Crypto Chartbook: Bitcoin, How Not To Lose

Summary

• Making money is the goal but risk control and holding on to your profits is even more critical.
• You could give more considerable amounts of profits up due to negligence and being complacent, not abiding as diligently to your trading rules, as usual.
• If you had an excellent run in your bitcoin-related investments, taking some money off the table is a good idea independently whether bitcoin will march higher or not.

With a twelve-month bull run from US$3,782 to US$58,352, it is easy to get complacent as a trader - one of the most dangerous places to be. No one could blame you if you were fortunate or skilled enough to catch some or all of this 1,443% advancement in Bitcoin (BTC-USD) or the Grayscale Bitcoin Trust (OTC:GBTC) and now feel a bit cocky. Unfortunately, in trading, you are always your own worst enemy. Losing sight of even the smallest amount of discipline can cause dramatic losses. Making money is the goal but risk control and holding on to your profits is even more critical. Bitcoin, how not to lose.

BTC-USD, Monthly Chart, Conservatively Bullish

BTC-USDT, monthly chart as of March 8th, 2021.

One of the best ways to keep one’s emotions in check is reducing position size. It allows for accepting risk and, as such seeing the market for what it is. Looking at the monthly chart above, this size reduction on new entries is also in accordance with the risk at these more extended levels. We see prices progressing higher, but entry risk once the price has moved up this far aligns to our risk control parameters from a psychological perspective and a statistical one.

BTC-USDT, Weekly Chart, Steep and steady

BTC-USDT, weekly chart as of March 8th, 2021.

This weekly chart shows price behavior even more clearly. For nearly three years, Bitcoin prices meandered around the mean (yellow line). Last year in October, Bitcoin prices broke out of this range. Already four weeks later, in November 2020, prices extended above typical standard deviation levels. Nothing atypical for Bitcoin, which loves sharp advances. And again, we do not see prices decline from here rapidly. However, what is affected are stop levels and entry probabilities, which makes the astute trader behave more risk-averse both in exposure size and trading frequency.

BTC-USDT, Daily Chart, Bitcoin, how not to lose

BTC-USDT, daily chart as of March 8th, 2021.

The green arrows on the daily chart show our long entries last week. We posted these in real-time in our free Telegram channel. Each of these entries had a position size reduced by thirty-five percent. We were also able to finance all three trades (= take partial profits shortly after entry based on our Quad exit strategy to eliminate risk). For now, we are holding remainder small position sizes for possible price advances without a skewed view due to the more than usual conservative approach (= minimal position size).

Bitcoin, how not to lose

It takes quite some experience to judge oneself on emotions of over- self-confidence. If you had an excellent run on investments, take some money off the table. Wire it from your brokerage. Consider self-gifting, vacation, or otherwise reward yourself. Make sure your daily self-assessment routine contains this checkpoint of possible over-confidence. Reduce size for upcoming trades and pat yourself on the shoulder for a job well done.

You could give more considerable amounts of profits up due to negligence and being complacent, not abiding as diligent to your trading rules, as usual. This can be especially painful in these heightened emotional states. Consequently, this causes even more dramatic setbacks trying to brush early warning signals of over trading and under-selecting signal quality off and trying to prove yourself. Like the market, you need to take a breath, celebrate, and return light footed on half size for the next run-up.

Analyst’s Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Quiet Man]

Good principles in this article which apply to any form of investing success.

[Barkkingdog]

How not to lose money on Bitcoin? Don’t buy it.

[jimbo162]

@Barkkingdog that's funny dude...been buying BTC since it was $200. Who was right, you or me?

[GRITON]

Since banks, insurance companies and some of the most successful global investors are increasingly putting their fiat money where their collective digital mouths are, that it will soon "eat the world", who can still argue that it is not the "most perfect money" ever invented ? Buy and hold the trade of the decade.

[maddaj19]

So, you want to buy BTC and never lose...pretty easy question, buy and hodl. Never ever sell.

[Winegeak]

Invest....grow....try to take out your initial investment (simple hodling won't do it with current prices, try margin trading with Kraken or Binance) and continue with your profits while sleeping very well at night. That's the way to benefit without risking your savings. Worked very well for me (twice, first time in 2018, now doing the same in 2021)

[SJArizona]

@Winegeak

Did you consider options on LedgerX to reduce your cost basis? What are your thoughts on it?

