Day trading is a bad idea
I've been thinking that a lot of the problems we see in crypto whether it be the ICOs, or regulatory risks, or increased tax complexity, they all seem to stem from day trading crypto tokens. The people who complain that they lost money are all people who buy high and sell low trying to time the market. In essence, trying to time the market is nothing more than gambling with tokens and when you gamble you win sometimes and lose sometimes. Whether you're doing a short, or you're trying to double your Bitcoin holdings, it's gambling.
Why not just quit day trading and invest on the fundamentals?
The main reason people trade is to generate some kind of income from which to buy more of the tokens they want or in some cases people are doing it as a way to make more fiat money. In essence it's just speculating on the daily or weekly price movements. If you're a person who has your expenses paid for the month and you don't need any additional income then what reason exists for you to day trade vs just invest in projects you believe in long term?
Warren Buffet communicated his knowledge on how to choose stocks by security analysis instead of technical analysis. Technical analysis is the techniques day traders use to predict a price movement based on some measurement of patterns and signals. Security analysis is actual analysis of the fundamentals of a company or in the case of our space we would be analyzing the technical specifications and community quality of a token.
There are a few tokens which I really believe have novel technologies and they are worth holding for 1 year, 3 years, 5 years, or in some cases if they are tokens which pay a dividend, hold for life. As I'm able to earn more on Steem the idea of day trading becomes increasingly less attractive.
Day trading offers rewards which may not outweigh the risks for me
While day trading is fun when the amounts as small, this all begins to change once the tax burden is considered. A person for example who buys a token and then sells the same token for a higher price a week later is going to have the highest capital gains rate possible. There is nothing fun about paying higher taxes for the privilege of taking on greater risks when it is possible to pay the long term capital gains rate for much less risk. The risk being that crypto will be banned and the entire space collapses is a legitimate risk but as time goes on this risk diminishes which means the long term bet on a token becomes increasingly less risky if the token has strong fundamentals behind it.
We can debate what criteria would make up fundamentals for a token but in my current thinking scalability is a big issue. Ethereum lacks scalability and for this reason it can reach a certain size with regard to usage and ICOs before the network grinds to a halt. The technical design of Ethereum is also slightly flawed because it's Proof of Work trying to transition over to Proof of Stake which will be complicated, and governance isn't set up yet either. What Ethereum has over Bitcoin is evolvability, flexibility, but there are new projects like Tezos which have every technical advantage over Ethereum that Ethereum had over Bitcoin.
When betting long term on a token I typically look for tokens which have at least some of the qualities listed below:
- Evolvability of the underlying technology.
- Scalability of the network.
- Quality of the stakeholders.
So we can look at evolvability and see Bitcoin lacks this but Ethereum, Tezos, Tauchain, all eventually will have this. Ethereum has evolvability to a lesser extent than Tezos because it doesn't have formal governance baked in, it doesn't have the Nomic capability (self updating/self defining property). Tezos and Tauchain both have the Nomic property of self definition, self updating, and in evolvability they have a clear technical advantage over everything else that exists. Tauchain potentially due to it's TML (Tau-MetaLanguage) and it's planned symbolic AI elements is tentatively set to be the most evolvable technology in the space.
Next we look at scalability, and Iin terms of scalability Ethereum doesn't have much more than Bitcoin, while Tezos may initially have even less than Ethereum, which leaves Tauchain which at this point is an unknown in this area. EOS will have the advantage over all other projects in terms of scalability but lacks the evolvability aspects. EOS is the clear winner right now for most scalable technology.
Quality of stakeholders is one of the most important aspects to look at. If we look at mere quantity of stakeholders then clearly Ethereum is the winner. If we are looking at the quality of the stakeholders then this is a much more difficult measurement but in general what I look for is whether or not the stakeholders care about the ethical use of the technology they are developing and or funding. The idea being that the stakeholders should want to build a better world for everyone and not just build a weapon, and not be narrow minded about the utility of their technology. On this it's very difficult to assess Tezos because they are so new but there are different opinions currently on the ethics of the founders of Tezos. The same can be said with Ethereum where there is some conflict between The DAO which split Ethereum into ETH and ETC over ethics. Tauchain seems to have a high quantity of ethical people involved but there is also a very small population of people involved so there is no clue to know if this can hold. EOS if I assume it's the Bitshares community + Steemit community, can and will likely have ethical people involved, but again it's too soon since the project just launched.
