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A Growth Investor's Approach to

Cryptocurrency Trading
by twitter.com/@cryptic_monk

This Time is Different

A child of the PC revolution, I am always on the lookout for new developments in


information technology. This made me come into contact with Bitcoin early. If I
remember correctly, I read Satoshi's white paper in early 2010 and also quickly
started mining some coins. I must have lost that first mining wallet, because the
oldest Bitcoin address that I can still sign is from 2011.

Satoshi's concept immediately sent those shivers of witnessing a completely


new IT development down my spine. Being able to generate "money" on your
own PC and to send it to anybody in the world, without having to ask for
permission, had immediate appeal to me.

Yet, I couldn't for the life of me, have foreseen the significance, or the monetary
value that Bitcoin would gain over the coming years. If I had, I'd most definitely
have let my PC churn a bit more while it was still possible to mine that sweet
Corn on a CPU. And I'd probably also not have deleted my first wallet so
carelessly.

Life kept me exceptionally busy back then, so I only had time to observe the
developments around Bitcoin from the corner of my eye. Many things happened
that didn't make the space look very good: there was rampant speculation,
gambling, fraud, a proliferation of seemingly useless, low-effort forks of the
Bitcoin codebase.

In 2014, a Russian kid and his friends presented the idea of a new kind of
cryptocurrency that would be, as they promised, programmable. This sounded
appealing to me, but I didn't really understand how they intended to organize
and finance the project. I simply wasn't deeply enough into cryptocurrencies at
that time to bother about the concept of an ICO, and I also wasn't in the spirit of
investing the little hard-earned money I had saved back then.

The space kept evolving. Ethereum went through a boom that found a
spectacular ending in the DAO hack in 2016. Trials and tribulations aside,
promising technology was being built besides and on top of Bitcoin. This
started to give me that feeling I had when seeing my first PC, and later, when
discovering the Internet in the early 90s: everything was still shaky and shabby,
and maybe a bit worse than established lower-tech alternatives, but it could no
longer be denied that there was promise in this new technology, and that it was
here to stay.

Many builders participated in the Internet revolution, but the real money ended
up concentrated in the hands of only a few. This time, things were different.
Every project in the space had an associated token, infinitely divisible, traded
freely on shabby exchanges. You could participate both as a builder, and as an
investor, or in both roles at the same time. This revolution was getting
tokenized!

I had great fun participating in the Internet revolution, but seeing the real money
end up in the hands of Google and Facebook wasn't such a happy ending. So, in
August 2016, I decided to become a small time investor in cryptocurrencies and
started looking for some projects to buy into.

Fundamentals, and the Cycle


Having worked in tech for so long, I had no trouble finding ways to value the
projects I was looking at. I simply saw them as startups and checked on the
quality of their teams, the amount and quality of code they delivered, how they
handled communication, how their token was linked to the project's
functionality, what they planned to do and whether that seemed useful and
feasible.

I also soon felt that there was something else. Crypto token prices seemed to
move in cycles that were both quicker and much greater in magnitude than
traditional market cycles, like we know them from stocks for example.
Furthermore, prices seemed to have a tendency to follow trends, or even
memes. There was one coin that made me think particularly hard about this,
DOGE. DOGE didn't seem to have a lot of fundamental merits at first sight.
Development wasn't very active even back then, even the core community saw
it as a cute joke, yet price kept moving in these almost regular cycles, where a
savage price increase of about 4x would be followed by an almost full
retracement, only to be followed again by a savage 4x pump, like clockwork.

Doge's memetic 240 day cycle (via Coinmarketcap)

Obviously, I couldn't just buy the projects with the most promising
fundamentals. I also had to account for the extremely cyclical nature of crypto
prices, and for the crypto community's apparent eagerness to completely
decouple prices and fundamentals, at least temporarily. It didn't take me more
than three or four 80% losses to learn that.

