The feeling of euphoria when we finally land a 0.5% profit after holding on to our losses for 3 weeks and missing all the amazing profit moves is just amazing.
Ok, I'm just joking. It's great to get profits the normal way too.
Buy low. Sell high. Dem stuff. You know the drill.
But what do we do when we finally realise those profits? Do we pull them out and blow them on the new MacBook Air? Or do we fly to Dubai to ride in Lambo taxis?
Or do we reinvest those earnings into the market to realise us even more profit?
Dang. Getting profits isn't so fun now.
Well, market psychology can help. A little.
Here are the two types of traders. Let's name them Jack and Andy.
Jack loves the fast life. He trades on the 1 minute chart and makes a shit ton of money. And he spends that money like a boss.
Paris today. London tomorrow. Bahamas on Wednesday.
Jack is called a "standard" trader. He removes his profits from his trades, leaving his capital to continue earning more profits. Then he lives off these profits.
This is the plan for most traders who live off of trading. They need to have money to perform duties, so they have to withdraw their profits.
This method contains absolutely no risk. You make money. You keep your money. The second type of trader is where the risk is.
Andy is a "capital intensive" trader.
Andy doesn't have a lot of money to start off with. He's not like Jack who has a $20000 account. Andy has just $200 in his trading account.
Let's say Andy never loses a trade in his life(highly unlikely). He would need to make $10 a day for 2000 days to reach Jack's account size. That's almost 7 years!
And $10 a day is more or less impossible with Bitcoin now unless you have at least $500 invested in.
Unless he's willing to trade risky ALTs, he would be left with 7 years to catch up to Jack.
So what does Andy do? We'll, whenever he gets a profit, he reinvests the profit into his account to increase his overall equity, and therefore grow his account.
So if he trades his $200 and gets a $1 profit, then his next trade would be $201. So his one dollar earns him profit on his next trade.
The problem with this is that Andy isn't a 100% efficient trader. So he does lose a trade here and there.
We'll, the problem is that Andy doesn't just lose part of his capital, he also loses part of his profit.
So if Andy loses as many trades as he wins, he will be left with his original account value at the end of the day.
This is a really dumb way to trade, and unless you're sure you won't make any losses(good luck with that), you should never reinvest your profits. Because not only could you lose all your profits, you could potentially lose your capital too.
So which one is the best way to trade?
Which psychological way should you trade?
First off, when you make a profit, don't get all teary eyed and start thinking you're the God of the market. You're not. The market just likes you today.
And unless you're really sure you'd never lose, don't reinvest your profits into the same pair.
Instead, reinvest your profits into ANOTHER pair.
So let's say you make $10 profit in the BTC/USDT market. That's great.
If you don't want to remove your profits from the market and you want them to make you money, buy another pair. Say the BAT/USDT pair. This way you'd make money just like normal, and the money you're risking is equity free profit. So you don't really have a problem.
That's also diversification and not keeping all your eggs in one basket. If BAT moons tomorrow, your $10 could turn to $50, which means that you got $60 for free, instead of risking your profit in the same market you made it.
Smart isn't it?
Yes. Psychologists are smart.🙃
What way do you use your profits?