On this criteria, Ethereum is known to have ethical issues and some involved who aren't considering the tough ethical dilemmas that go along with AI and smart contracts. This was indicated by the resistance to the hard fork with The DAO and in some of the ideas "code is law" and "unstoppable code" which completely ignores ethics. EOS if similar to Steemit, does and will have some kind of ethics but Steemit ethics are negotiated not based on a social contract like with Bitshares, and not based on any known principles, but popularity or populism ethics. This is acceptable for a blogging platform but not necessarily something which can scale or deal with smart contracts and AI. EOS being well funded will have to in my opinion put a lot more focus on ethics. Tezos and Tauchain are unknown but I can say in my interaction with Tauchain developers that the few who are currently involved are concerned with ethical dilemmas and if the situation holds then Tauchain will have a conscience.
Conclusion
The tax implications do not favor day trading at all. Long term capital gains taxes are simply more efficient. On top of this, if someone simply holds high quality tokens then if the token market is anything like the stock market then quality tends to rise in price. Identifying quality tokens requires analysis and currently we have too many TAs and not enough SAs or in other words, too many technical analysts and not enough security analysts. More focus on the fundamentals, the technology, the quality of the community of stakeholders, the potential for long term growth and utility, are what we need from blogger analysts.
Day trading is a bad idea for small crypto investors.
It's a terrible idea lol, don't trade - LEARN :)
Great article. I agree that day trading is where most people lose money. Most buy coins because they think they will go up with no fundamentals! There are over 800 coins now and the vast majority are broadly similar to bitcoin etc. Several have different use cases but most do not. There will be a lot of consolidation as we move forward and when we do, those speculating on coins they know nothing about will lose a lot of money!
Exactly...most traders lose in day trading in the long run. No different than stocks....only professionals should mess with it. Greed is addicting!
I'm a crypto month trader.
I think you are spot on here and that the longer term mindset is how to truly win in these markets. With days like today, it's the perfect opportunity to cost average into some of these alt coins with utility to hold for the long haul.
if you know what youre doing, then it may be not so.
Cool read.
Excellent post, I think if you are a pro trader than day trading is not that bad but for an average Joe day trading can do some serious harms!
do you know of any bloggers on steemit that do SA's? I am a long term investor in crypto and following them would be helpful.
YEP
True to that but given the volatility, its a good idea to trade for those who have the skills and resources!!!!
Great post! Very informative
Not everyone breaks the law.
If you are in the USA, don't be the one they make an example of...
Day trading is very risky. I just buy and hold Litecoins.
Love this. But I can't agree more than this that it might be a bad idea to be a day trader. There are conveniences for day trading which would be less taxes or using it anywhere .
I feel like we should stop and look at the brighter picture instead of doing it as a day trade , maybe we will benefit more from it that way @dana-edwards
Day trading is like going to Las Vegas. It should be done with 'entertainment' money, not your child's college fund.
There should be a CryptoCurrency named 'SlotMachine' for people who just want to gamble.
nice educative post, thanks for sharing!
I really like your post,
I've upvote you,
I beg my upvote,
thank you
Day trading is part of what messes with understanding the stock market and other ways to play in the "real" economy. I am new here and new to crypto and very interested and surprised to see all the ways people are making plays with these currencies.
My degree is in accounting and I have done this type of work for many years, but finance has never been my thing. I feel like I have now arrived in the wild, wild, west. I came here to find another place to get my health and weight loss message out but instead I have spent many days now reading up on crypto issues. I'm hoping the fog will clear soon! Thank you for the helpful post :)
Thanks for your thoughts, I enjoyed reading your analysis. I am more of a trend trader but the tax implications are the same.
excellent post. i agree with you completely !
Thanks, Completely good I think that
It's nice and educative. Thank u
I really like the info that you supplied here. There are so many different opinions and thought behind Cryptos right now. I think we are still in the very early stages of this exciting way to get out of Central Banking.
That was a very interesting and enlightening read. Thanks for taking the time to share your knowledge, I'm not engaging in day-trading because I haven't fully understood it and felt the risks involved can be high and also it involves quite a bit of time studying the market. I am just holding certain coins and tokens that I believe in for the long term.
Day -trading is always the riskiest option for every investor. People generally day trade for making quick bucks. Obviously, the quick money is great and that's why people attracts to it more often. But day trading without knowing fundamentals will never ever go profitable. Because people who don't know the fundamentals only try to estimate the value on the basis of past months chart, but it is not necessary that price always follows the past trend. That's why people loose more money on day trading than any other investment option.