Trading vs. Investing

Even after having discovered crypto market cycles, I stubbornly held on to my


approach of judging crypto projects by their fundamental merits, and I do so
until now. However, I learned quickly and painfully that even the best
fundamentals can rip a deep hole in my pocket if I buy them at the wrong time,
and, that the drawdowns from the peaks of those savage pumps are too big to
simply "hodl" (=hold) through and wait for the next cycle. I started to
understand that cryptocurrencies want to be traded around core positions to
account for market cycles, and that some diversification was in order to insulate
myself against the quite frequent, and sometimes dramatically sudden demises
of individual projects.

I decided to look for projects with excellent fundamentals, observe the


evolution of those fundamentals, buy the project tokens cheaply, and sell them
dearly, while always holding a (small) core position of the most promising
projects as a stake in the bigger picture of the crypto revolution, as an exposure
to the paradigm shift that we are obviously witnessing.

Cycles in Cycles

That strategy would have worked pretty well, if it weren't for another
idiosyncrasy of the crypto markets: individual coin price cycles are highly
correlated, and there are two big, overlaying cycles: the Bitcoin vs. "all other
coins" (aka. "alt coins") cycle, and the overall crypto market capitalization vs.
fiat money cycle.

Like a sector in stocks that falls out of favor, ALL crypto coins loose value when
the overall market corrects. A bit less common: they all reach similar
percentage losses at roughly the same time, independent of their fundamental
merits - with the exception of Bitcoin that usually loses a bit less. There is a
sub-movement where Bitcoin wins and looses market share (also called
"dominance") against alt coins in a cyclical manner.
While there's a general downtrend in Bitcoin's dominance over the growing
number of alternative cryptocurrencies, Bitcoin market cycles move in the
opposite direction of alt coin market cycles. Bitcoin: upper line, alts
represented here by Ethereum, lower line. (via Coinmarketcap)

The crypto market loosing capitalization as a whole can easily be explained by


money moving in and out of the sector. The extreme connectedness of alt coin
market cycles on the other hand is a testament to the immaturity of the market,
to the lack of agreement on how to assess alt coin fundamentals, and to the
fact that most alt coins still trade against Bitcoin. The alt market didn't yet have
time to develop its own sectors, investment themes and fiat onramps, so people
simply see their job as getting in and out of "alts" to make more Bitcoin.

While I expect some of this market immaturity to go away over time, for now, we
have to account for it, and the consequence is that there is a time for a crypto
investor to be mostly in fiat currencies, one to be mostly in Bitcoin, and one to
be mostly in the right alt coins. This creates a triple market timing challenge:
timing the overall crypto market cycle correctly, timing the Bitcoin market cycle
correctly, and timing the market cycle of alt coins correctly (augmented by the
challenge of selecting the right alt coins that will participate in the next cycle,
and spiced up by the fact that any alt coin's price frequently goes up 100%, or
down 50% in a single day).
Ripple decided to move today. No fundamentals required (via Coinmarketcap)

Game of Probabilities
By now, it should have become clear that it's impossible to perfectly master this
wild young market. Anybody claiming to be able to do so will soon be trying to
sell you a membership to his paid group.

What we can aim for is to put ourselves in a position where it's more probable to
outperform the market than to underperform it.

If the overall crypto market valuation is reaching new highs after new highs,
or is even going parabolic, we should start to scale out into our preferred
fiat currencies.
Once Bitcoin dominance over the crypto market has been trending
upwards for quite some time, we should consider scaling into
fundamentally sound alt coins.
Once alt coins have been gaining ground against Bitcoin for quite some
time, we should consider scaling out of them.
Once the overall crypto market valuation has retraced considerably from its
former highs (75% for the overall market, 90% for individual alt coins is not
uncommon), we should consider scaling back into the market with fiat.

This is of course a gross simplification of the crypto market's status quo, but so
far, I found it to be a valid basis on which to build my individual approach to
cryptocurrency trading.

