The Irrational Trader
Lately I've been thinking a lot about the cryptocurrency trading environment. At one point, my investments in IOTA, SAN, OMG, and NEO showed me with 5 BTC in profit. It was crazy. I should have sold. I knew I should have sold. And yet, others who knew they should have sold did sell long before that point and watched their recently abandoned coin 2x or 3x after that.
The markets, sadly, are not rational.
Or, to put it more clearly, the traders who make up the market are not rational.
2 months ago I argued for why it makes sense to not buy EOS now, but to wait. I argued the price would go down and maybe 6 months later would be a good buying opportunity. 20 days ago, I admitted I was wrong and the price of EOS was much higher than I thought it would go during the first 5 days of the ICO. Those who bought early did well.
Since then, it's been going down. Along with some of my other favorite coins like STEEM and BitShares. Maybe I was right after all. Maybe many months from now is the right time to buy EOS. Unfortunately, I didn't listen to my own advice.
A lot of traders like to share their wins and gloss over their losses. I'm not even really a full trader at this point. I still work full-time on my business FoxyCart, continuing to serve thousands of merchants around the world. I would love to trade more often because it's exciting and fun, much like playing Texas Hold'em. I enjoy the game. I enjoy trading, but I have a lot to learn.
I sold some bitcoin at $3,164. It was a new all-time-high, and I figured it was a good time to sell, wait for a retrace, and buy back in. The retrace never came. I was holding USD on Bitfinex when Bitfinex announced they were shutting down service for US customers. Not only that, they were suspending EOS and SAN trades for US customers in three days. So, I didn't listen to my own advice, and I went long on EOS. I bought some other things too and did well on those trades, but it just reminded me how irrational traders can be.
Technically speaking, BitShares and STEEM are two of the most performant, advanced, and useful blockchains in existence today. Traders don't care about that. Even huge fans of Steemit may not care about that. Why buy STEEM if you can invest in some new hotshot, yet-to-even-exist ICO and 2x, 5x or even 10x your investment in a matter of days or weeks?
Do investors and traders even care about a product delivering real value in this environment?
Right now, I think the answer is obvious. Very few people care. Many don't even read a white paper before jumping into an ICO. It's all about quick gains. Who can blame them. Rationality can't stand up against reality when the reality of returns is real in this speculative, quickly growing ecosystem.
I couldn't even listen to my own advice. Not only that, I sold my Bitcoin Cash at the all-time-low, which may be a first in the cryptocurrency world, considering how BCC/BCH was introduced. Most coins start with an all-time-low of $0.
And yet, I have hope. I recognize at some point the fever will fade and the creme will rise to the top. When the feeding frenzy slows down, this will no longer be our reality:
At that point, in that moment, people will look around and wonder, "Which blockchain projects are actually providing real value to humanity?"
The latest Understanding Blockchain Freedom video explored the real value of cryptocurrency a bit and maybe that applies here as well.
Maybe Gridcoin will get some attention for helping to fund science. Maybe those who have used EtherDelta, like I did this past week, will realize just how amazing BitShares and OpenLedger actually are (becuase when the Ethereum network is flooded, like it was last week, EtherDelta really sucks). Maybe people will see Steemit for what it is, a platform putting social back into social media. Maybe that's when rationality will return and the contrarian investors will have the last laugh. Those who buy coins everyone else is dumping. Those who know when to sell at the peak of the hype and buy what no one is paying attention to.
That's my hope, anyway.
That may also be my bias since I'm invested in BitShares, STEEM, and now EOS because I believe in the long-term value of these projects.
Maybe that's just my own confirmation bias, loss aversion, and so many other psychological mind games going on to keep me irrational.
Time will tell, I guess. In the mean time, I'm having fun and enjoying the ride. :) I hope you are as well.
We're going camping this weekend to enjoy the solar eclipse which is coming right through Nashville so my weekly Exchange Transfer Report will be a couple days late this week.
I hope you have a fantastic weekend. I probably won't be responding much until after Monday.
Steem on, my friends. As I argued recently, if you think STEEM and Steemit have long term value, maybe consider being a contrary investor and powering up while the price is declining.
Then again, why listen to me? I can't even consistently follow my own advice. ;-)
I am absolutely blown away that BTS and STEEM aren't in the Top 10 on CMC. I watch all these other shitcoins that don't have a product and people don't use get pumped and wonder, why is no one investing in tech that actually does something?
The answer is all of these new shit coins are designed to be pumped and dumped by the creators. The float volume is tiny, they hold majority, pump, sell to the bagholders and move on.
If crypto was valued on any fundamentals (adoption, transactions, hell user accounts) BTC, ETH (sorry), BTS, STEEM should be the top 4 on CMC... and not necessarily in that order
Well trading and investing are totally different games. One is irrational (trading) and one is rational (investing)... and the problem happens when you try to trade rationally and invest irrationally.
Whats the solution ? Simple and sweet. Use left brain to invest and right to trade. You have both so why not use both ? :-)
I am both trader and investor and once you know which is which its pretty simple (not easy). You don’t use logic for trading, just follow the market and you don’t follow the market when investing, just use logic.
You make it sound so easy!
Hahah. I think the problem for me is when both sides start fighting over a coin.
Trader: "Nice! Look at that sweet profit. Sell that thing and let's move on to the next pump."
Investor: "Are you kidding me? Would you have sold bitcoin at $1? What kind of idiot are you? This is clearly a long-term hold."