And when it comes to crypto, it is the highest volitility market ever exists. I would suggest never ever day trade on crypto, at least trade for medium term that is at least 3-4 months.
Anyways thanks @dana-edwards.
fundamentally, this ain't warren buffet investing "1-2-3 learning course" yippieyeeyo value buying, fundamentally you are buying and hoping some names will succeed in the future, it's like believing in a small pharmaceutical med company which is trying to get approval from the FDA for some medication against cancer...it's not sure yet it will be a succes or that the medication will be sold into the market mainstream, for cryptos you are buying your dreams which believe it will succeed....sure as hell some will succeed, but right now for many of them it's like trying to find a needlestick in the dark..
This is exactly the kind of in-depth, thought out analysis that most people are too short-sighted to do.
Buy-low, sell high is the extent of either their intellectual capacity or their willingness to work. Everyone is looking for the fast buck, or coin, and technology makes it so easy for stupid or lazy people to jump right in up to their necks (or over their heads).
Gee, when did this happen before, 19-twenty what, 19-ninety what?
Kudos for even mentioning the tax implications.
Amazing post
every one of my long term investments in crypto were fruitful.. however lost a lot of money in day trade :P
This is a good post, I really like it. Hopefully the next post is better than this. Thank you already share. And thank you too, If you get time, to see my post today and upvote and like it I'm very grateful.
Crypto won't be banned, but I do agree that longer timeframes seem to be easier to trade with crypto. It is still fun to play the day trade game, and when you have a big day, it feels amazing!
yes, it s better to buy and forget about it and come back after 1 year
I appreciated this as I started to feel I wasn't maximizing my potential if I didn't branch out into other cryptocurrencies after only really discovering them 11 months ago when I started here. This article has helped solidify for me I should stay where I am until something grabs me like Steemit did.
Long term all the way :)
You're very right! The whole daily drama on the price is what's making the wait longer and longer. People buy with no research done whatsoever and then there are those on the viral line just throwing out "information" that they think is right. So there are many aspects. Maybe in the future there will be some changes be made to get this over with! Cheers!
#upvote #follow4follow #resteem
wow its very good to give the credit to original website i like it and followed you
People want to make a lot profit, and make it FAST
I hold my ETH and STR
Who bought here STR when they are high :D click upvote if you bought STR when 1000+ hahaha I bought it around 1181 or 0.03 USDT
Yeah, agree, day trading while thrilling is nothing more than gambling. Buy, mine, and hold! Good post
At least day trading with cryptos you don't make any Wall Street brokers rich. I would day trade cryptos if I had the funds to engage in this activity. For me it's long term holding of alt coins with small funds.
For people like me who invest usually few thousands of dollars . It's just a bad idea i am on it for long long time.. there's sustained growth coming and the payout could be far better than day trading
Nice post
Long term investment is always the best in crypto investment.
Excellent article. Thanks for the enlightenment
okok
When I read that some guy turns $55M into $288M through trading Ethereum...it worries me.
I am totally with this article. My feeling is that Day Traders wrecked the Stock Market, and undermines the real purpose of it anyway. Invest in good projects or Companies, and share in their successes, because you are a part owner.
Day traders care nothing about the things they invest in. They only care that they can catch the low and high tides of the trade.
If you can Invest in projects and companies you care about, and your portion of investment gives you the right to add your comments, whether they be constructive criticisms or just giving a high five for a job well done. How great would that be. It's not hard to consider that some Corporations would care little about their investors. For the most part many of these investors, are not investors for right reasons. I'm going to need to look into tauchain, and tezos.
Amen! Tax implications aside, acting on weekly/monthly highs and lows while hodling based on fundamentals seems like the way to go given the nature of the beast. The market's too small to accurately time price movements.
I would like to see more projects using cryptocurrencies/digital assets to adopt Steemit's multi-coin approach based on the intended use of the token because speculating on the value of a project is fundamentally different than using a currency with asset-backed value.
The sad truth is that the majority of people who trade crypto just simply don't bother trying to understand the fundamental technologies that drive the various token startups, so they are just simply not equipped to assess these types of investments.
It seems that the talking heads with the most followers in the blockchain space not only have a focus on trading and trend analysis, but also 90% of them seem to have only a vague understanding of how the software industry works, let alone how to assess risks to adoption or innovation gaps.
What this says is that a large number of people are far more interested in how they can make money off of cryptocurrency versus trying to really understand how any of it works beyond the sales pitch.
In our culture, over 3x more people study business management than STEM. The tendency towards day trading over researching fundamentals is a reflection of this.
nice, I will follow you