We are aiming to time 3 different types of cycles: overall market cycle, bitcoin
cycle, individual alt coin cycles, and combine that with the selection of
fundamentally sound alts. Even with this simplified approach, we will never get
all our entries and exits right.
We will see the overall market go way up while we already partially scaled
out into fiat, or we will see it dump, while we haven't scaled out yet.
We will see Bitcoin gain dominance while we haven't adequately scaled out
of alts yet.
We will buy alts at what we consider low prices, only to see them break
through another 3 supposed bottoms, and grace us with an 80% loss.
We will wait for alts to reach lower prices, only to see them do a savage
300% pump in 5 days.
We will buy alts at the bottom, only to discover that we chose exactly those
few coins that refuse to participate in the next upswing.

As @cryptostardust put it, "shh shh, is oke". If we are too weak for all that, there
are at least two easy ways out: to not participate in the crypto markets at all, or
to buy 2, maybe 5 different coins with sound fundamentals, using a little money
that we can afford to loose, put the coins on a hardware wallet, and check back
in five years. I myself went for a combined strategy: I decided to hold a small
residual portfolio of coins with good fundamentals forever, while trading the
rest, roughly following the method described above.

Are We There Yet?

Now, how can we time those three different types of cycles, at least
approximatively? It's helpful that we are aiming for a high timeframe here. We
are not looking for ephemeral technical indicators to trade short-term technical
reactions. We want to identify the psychological symptoms that drive the high
timeframe cycles at their core: we have to look for other people's feelings of
fear and greed that, in their sum, define the overall market sentiment.

Crypto Market Cycle


The overall crypto market is likely near a peak, once the following symptoms
start to occur frequently:

Mainstream media publishes reports about people who got fantastically


rich holding cryptocurrencies and about 13 year old child prodigies that, at
this tender age, already built their own crypto company with 80 employees
Main stream media starts to extrapolate the current price movement into
the far future, "why Bitcoin could reach 100'000 US$ in five months"
People completely unrelated to the field start joining in great numbers
People on the street start talking about cryptocurrencies and about
investing in them
People who've been investing in cryptocurrencies for a while start talking
about making cryptocurrency investing their primary career
Memetic investor tips like just "hodl" (hold) it, or "btfd" (buy the f*ing dip)
appear frequently
Together with the overall market capitalization, Bitcoin price is usually near
a top in that phase

=> These symptoms should lead us to scale out into fiat currencies.

The overall crypto market is likely near a bottom, once the following symptoms
start to occur frequently:

Main stream media publishes reports about the demise of cryptocurrency,


about how the bubble burst - it was all just a new tech fad, and the market
is likely never going to recover
Predictions about crypto going to 0 abound
People leave the market noisily, claiming to have lost everything
People not into cryptocurrencies start gloating about the huge losses that
everybody still exposed to the market must have suffered
Memetic investor tips like "take profit" and "wait for confirmation of
reversal before buying" appear in great frequency
Together with the overall market capitalization, Bitcoin price is usually near
a bottom in that phase

=> These symptoms should lead us to scale into the market using fiat
currencies.
Bitcoin Cycle
The Bitcoin market cycle is likely near a peak, once the following symptoms
occur. Please keep in mind that I am not speaking about Bitcoin price reaching a
top here, but about the dominance of Bitcoin in the overall market, so about the
relative strength of Bitcoin towards alt coins.

Bitcoin maximalists start gloating about all alt coins going to zero
People start quoting low probability targets for Bitcoin dominance, e.g. a
return to 80% Bitcoin dominance
Former proponents of holding a permanent alt coin portfolio become
Bitcoin maximalists or just stop stating their opinions publicly
Statements like "all alt coins are shitcoins", "alt coins have no
fundamentals", "all alt coin projects die eventually", "FA for alt coins doesn't
work" abound
Memetic investor tip of the day: "only an idiot holds alt coins over a
prolonged period of time", "alt coins are only there to increase your Bitcoin
stack"

=> These symptoms should lead us to scale into alts.