[Winegeak]

@SJArizona I don't have experience with option positions on LedgerX. I've read a bit on their website and it seems worthwhile to explore further. However, it would mean opening up yet another account while I have enough possibilities with margin trading on Kraken. But it could be interesting from a cost perspective as margin trading at Kraken does cost you on fees (to open position, 4h roll over fees for open positions and for closing position). That being said, not sure if the risk exposure with options on LedgerX is similar or higher/lower. And in closing, my initial positions have been taken out in 2018 and 2021 so basically I'm only continuing with "house money". Thank you for your comment and the interesting suggestion.

[Chillbizzee]

Well done article. Investing or trading anything this new and speculative is a challenge indeed.

[WorkingJoe]

Investing in bitcoin isn't that different than putting it in Gamestop. It's probably worth in the range of $4 (if even that) but is trading a hundred times higher. It's just a confidence game with everyone leaning on others to hold, to buy into the narrative of it being digital gold, the foundation of the smart contract economy, the world's reserve currency (China just launched eYuans, the Fed wouldn't use anything it doesn't control) which is the current specious fable a la mode. It's all perception and perceptions can change very quickly. If a whale or two lets loose her blowhole...look out below!

[twfry]

@WorkingJoe Its not a confidence game because buyers generally stash away coins for a long time to hold them, regardless of price. This isn't GME with unlimited shares, BTC is a highly scarce resource against an infinite supply of dollars.

[Aaron173]

@WorkingJoe 12 years ago BTC was born during a financial apocalypse. It subsequently survived a global pandemic, two monstrous bear markets, two crypto exchange scandals that were suppose do be the death knell, and thrived in spite of resistance from the entire financial industry. And now here we are, like 300,000% higher and counting.

It doesn't matter if the banks or people use BTC for routine transactions. In fact, it's probably better for everybody if they don't. The BTC network clearly was not designed for that. But also recognize that banks don't transact in physical gold or stock certificates either, but people still see value in gold bullion and stock. The Fed doesn't transact in denominations of hogs or wheat, but miraculously, people still trade those commodities on the open market as well. Just because the Fed doesn't use something as a currency doesn't make it worthless.

Are you going to wait 12 more years when BTC is at a million dollars and keep shaking your fist about how it's all fake? Or are you going to recognize that your thesis is clearly broken and your analysis is missing something? Back when society first moved from hunter-gathering to subsistence farming and then to trading and bartering, I'm sure the guys who first decided that gold had value were widely mocked as well. I can hear them now:

"That's stupid! It will never work! Your soft metal is pointless! It has no intrinsic value! You can't even make usable tools with it! Now wheat and cow hides and copper... *that* has intrinsic value!"

[GreyhoundAM]

@twfry drinking the koolaid I see

[FirstFIREWealth]

Nice advice, thank you for the advice

[JRS5]

BTC is just getting started. As more and more institutional banks/firms open up to it, as well as retailers, it will continue to grow. People have less and less faith in the USD.

[dlevine007]

I actually sold out of Bitcoin around $40,000. Was feeling nervous. Bought physical silver and a Mazdaspeed Miata with the $. I still have a big position in ethe but if it gets to my target I’m selling more. In my stock portfolio I like to sell down positions over time and either pay things off or invest in real estate.

[Scepisle]

@dlevine007 I'm sorry..

[viperultimaevolution]

Ask your friends and neighbors about Bitcoin... They don't even know much about it. The big institutions are just now starting to get in, we have years ahead of us before it catches on bigtime IMO.

[Player 001]

In general selling now would be a mistake as a wall of institutional money is coming into this limited asset. Diamond hands, people. Don't be the guy who sold his bitcoins for a pizza. It's becoming the world's de facto reserve asset.

[TahoeDale]

@Fluffer Which might end up being the world's first billion dollar pizza.

Hope it was good.

[kjseagle1]

@Fluffer -- Fluffer ---giving out a great crypto trading strategy = " Diamond hands, people. Don't be the guy who sold his bitcoins for a pizza".

[jimbo162]

@Fluffer i agree with all of you @kj@kjseagle1 and HODL profits for years now. It just isn't difficult to understand. I locked a couple bitcoins away in cold storage, and have no intention of liquidating. They may correct, lose some value short term but who cares...the trend is your friend, look at any chart, 1 year 5 year or 10 year. Best investment choice for a decade with room to run yet!