No matter what indicators you use, and how much advice you follow, and how well you know the market, and how certain you are about a coin, when you go in, you have a 50/50 chance that the position you buy will go up by the profit % you want to earn. At least it's a fair chance.
Once that position is entered, your purchase actually manipulated the price; perhaps for a half a second, and perhaps for an almost unnoticed value. But, the more you buy, or try to buy, the more it tends to actually pull the price down when you least want it to, and the more likely it triggers a bot-sell lower than you wished. Since trends in the market change in literal micro-seconds in the top coins, things can change quite literally from the moment it seemed like a good time to go in. Even more than this, for lower cap coins, it is so much harder to avoid influencing the price when you buy, and pressure from Bitcoin dominance can push a coin down so quickly and easily, it may be only a matter of a few hundred dollars in value to drag a coin down into a slightly lower support.
Once you go in, with your 50/50 chance of selecting a low entry point, there is now a 50/50 that the coin goes up, or down, based on the market conditions and the affect your trade has made, for the better or worse. That means now, we have the even chance of getting in at a good price, and an even chance of it going up or down from there based on that position on the order book. Now, there is a 50/50 chance that if it does go up, that it goes up enough to clear your profit. There is the same chance that you got in, at a good value, before a bear trend or a bull trend. I am not talking about long moves for hours, days, weeks, months, but just in the short window of volatility, if Bitcoin goes up too fast, goes down slow medium or fast, or drops too far in volume once your position is entered, it is more and more likely your coin is going to go down further. Why does it matter?
In my experience, you need to be right about your position and surpassing profit by somewhere around 3X what you plan to get for it. By the time it is entered, the chances are so good things will switch before they get better, again whether it be minutes or hours, that I always just assume my position has to come back up to where it started and build up volume to get slightly higher. Now, here's the fascinating and annoying truth about fuzzy trading math; it is harder to go up than down. Yeah, really, I know it's weird. If it is a 50/50 even split chance, then how does the market know anything different either way? The answer is in our flawed math. All of us measure profit in % and not in the units of measure.
Think about it (and in another article I will use clever analogies like measuring a child's height, gravity, and all sorts of stuff); if we were talking measurement, if we were looking at water level, and we saw the level go up by an inch, and then come down by an inch, it is an inch in both directions, right? But, let's say you bought a coin at a value of $100 and you want it to go up to a minimum of $102. It goes down to $98. So, you're thinking well it just has to come back up to $100 and then go up by $2, right? Well, first, it is obvious to consider that if it goes down, you know that 50/50 chance, for the sake of example it goes down by exactly the amount you need it up, it has to travel twice the distance; 2 inches up instead of 1, yeah? Okay. But, we trade based on percentages, whether that is right or wrong. I always test my literal values, but I set them based on my percentage and everyone else does as well. What is a maker fee? 'x' % of the trade value. When do I start taking profit? Once the value is 'x' amount more than the maker fee. So, at 2% over the maker fee, if I buy at $100 and it goes down 2%, we're at 98%. So, what percentage is 98 of 102? No matter what you are looking at, it takes twice as much juice to go up as it does to go down. This is based on what I think helps to simplify the concept, I call it the reset point, or reset value. I'm not borrowing that from anyone, so you may find better, or different explanations out there. People think that measuring -1% from their position is the same as coming back up 1%, but there is a reset value; you are measuring your profit from $99, and not $100. This is a little harder to understand with small amounts, so let's say we bought at $100 and it went down 10%. We now have a price valued at $90, right? you may say, well, it just has to come up 10% again and I'm starting at my 50/50 chance all over again. Nope. You have to come up 'x' percent from 90, not 100. You may not care about the difference, but the coin or stock sure does. A coin valued at $90 needs a higher relative percentage of volume and liquidity to clear positions on it's way up, compared to those that were bought on it's way down. The lower the value, the more buying energy is needed to work it's way back up. And, that is true if it were just stocks traded against a stable dollar. In crypto, there is no such thing. You may be thinking "yuh huh, there is- there are stablecoins". True, but every stable coin also trades against Bitcoin, so they add an extra factor of measurement against all other volume, but they still factor in BTC dominance, so when BTC goes up or down, it affects every other purchase.
The bottom line here, is that every percentage point, every statistic, every timing element, and virtually every time of day works against the price. It just does. I'll cover this in a separate topic, but to bring this to a close, it is a great place to start, to understand the principle is in fact sound; you want to buy it low and sell it high. And, in order to do this, you want to watch for when others are selling to buy, and vice versa. Before you place your hard earned funds on the concept, make sure you know what "low" and selling power look like at market; it will reduce your risks by an enormous amount.
I hope you found this interesting. Please consider tipping and read my other stuff. If you need the funny, go to my satire topics!
Gordon Freeman Out.