The Bitcoin market cycle is likely near a bottom, once the following symptoms
occur.

Frequent talk about this or that coin "flipping" Bitcoin (reaching a higher
market capitalization than Bitcoin)
Infighting and depression in the Bitcoin community over loosing ground
towards alts, anger against alts "draining" money out of Bitcoin
Alt coins with the most inane value proposition can reach enormous
valuations overnight
Again, a disregard for fundamentals: "who cares about fundamentals, if it
pumps" (FA is only popular in the middle phase of an alt coin season, when
people flip money from pumped projects to less pumped ones and are
maybe already a bit afraid of the high valuations)
=> These symptoms should lead us to scale out of alts.

In the January 2018 alt coin bull run, Dentacoin, a coin vaguely targeting the
dentist market, reached a market capitalization of more than 2B USD. In
September 2018, its capitalization had retraced by more than 96%, to 81M USD
(via Coinmarketcap)

Altcoin Cycles
As mentioned earlier, the cycles of individual alt coins are highly correlated, but
of course there are still differences in timing and in the intensity with which alts
participate in the so-called alt season, or alt winter.

Signs of an individual alt being near a top:

Talk about "flipping" Bitcoin (or some other prominent alts)


Frequent mentions of impossible price targets, e.g. targets that would lead
to a capitalization of an individual alt way above the current overall crypto
market cap
Absolute euphoria in the now considerably bigger community, constant talk
about Lambos, buying islands etc.
Community members constantly rattling down memetic statements about
the achievements and technological merits of the coin that supposedly
made them rich
=> These symptoms should lead us to scale out of that particular alt position.

Signs of an individual alt being near a bottom:

The "investor" part of the community mostly went silent. Rarely, there are
flare-ups of anger, with ruined investors accusing the team of defrauding
them, not delivering fast enough, not doing enough marketing etc.
Frequent predictions of the project dying, its coin going to 0 etc.
The wider market is no longer interested in or talking about the project,
only a few stalwart investors and, ideally, those directly involved remain. It
seems to be common knowledge that this project is going nowhere.

=> These symptoms should lead us to ask ourselves: "Does this project have
sound fundamentals? Is its currency likely to increase in price if the market
turns in favor of alts?" If yes, we should consider scaling into it.

@EtherSchtroumpf is working on a formalization of the triple market cycle


approach. Only time will tell whether this approach can really work (and for how
long), but for now, his tweets on the subject offer a very good summary of the
subject (and a way to track the current positions in the three cycles):
https://twitter.com/EtherSchtroumpf/status/1034158343626088448

Altcoin Fundamentals, Altcoin Prices


Now we know when to scale out of the overall crypto market - we'll probably do
so too early or too late. We know when to scale back into the overall crypto
market - we'll probably do so too early or too late. We also know when to hold
more alts and when to hold more Bitcoin, and this too we will probably start
doing too early or too late. But how do we decide which alts to buy?

Fundamental Analysis
I will not present a complete FA framework here, because it's quite easy to
construct your own with the material that is out there. The essence of a good
FA framework is to not only concentrate on the "inner" values of a crypto
project (like the team, the code it produces etc.), but also on its perception (or
chance of being perceived) by the crypto community. As a rule of thumb, I
would say that if your FA framework manages to adequately explain both the
success of Ethereum and the success of DOGE, you should be set.

When constructing your FA framework, don't forget to observe that there are
various fundamental "fads" sweeping through the crypto community. One
month, it's privacy coins, the next, it's Masternodes, and then we see exchange
coins pumping for a while etc. If you manage to spot those fundamental trends
early, bet on the right projects, and get out before the trend is over, you can add
quite a bit of edge to your alt selection.

Another important aspect of alt coin FA is their current and likely future liquidity.
Liquidity helps us get in and out of positions, and low liquidity alt coins can
sometimes have huge price increases when they get listed on a high liquidity
exchange. Low liquidity coins can also frequently be bought at incredibly low
prices because it sometimes takes one single disgruntled investor market
selling to rip through 50% of the buy side on some remote exchange.

