Learning to take losses

in LeoFinance3 months ago

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As a trader, learning to take losses is probably one of the hardest things to figure out. This is especially true in crypto with the entire HODL mentality we have going here. Why be a weak-hand and sell when we can just be a strong-hand and wait?

As a gambler: the answer to that question should be obvious. If we have value parked somewhere that would be better allocated somewhere else, it would be foolish to HODL it, as this is essentially doubling down on a bad bet.

The problem with this logic is that we are often wrong. Emotional trading creates a slippery slope of tilted bad trades that domino effect into even more bad trades. We convince ourselves that the move we're making at the time is a smart one and we get wrecked. In many cases the HODL strategy is simple and stressless one that doesn't require any thought whatsoever. Why trade the market when it just keeps going up forever on an exponential scale?

But that's not what I'm here to talk about in this post.

It's time to gamble gamble!

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There are two ways to take losses:

  • Buy high and sell low.
  • Sell low and buy high.

Again, I think it's a lot easier to sell low and buy high than it is to buy high and sell low. This all comes from the HODL archetype. It's easier to hold and take the temporary loss than it is to be out of the market while it moons. After all, these are exponential gains we are talking about.

Buy the dip or ride the coattails?

There's basically only one reason to take losses: the money in question has more value somewhere else. Obviously we can travel down this road in many different ways:

  • Need to pay rent or another expense.
  • We were overextended/overleveraged and need to hedge our bets.
  • Market information/sentiment has shifted and we need to rebalance.
  • A security flaw forces us to move money around.
  • Etc.

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In my opinion one of the best reasons to take losses is to get more Bitcoin. Altcoins are way more volatile than Bitcoin in both directions. By selling back into the Granddaddy chain we can still have amazing exposure to the market while taking less risk than before. We see this happen algorithmically in the market all the time, as bots love to dump alts into Bitcoin when the market crashes, because often times alts will crash twice as hard as Bitcoin or worse. This is just an easy way to save money and lower risk.

Another obvious reason to take losses is shifting market sentiment. I was losing my mind in January thinking this bull run popped up too quick and was doomed to crash until summer. Once Tesla bought in and we immediately started breaking new all time highs I was forced to refactor that FUD right out the window.

Get outta here with that garbage!

I've since gone from thinking we were bound to retest $20k to pretty confident in this new $50k support line. Quite a radical change in thinking. Am I on tilt or is this an accurate assessment? Who knows, it's all gambling in the end. One thing we can be certain of is that 2021 has been pegged as the mega-bubble year of this 4-year cycle for a while now, and it has not disappointed.

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Fatal Flaw

The biggest mistake traders make in this market is simply gambling with way more money than they should be. Having a strong emotional bond with the money we are gambling with is NEVER helpful. Ever. Much like talking to police, this connection can only be neutral at best, and downright crucifying at worst.

Take your money and light it on fire, did you cry?
If so that was too much money.
--- Andreas Antonopoulos

This is why I'm developing a 20-point system (Venti) to help people stop min/maxing their positions like psychotic madmen. There is no reason to be greedy in a market that makes exponential gains over time on average. Anything we can do to LOWER volatility is a bonus. Trading on debt leverage is probably the worst thing anyone can do. Those who short this market need to know exactly what they are doing. In fact, in many circumstances, shorting should only be used as a hedge (meaning we haven't fully cashed out).

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Fantasy Bitcoin

This is why I started writing this post to begin with. I'm finally taking the loss on the little Fantasy Bitcoin experiment I have going. I started out with 20 BTC, each broken up into 20 five percent blocks, and a while back I sold one of those blocks at $40k. I'm now officially rebuying in with that block at $53k, and am officially down almost an entire quarter of a BTC.


Unfortunately I was not awake during the flash crash or I almost certainly would have got in cheaper. That's just how the cookie crumbles sometimes. The market loves to make big moves right before the New York Stock Exchange opens (4-6 AM Western time).


The hope here is for my new prediction to come to fruition. This is a spike to $70k over the next week or so with a crash to $50k. I'll start selling off some points around the $70k area should this happen hoping to buy in lower. The market has gotten very choppy and unstable lately, which is the perfect time to try and capitalize on these movements if we can time it right (big if).

Conclusion

Learning to take losses is not an easy skill to acquire and always leaves a bad taste behind. From a gambler's point of view: it is absolutely necessary to figure out when to cut losses and move on. However, from a HODLer's point of view none of this matters. Again, why trade a market that just keeps going up exponentially?

The ultimate skill is divorcing ourselves emotionally from the money we're gambling with. Trading emotionally is never going to result in a positive outcome. This market only rewards stone-cold capitalists and HODLERS.

The easiest way to reduce the stress of trading is to stop shoving in and out of the market with everything we have. Hedge those bets, gentlemen. Anything else in such a volatile market will only lead to devastation in the end. Glass Cannons get wrecked eventually, no matter how much fun they are to play.

