- Your Money Is At Risk When Trading
Because of the story of people who bought bitcoin in the period from 2009 to 2012, so now they are wealthy, many think that cryptocurrencies are a shortcut to wealth.
Yes, you can earn quick, but this quick profit goes with great risk. Whoever loves quick money at high risk, I recommend bettings and casinos, it is much faster than earning a crypto.
This article is for those who see the possibility of quick earnings in cryptos, and do not see the risk.
And true is that your money, not just can be, it is at risk when you are trading.
So, how avoid risk?
Remember: You can NOT!!! There is no guaranteed earnings in cryptocurrencies, nore anywhere else! If someone was earning before you it is not a guarantee that you will make money!There is no profit without risk, even in the world of cryptos, and that’s what’s challenging.
But you can be smart and smarter.
When someone suggests you invest in a particular currency, here’s what to pay attention to:
– If you are guaranteed a profit, it’s definitely a scam. When I say “guarantee” I think that your earnings is guaranteed by a company behind the crypto. If it is not guaranteed by the company, but the individual who represents that investment, then that individual is either a fraudsters or uninformed. In that case I suggest you to find someone else.
– If the currency can not be bought or sold on the free market, you should be very cautious. In this case, you should assume that they can manipulate the price and keep it at an unrealistically high level in order to make the investment cost-effective.
– The cryptos are generally open source, if not, it is doubtful. When a currency is hidden by code, it is most often because they want to hide the fact that they are not actually cryptos.
WHERE THE TRUE RISK IS?
First of all, you have to know that long-term trading inevitably involves losses and no trader can have 100% winning trades all the time.
And the answer: IN YUOR KNOWLEDGE!!! And your attitude too!
To succeed as a trader, the size of your potential losses needs to make sense compared to the original profit potential on each new position. If you are not disciplined and your attitude to risk and reward is not balanced, it is easy to fall into the trap of holding losing positions for too long. Having a hope that things will turn around before eventually closing out for a large loss, makes little sense if your objective was to make a small profit over a few hours.
Long-term trading profit comes from this combination:
– the number of profitable trades compared with the number of losing trades
– the average value of profits on each trade compared with the average value of losses.
The most important is to combine the relationship between reward and risk.
Many successful traders actually have more losing than winning trades, but they make money because the average size of each loss is much smaller than their average profit. Some have a moderately average profit value compared to losses but a relatively high percentage of winning positions
RISK MANAGEMENT IS IMPORTANT
Managing risk means that you have identified the dangers and have taken the trades that have a high probability for success.
If you donít have a consistent risk management strategy, you will lose money. Itís as simple as that!
You should ask yourself:
1. What position size per trade should I take? and
2. How much of my funds should I risk?
You can use two great techniques, taken from the world of game theory, which are used by professional traders.
a) RISK OF RUIN (ROR)
Use the Risk of Ruin formula: (1-(W-L))/(1+(W-L))^U W/L = win/loss percentage U = Capital units
Let me explain you this on 2 examples (both have 30% drawdown). We have two traders.
Trader A: $50k pot, 10% risked per trade, 60%/40% win/ loss ratio, 3 capital units: = 30% RoR
Trader B: $50k pot, 1% risk per trade, 60%/40% win / loss ratio, 30 capital units: = 0.000005214% RoR
It’s obvious what you have to do! Increase your W/L ratio or reduce your trade size. You donít want to lose 100%, so you have to set yourself a maximum limit of 30% of your portfolio value.
b) KELLYíS CRITERION:
This is a money management technique that was developed by John Kelly, a physicist and computer scientist, who worked for AT&T in the 1950ís.
This theory can give you answer to questions: How many trades should I have on at once and How much of my portfolio do I want to put at risk, per trade?
That means that you must have strategy.
Example: 60%/40% Win / Loss ratio average risk return = 2 : 1 = 33.3%
This shows that you could use 33.3% of your capital on a particular strategy.
You should have rules that you will act upon while you are in a live trade or investment. These rules should include how you will move a stop or adjust to a trailing stop.
You should always taught to trade with Stops. Stops are a trade management tool that let you stop a loss or stop a profit (they are known as a LIMIT order, too). The golden rule when using stops is, don’t ever adjust your stop, pushing it wider, just because the trade is going wrong this is fatal!
By using orders such as the limit stop order, the market stop order, or the trailing stop order, you can easily control at what point you exit a position.
On this way you can limit the risk you are exposed to on each and every trade you make.
Position sizing is basically deciding how much of your capital you want to use to enter any particular position, it is a form of diversification.
If you use a small percentage of your capital in any one trade, you will never be too reliant on one specific outcome. Even the most successful traders will make trades that turn out badly from time to time. The key is to ensure that the bad ones don’t affect you too badly.
INSTEAD OF CONCLUSION
It is important to have a detailed trading plan that lays out guidelines and parameters for your trading activities.
Risk and trade management may not be the most exciting part of trading, but they are absolutely essential if you don’t want to lose all your money.
And the best advice you will ever get: Trading and use of information presented here is at your own risk.
Feel free to share this with someone you know to be interested in trading.
Predictions and recommendations
- Why you shouldn’t invest in bitcoin under any circumstances
Can we generate profit from Bitcoin industry at this time? If not, can an automatic software can?