More technical aspects of alt fundamentals should be analyzed too - again, I'm
only giving hints here: the coin supply and inflation, the coin holder structure,
major past entry and exit points for holders (e.g. ICOs, airdrops, chain splits, all
time highs, all time lows, past accumulation zones etc.).

Furthermore, it can be helpful to structure the alt coin market conceptually, e.g.
by capitalization: high-/mid-/lowcaps, or by major exchanges: Binance coins,
Bittrex coins..., or by regional appeal: coins loved by Koreans, coins loved in
China, favorites of crypto trading "OGs", or by price cycle characteristics (see
below). While the alt market is highly correlated, over time, an attentive investor
can spot various small undercurrents that can be exploited quite profitably. Alt
trader heaven would be to trade the alt cycles with such high consequence and
deep understanding that the overarching Bitcoin and overall market
capitalization cycles can be ignored.

Speaking of heaven, an aside: Not looking at valuations in fiat, meaning:


exclusively trading alts to accumulate more Bitcoin isn't even too hard: by
consequently trading alt cycles, the crypto part of my portfolio "only" suffered a
drawdown of 15% in Bitcoin terms during the first 9 months of the 2018 bear
market (fiat drawdown however was brutal). Anybody with a keen sense for risk
and perfectly confident that Bitcoin will reach another high eventually could
well choose this alternative method and never, or only marginally scale out into
fiat at the end of the overall market cycle. I do not recommend this method,
mostly for psychological reasons, since 75% drawdowns in fiat are hard to
stomach, and since it's still hard to argue that Bitcoin (not fiat) should be the
currency that should be maximized above all by our trading.

Altcoin Price Action


Alt prices move in cycles, and those cycles are highly correlated. Still, alt coin
price action is far from homogenous, e.g. there are alts that tend to move early
in a so-called alt season and others that tend to move late. There are alts that
have a tendency to do full retraces, and others that show a general uptrend
between "seasons". There are some that do nice "accumulation" troughs, and
others that tend to produce capitulation wicks and V reversals, there are even
alts that move in perfect synchrony, or in similar patterns, but one after the
other (e.g. because their communities and principal market agents are
connected). Here, technical analysis, but also simple market observation can
help a lot, and like with FA, going deeper into TA would be beyond the scope of
this short sketch of an investment strategy. Because my strategy consists in
trading the high time frame, my TA is mostly limited to identifying horizontal and
diagonal support and resistance lines. In "my" time frame, psychology can quite
easily be gauged without resorting to complex technical indicators.
Decred doesn't produce the accumulation troughs that we know from many
other alts (via Coinmarketcap)

Risky Business
This comes late in my text, not because it's of little importance, but because
the hints given in this chapter will likely appear boring and commonplace to
most. You've heard it so many times because it's indeed important, and I'm
going to say it again: I see managing risk, or in other words, making sure that,
before everything else, I live to see another day in the market, as my most
important duty. I already implicitly laid out some aspects of my risk
management strategy, let's make them explicit:

By moving from fiat, to BTC, to alts and back, I try to mitigate the risk that
is inherent in the strongly cyclical nature of crypto asset prices: I try not to
hold coins that are at the top of their price cycle and will likely suffer a
rapid price decline soon.
By selecting individual alts based on their fundamentals and on their likely
position in their individual price cycle, I manage two kinds of risks: the risk
of buying coins that are overpriced, and, if this still happens, I at least have
a chance to be in a project that is good enough to see the next cycle and to
allow me to exit there.
By scaling in and out of fiat, BTC and individual alts, I mitigate the timing
risk associated with the triple challenge of crypto/BTC/alt cycles. I move
slowly, which always leaves me a bit of fiat to buy back into crypto, a bit of
crypto to sell out into fiat, a bit of BTC to buy alts, and some alts to sell
back to BTC. I rarely buy a planned position at once because my guess that
a particular coin is now at a bottom could be wrong, and I rarely sell a
position at once, because I could be wrong guessing that it's near a top
now.