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Where do you play Fantasy Bitcoin? Btw. this is the first ‚#glass-cannon‘ ever posted.

I want to create my own Fantasy Bitcoin.
Until then I'm just keeping track of this run manually.

They say we have a natural tendency to sell our gains too soon and hold our losses to long. I'm thinking it is time to be like buffet. Buy and never sell.

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That's the thing with crypto though... because if these 4 year patterns continue taking gains during the mega-bubble year should be really easy to do. Basically just have to wait for BTC to be trading higher than x10 the doubling curve (currently $150k; $250k at the end of year)

Should be interesting either way.

Imagine applying this question to each of your cryptos.

WOULD I BUY IT TODAY?

The answer to that tells you your best prediction!

LOL right well... that puts Hive as my #1 and I'm not about to quadruple down on Hive again :D

Everyone wants to buy the dip and sell high and no one is ready to take the loss but in the crypto market, things do not go the way we want all the time.

Learning to take losses is not an easy skill to acquire and always leaves a bad taste behind.

this is true but if we learn it then it can help us make better returns on trades.

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Actually that is a great idea.

Why don't you just start margin trading and working back and forth making one or two percent per move?

oh wait that's right because if you do there's no way you can get ahead because of all of those trading fees

Trading fees on Binance are 0.1% before the BNB discount.

Considering this is all percentage based I'm not sure where this is coming from.

I never said we should trade with the intent of taking gains after a few percentage points.
$50k to $70k is a 40% difference.

Anything we can do to LOWER volatility is a bonus

I was big on volatility harvesting for a while. The issue is the other asset(s) to choose to balance out.

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Well explained buddy! You know this formula for buying low and sell high is very easy but only those who are not panic sellers and buyers can work with it properly! Many traders will do the opposite by buying high and sell low because of FOMO. I did this mistake a lot of times when I joined crypto on 2017 😂

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Very nice post, I am new to this all, post like this will help me learn while I am on this journey!

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That's why you have to find the ones where you like the tech, the team, and the potential future and stick with them. All these other ones are fun to dabble in but a person should really only "invest" in something they've done some research on. That's one of the reasons some of my little "flyers" are coming out and going into Hive and Leo. The more I learn and interact with this community, the more I feel that there's a very bright future ahead. This allows me to, as you say, take the emotions out of the investment. I'm no longer agonizing about the price when it goes down. In fact, the only real angst I feel is when it goes up and I don't own enough. lol

Plus, as you said, just own Bitcoin. Out of everything in this whole space, it's the only one with solid fundamentals, an epic use case (store of value), and a massively distributed user base. Yes, there are whales that can still torch the price as we saw today, but those will start becoming more and more dangerous for them as the price gets higher. They could have spent 1000 BTC crashing the price $10k and it was back up $5k in 20 minutes. No chance they were able to buy much back. The overall bias in the market is still very bullish for a while in my opinion.

We'll see. Still early days in my book. I've got my autobuys set until we hit $100k. Every time it goes down, I get a little more for my money. :-) Thanks for the good read, as always.

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That's a bad lesson altogether.
A loss is a loss.
Glad we know #btc is going back up again.
Flip it and reverse it, a loss stinks.
All the time there is pain with this eventual
future gain.

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absolutely one of the few lessons nobody teach anyone and most will learn until they have lost enough, loosing is good when it happens within the plan

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Typically we tend to remember less our wins than our losses, it is a rare skill to be able to handle losses effectively, and a lot of people play with way too much than their hands can let out ,so a loss here perhaps might be more than a loss.. Given the volatility of crypto (which I believe many know of) the ability to HODL might be perhaps the most important discipline, knowing when to let go sell equally.. It's all based on the human factor, this much I can say, we are emotional beings..
Interactive and enlightening read.. thanks a bunch..
Cheers

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Yeah it was brutal.. but we all know that this is the way the market moves. HODLing shouldn't be a problem as we definitely haven't seen ATHs

Buy high and sell low.
Sell low and buy high.



this is the best way to lose money and also getting your consciousnesses go away. The domino effect is really pay a big part for me, one bad trade, will make another bad call.

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Who plays with glass cannons? Is that a musical instrument I'm not aware of? Yes please on the 70k. I need to take a bit of profit soon...

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Dollar cost average in / dollar cost average out. Put gains into stable coins and earn a nice interest on them on places like Celsius Network. This has been a very good strategy for me.

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A loss is not a loss until it is sold and solidified.
: : followed by a huge rise to kick you when you are down

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I don't like to think about this but in my heart I know I'm just a gambler 😈

The key is to put a limit on gambling money, and if it's lost, never add.

There are ways of loosing assets. One is holding while the price is ob ATH. That is hurting loss.

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