2 min read
Since, yet un-identified, Satoshi Nakamoto published the bitcoin white paper, back in 2008 his brain-child has traveled the road of both successes and tribulations. From the all-time high price of $19,666 to being singled out as a vehicle for the expansion of criminal empires.
But why is that? Why Bitcoin’s price so volatile?
Through all that time it has attracted both adulations of proponents and critique of detractors.
The ups of bitcoin have been high and fuelled the growth of wealth of the number of investors. But its lows and flaws have been such that they seem like a deal-breaker for many.
Before you commit your money to an investment, you must as a rule of thumb first investigate what is the thing they are pouring their money in.
One bitcoin is in simplest terms an encrypted part of the list of all ownership changes of all bitcoins in circulation.
Bitcoin has no intrinsic value
The proponents of it claim that it is nothing similar to fiat currencies.
But it has no intrinsic value to draw. It functions as a store of value from the consensus of its user. That is one of three defining characteristics of fiat currencies.
In other words, the bitcoin is currency only because miners accept it as payment for encrypting the transactions. Same as the US dollar is the currency of the USA because the US Treasury and IRS will accept only dollars as payment of taxes
This point of contention is the obvious example of myopic attitudes of its proponents.
They often make outlandish claims that it could cure all ills and ailments of modern civilization. From hunger in Southeast Asia to predatory practices of large financial institutions in North America.
The reality of bitcoin is much less rosy. In truth, it just exacerbates some of the worst economic inequalities which are plaguing human civilizations for ages.
In other words – Bitcoin doesn’t have real value, but we do know that it’s worth more than $0.
The first obvious problem with bitcoin
As time passes the difficulty rate of mining is going evermore up. It becomes more and more expensive to enter the mining game for your average Joe.
Because the availability of bitcoin supply is finite, this also spells ever-growing price of bitcoins. That is certain to price-out your same average Joe from investing in trade of it.
Thus, as a source of income and wealth, bitcoin has become inaccessible to anyone but the rich and powerful.
Because of the underlying technology of bitcoin, the only way to invest in it is to invest in trading.
Many critics, such as Paul Krugman, compare it with the reimplementation of the gold standard because of finite supply.
Compared to bitcoin gold has two saving graces.
First, gold is also used in many industries and medicine. Thus, in case of a market crash, it can still be sold for a certain price as raw material.
While contrary, bitcoins cannot.
Second, if investing in gold mining, i.e. mining equipment, such investment, in the case of depletion of gold deposits, could be repurposed for other activities.
On the other hand bitcoin mining equipment, due to technological advancements, becomes obsolete in two-year cycles. Hence, it can become thousands of dollars paid for a paperweight.
Bitcoin is also very susceptible to speculative bubbles.
Do you remember the incidents since 2013, when a single person managed to manipulate the price to rise from $150 to almost $1,000? And many subsequent price manipulation?
That showed that the price can be easily inflated leading to financial losses to many and gains for few.
After the bitcoin crash from its peak, many economists have spoken loudly about the speculative nature of it.
Some even went as far as saying that scammers and charlatans had exploited retail investors’ fear of missing out. That combined with a relative lack of knowledge about cryptocurrencies to fuel the bubble and scam the investors.
Proponents of Bitcoin point out that it is anonymous and not controlled by any central body.
But these are not features, but built in bugs. Because there is no central authority which governs the authentication of ownership, bitcoin is not only susceptible to theft and fraud, such as infamous Mt Gox case.
But also to hacking attacks, such as the recent 51-percent attack on Ethereum Cash which resulted in many exchanges blocking it for trade and theft of around $450,000 from legitimate owners.
If one individual or group of miners has control of more than half the mining capacity, they can rewrite the whole ledger of historical transactions of bitcoins, the blockchain. And hence, very quickly become owners of any bitcoin currently in circulation.
Though this scenario is very unlikely in the case of bitcoin, it is not impossible.
Only the willingness of people to pay for it defines both the highest and lowest price of bitcoin. Also, there are the aggressive efforts of its proponents to advertise it as the cure for all the ills. That’s why many notable economists have gone as far to call it affinity fraud.
And any potential investor needs to be wary of how much growth of bitcoin price is fuelled by news of its growth.
And the fact that cryptocurrency related exchange traded funds have the highest industry-wide premiums and expenses ratios. In some cases going as high as 50% and 2%, respectively.
For the end, it must be noted that many proponents falsely proclaim that bitcoin is the solution for the alleged problem of evil central banks steals money from people by debt creation and similar ways.
In reality, because of the non-existent central regulatory body, bitcoins are by design unsafe and almost fraudulent in nature.
Because they are assets similar to currency, it is almost impossible to distinguish them from reimplementation of the gold standard.
And the fact is that techniques of financial and cryptographic attacks do not get less, but more effective with time.
The bottom line
In essence, Bitcoin is taking the financial system some hundred and fifty years back in time while removing all regulatory protections that were evolved in that time.
It was a division of such regulatory protections in a Red Queen’s race of a sort, with equal overall gains but very small relative ones.
Some say that only automatic trading software (like this) can trade successfully in the Bitcoin industry, and it’s only for limited time.
So without them, any investor is absolutely at mercy of very wealthy and unscrupulous actors, who historically had a tendency to both manipulate bitcoin price and even outright steal them.
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