And there's more:

An additional rule I adhere to is not to let a position grow above a certain


size though the act of buying into it. I allow it to temporarily grow to larger
sizes if it grows to that size through price appreciation. A rough sizing
guideline is that neither fiat, nor BTC should ever compromise more than
50% of my portfolio, ETH is allowed to reach 25% max, major alt coins are
allowed to reach 5%, and any smaller bet should not exceed 2% of my
overall portfolio size. Averaging down is fine, but I have to leave room for
this BEFORE I start building the position, not average down blindly on
something, just because I believe that at one point I MUST be able to catch
the bottom.
My strategy does not use leverage, because leverage exposes a trader to a
number of additional risks, especially if he wants to hold positions for a
long time.
I strictly avoid taking credit (which are after all just another form of
leverage), and this prevents me from going short at the moment, my "going
short" is selling crypto for USD. I might modify this rule slightly in the future
to allow hedge shorts in Bitcoin.
My strategy does not use stops, mostly because I find them impractical in
many low liquidity alts. Stops are one way to reduce risk in a position (by
limiting the maximum loss). My way is to limit position size itself and to
average in/out, which appears to work reliably on the high timeframe that
I'm aiming at.
We can trade perfectly safely and respect all our risk management rules,
then we go and install a new wallet of that hot new coin, and the next
morning, we find out that there are no more funds left in our accounts.
There is no way to overemphasize the importance of respecting IT security
best practices when dealing with cryptocurrencies. This would in itself
warrant a separate text. For now, I'll just point you to this excellent post by
Taylor Monahan, Founder and CEO of MyCrypto:
https://medium.com/mycrypto/mycryptos-security-guide-for-dummies-
and-smart-people-too-ab178299c82e. Some rules and precautions
mentioned in this post might seem far fetched. They're not.
And then, there's the most important risk management rule of them all:
cryptocurrencies are an inherently risky asset class, and there is NO sound
way of hedging inside that asset class alone. And by NO sound way, I mean
NO sound way, even if I'm fully in, say, USD on some crypto exchange, or
hold a hedge short against my entire BTC balance, the counter party risk in
the entire industry is off the scales compared to what I could possibly
encounter in any civilized national banking system. So the primary way to
manage crypto risk is to not have more money in this market than one can
afford to loose, to take money out of the market once substantial gains
were made, and to put that money aside as raw fiat to use in hard times, or
to put it in other investment vehicles that bear as little correlation to crypto
as possible. I have chosen a simple, but tremendously comforting way to
look at things for myself: I don't consider the money that I have in crypto
"real" money, not even the fiat balances in my trading accounts. None of
my real life budget decisions are influenced by my crypto "money". My
crypto "money" only becomes real money when it hits my traditional bank
account as a terminal withdrawal from my trading portfolio.

First Rule of the Day: Don't Go Mad


What I sketched out above is essentially a contrarian, value based approach to
cryptocurrency trading. I call it a "growth" approach, because any value
analysis of cryptocurrencies is still quite shaky, and because crypto prices are
so cyclical that they demand a certain amount of price oriented trading.

Now, this sounds easy in theory: buy fundamentally sound coins when
everybody thinks they're absolutely worthless and will go to zero, and sell them
when everybody thinks they'll moon forever and will soon exceed Bitcoin in
market capitalization. Only that: I am everybody too, and so are you. I too think
that a coin that fell for months and is barely even talked about is actually
worthless and will go to zero, and I too think that with all these new
technological achievements, my favorite new coin will forever moon and soon
replace Bitcoin. In other words: as a contrarian, I have to counteract my own
sentiment, and I don't have to do so in theory, I have to do so when the
sentiment actually arises (provided that I'm more or less attuned to general
market sentiment, which is quite likely if I'm not a psychopath and follow the
market with some regularity). How can this feat of counter trading one's own
sentiment be achieved?