Trader: "Stop bringing emotion into a logical discussion. Don't get married to a coin. Buy, sell, move on."
Investor: "Why celebrate a small gain when you could have a life-changing increase with just a little insight, patience, and long-term vision?"
Trader: "I can't even talk to you."
Investor: "You're just an idiot."
(bar fight ensues as the market passes them both by, laughing)
@lukestokes :-)
Well, at the cost of repeating, I was trying to sound “Simple” not “Easy” ! They both have no relationship...
The key is not to let left (investor) and right (trader) talk to each other. This is the financial meditation :-)
One simple way (to start) is to keep the two (trading and investment) instruments different. For example I invest in stocks and trade in bitcoin. [Fact: I invest in bitcoin also, but just as an example]. So you cut out the news for bitcoin and cut out market info for stocks. Don’t try to find cause-effect relationships in bitcoin (news) and don’t try to change cause-effect relationship for stocks with market movement [unless cause change don’t let the effect change]
They both are Simple in the end. Its [Chaos] Trading and [Value] Investing :-)
I don't know where from you got this. But this is hilarious.
Haha, that's so true. You really can't predict the trends of cryptos accurately. No matter which path you take, after few days you feel I could have done better. And surely people are more interested in buying new ICOs than investing in coins like steem, BTS etc. Probably because ppl know that if you get in the boat first, you will get better rewards!!
It's a shame to see, tons of alt coins getting 10x-100x price rises from just hype or social media influencers the past couple months then crash, then to the next coin. I'm long steem and EOS!
Your post reminds me of something, from times gone by, pre-crypto days. A friend of mine worked for then Dean-Witter Reynolds, the big brokerage firm... his whole thing was "KNOW who you are, as an investor."
Back then, people were chasing around after off-exchange OTC stocks referred to as "pink sheets." Most it was a big game of losing money... because everyone was looking for "the next hot thing." He refused to call these people "investors," he called them "lottery players."
Much like cryptos now... and what you're describing... the market is filled with lottery players. And that makes the market unstable... people chase the next "I heard XYZ is HOT!" rumor and everything goes sideways.
How many actual investors are in the crypto market? People like us who hold Steem because it's based on solid technology and had something potentially game changing for the world... how many are there because "I heard Steem is a hot ticket!"... till next week?
Day trading is a whole different thing... but then you're a total expert on one or two securities and know what happens to the price when it rains in Dallas.
Our memories are short. At the moment, new cryptos sound a lot like another thing that once happened... people are almost frantically buying into anything that has the word "blockchain" in the description, like they once blindly bought into anything with "dot.com."
I think it's wise to pause and look at the fundamentals.
Have a good time watching the eclipse!
That FUD though ;)
I've been considering posting all my trade blunders b/c you're right, there's a lot of gloss out there. I'm proud of the portfolio I've built and I'm learning more every day, but mistakes happen and happen frequently. I learned to ignore the white paper on some of these trending coins and read the charts instead. I have 11 coins im investing in longterm and the rest are pump and dump margin gains I can build my BTC nestegg with.
I ended up selling a few of my BCC for $350 and the rest at almost $800. I have promised myself I wouldn't buy them back until they fell under $100.
I love the honesty man. You're not a Bro daytrader that's only in it for the quick cash. You care about the value of the service and what it means for our world. You're an early adoptor and a block chain advocate for all the right reasons. That's your brand and that's how people percieve you. You should be proud.
Have fun with the family camping. We're headed out to White House TN soon.
Thanks Matthew. We brought our new inflatable kayak. I'm really looking forward to trying it out. :)
so now you have to decide whether or not to sell Ripple (currently spiking). I just sold a fifth of my holdings and will sell another fifth if it gets to $0.40 (0.000099 satoshi)
I have yet to buy this banker coin. I know there's plenty of money to be made there, but on principle, I don't want to contribute to its volume.
I totally get what you mean, mainly because I've become somewhat your disciple in aspects such as this. I've always been a contrarian investor when it comes to stocks, so I know the risks involved. It's all too real, and while the potential rewards are high, the potential loss looms large. I really do hope BitShares and STEEM turns around in the coming months. That's in large part based on the sentiment of heavy investors. If only they could see what STEEM users are seeing.
5 BTC worth of gains?? Wow! That's very impressive, Luke! I would say congratulations, but I know that it's more calculated than pure luck :D
Thanks Jed. It was nice to see 100%+ combined gain on those coins at the highs, but they have come down since then. Shoulda, coulda, woulda sold. :)
With the way you think, I'm sure it's not going to be the last time you see a huge amount of green in your ledger :D
I hope that's the case. I at least feel if I do come into more wealth, I'll do good things with it. :)
Eos is the future of smart contacts, and it will trade below 1 usd soon , glad i listened to your advice
I wish I did also. :)
Buying is not a 1 time event ;-). You just keep buying it until you hit the number your want. Think 10's of thousands of EOS tokens. Do I want to buy that qty at the current price of 1.30? Heck no, so I'll buy a few k here and there each month. If we get lucky and see the price of EOS spike down to say .80, then i'll get a lot closer to my long term goal with a larger purchase. Of course this is all predicated that Dan and team stay on track.
Another great and informative article. Awesome!
As you know I'm totally new to crypto currencies, and even computers to some extent! lol.
So thank you for the education! Wow! So interesting!
Maybe I'll write something similar for precious metals and mining companies. I've been in and out of that sector for over a decade now.
Keep up the great work!
-Dan "World Travel Pro!"
You've got an incredible gift.