Here are a number of strategies that helped me. Since we are deeply in the field
of psychology now, your mileage may vary, and you might have to find your own
approach to manage your feelings towards the market. The core approach
should always be to stick to the methodology and to not let irrational feelings
lead to irrational actions. The management of our psyche should first of all allow
us to follow our own plan, because, even if we suffer a bit while doing so, as
long as we follow the plan and the plan is good, we should be fine.

The strongest weapon against negative market sentiment is a sound, fact-


based analysis of all the aspects of a project's fundamentals. I can buy a
coin that I know to be strong fundamentally with a smile, when the price is
right, no matter what everybody says. Strong belief in fundamentals can be
a double edged sword: it can make us buy at too high prices, average down
for too long, or sell way too late. So we must try to balance our belief in the
fundamentals of a project with a cold, hard look at the price and at the
market's behavior towards that price.
Any kind of filtering or comfort-seeking is fair game in today's age of social
media. My fundamental beliefs and my observation of the price action lead
me to be certain that I should continue holding a particular coin, I have
rationally analyzed that situation several times, but my stomach turns each
time I see people talking about that project? I take a step back from social
media to regain my sovereignty. Maybe I find a group that actually works on
that project and discusses what can be done instead of how shitty
everything is. Hell, I might even work on the project myself, who knows
what I'll discover. This strategy works the other way too: blinded by
euphoria? Let's go for a walk in the woods and think about how ridiculous
that Lambomoon talk really sounds in the clear light of the day. I couldn't
even explain it to those nearest to me. Let's visit the tech forum of that
particular project and observe how much still needs to be done for it to be
a real success.
There is a persistent belief that winning in the 24/7 crypto market demands
consistent, hard work, ideally 24/7. In my opinion, this belief is nothing
more than the blind application of the conformist protestant work ethic to
the life of a trader. Markets move in leaps and bounds. There will be times
when they demand more of our time than we have available, but there will
also be times when the best we can do is go for a swim, a long hike, or a
two month sailing trip to the Caribbean. Managing our strength to be ready
to outdo ourselves in a demanding time, managing our psyche to be strong
when we hit a rough patch will trump 24/7 blind toiling anytime. If you're
like me, you'll never stop thinking and learning about the markets. You'll
simply love them too much. But you will at the same time not feel like
having to constantly "work" them, to take trades when there are actually
none to take, to make decisions on subjects that you don't fully
understand, to account for future events that are extremely unlikely to
happen. Relax, take a step back, we want to dominate the markets with our
superior thinking, not by accepting them as our new boss that forces us to
clock out every time we go to the toilet.

I have chosen a contrarian, high timeframe approach to trading the crypto


markets because it lies in my nature to be contrarian, and because my extensive
past experience allows me to analyze and predict technological developments
on high timeframes. If you read my text until this point, you too probably have a
certain sympathy for that way of thinking about markets, so you might want to
try and adapt my method to your own needs. On the other hand, maybe you
simply cannot get yourself to see the markets like I see them, you don't believe
in the high timeframe, or you cannot stand sitting it out. In that case, you
probably don't have to try to force yourself. Just go looking for a method that
better matches your skills and your psychological structure.

Skinning that Cat

So far, I talked about cryptocurrencies like I could also talk about stocks: as
assets, that I buy or sell based on their evolving fundamental value and current
price. Cryptocurrencies however offer far more than that. They are belief
systems, they represent a stake in a network, they can be used to vote, or
simply to gamble, they can be mined, or staked to secure a network, they can
be earned as bounties, or spent for charity, they can even, who would have
thought, be used to pay for goods online, or to program a contract for that little
sports bet we have going with our friends at work.

There are infinite ways to skin the crypto cat, and a serious crypto investor
should explore all of them. This doesn't necessarily mean that every crypto
investor has to become a staking or mining specialist, or has to learn how to
program and use GitHub to contribute to projects, but every investor should
know enough about those subjects to understand their impact on the
fundamentals of the projects he buys into. What price do the miners mine at?
How high is the selling pressure from Masternode owners? Was a big part of
the initial coin supply handed out to serious contributors, or to Bitcointalk
bounty hunters? How easy is it to use the technology that the project develops?
Does it work at all? How good (and sympathetic) is support from the community
when things go wrong? These things matter, and they can be experienced by
anybody involved in the space. Everything is out there, documented, open
source. We need that information and first hand experience to make solid
investment decisions in this emerging field.

The crypto marketplaces themselves have unique properties too. Most


exchanges offer easily accessible APIs, and there is an entirely new type of
exchanges: decentralized exchanges. How does it feel to make the market for a
coin? Let's rent a server in the same hosting center of the exchange and try our
hand at high frequency trading. What unique challenges do DEXes offer to
automatic trading systems? We might strike gold in the most unlikely venues.

We Are All Happy Animals (Except for that Cat We


Just Skinned)
A good trading method fits the abilities and the psychological predisposition of
the trader using it, and it is based on a sound core hypothesis. I chose the
method I described here:

because it fits my natural reluctance to follow the herd


because its high timeframe orientation leaves me plenty of free time to look
at things the way I like to look at them: thinking about them long and hard,
studying all aspects, exploring, but also taking the occasional step back,
going for a walk in the mountains
because it allows me to play out my strengths in analyzing IT projects
because it high timeframe exposition fits my core hypothesis of distributed
ledger technology being the 4th IT revolution after the PC, the Internet, and
social media

Will the crypto wolf capture Bitcoin price movements more precisely? Will the
crypto monkey be more accurate in picking the right coins at the right time?
Will the crypto bird be more aggressive and thus more successful in moving in
and out of fiat?1 Sure. Like any other trader, I can go to Twitter daily and find
somebody who out-trades me in almost all aspects, or at least is able to make it
look as if he did.

The fear that my method could be inadequate, or at least far from optimal, is
always present, and it's often strongest when acting in the market has already
become difficult, when it's time to buy that bottom nobody believes in, or to be
an idiot and sell so low, as everybody says.

Especially in a time of ego-driven social media, there is a number of traders, or


people acting as if they were traders, that present their approach as the only
valid one, often accompanied by pictures documenting the riches they
accumulated thanks to finding the holy grail in the market (they'll also sell their
insights to you for only 0.2BTC monthly).

When I get this kind of inadequateness FOMO (fear of missing out), I made it
the first rule of the day to not change my method due to that, because flip-
flopping between methods without clear aim appears like one of the easiest
ways to loose money in the markets. I do sometimes try out new methods in a
sandbox (e.g. by allocating a small portfolio percentage to them), and of course
I try to learn from those traders that I found to be both straightforward in their
expression and successful by following them over the years.

Another trick that helped me overcome inadequateness FOMO is reading about


the approaches and lives of successful traders ("Market Wizards" by ...) is a
good place to start. The deeper I looked into those individual approaches, the
more I realized that those successful traders all developed wildly different
approaches, and that they unanimously think that following and refining
precisely their individual approach is their only guarantee for continued
success.

In the end, successful trading means abandoning the focus on one's ego and
admitting that we are powerless towards the market, that there are no simple
rules that will work every time, that our actions will often be grossly inadequate,
and our predictions for the future just plain wrong. That the only thing we can
do in the end is try to carve out our very own little niche, and make sure that we
live to trade another day.

p. I'm referring to the habit of many crypto traders to hide behind


pseudonyms, from real and imaginary animals, to movie characters,
celebrities, or other alter egos like my "@cryptic_monk". On one hand, this
is done to reduce exposure to certain kinds of risk (e.g. it's easier to hack
or even physically attack a person if his/her full identity is known), on the
other hand, it can lead to a refreshing detachment of one's own "trading
character", and to a friendly meritocracy among traders (during bear
markets often mildly salt infused). ↩︎