Introduction
Welcome to the last section of the course. After this we invite you to check out our Analysis on the different coins we offer as well as the Trading strategy! Also: We have a new article releasing every 4 weeks deep diving into interesting and relevant topics related to trading and crypto. One more thing: We have been repeatedly saying this throughout the course so you probably know whats coming. Study. It’s literally the name of the section and we, once again, implore you to not only view the information but to actually take it in, learn it and improve whatever may need improving! Now let’s lot into:
Why most arent profitable
Why most people are not profitable
In this part we will look into what it actually takes to even be profitable and what is important in that journey!
At the end of the day trading is just maths combined with being able to create a strategy that works more than 50% of the time. On a macro view it is of course much more complex. Executing a strategy even if it may seem easy on paper is often way harder when you actually have to do it. For now lets look at the maths aspect as we hope this brings clarity into how important risk management, position sizing and a plan really is. Don’t worry, the math isn’t complicated at all and everything is outlined with words! :)
Heres the math:
If your strategy works more than half the time (>50%) and you have defined your stop losses and exit points properly, mathematically you will be profitable (under the assumption you use the same position size and risk management every time) Example:
The numbers we use here are just for show purposes.
Strategy works 51% of the time.
You exit a trade (no leverage) if it is 10% in profit
You also exit a trade if it is 5% at a loss (of course this number will be adjusted to whatever invalidates your setup)
Given:
Probability of Profit ( P ) = 51% = 0.51
Probability of Loss ( P ) = 49% = 0.49
Profit ( Profit Profit) = 10% of $100 = $10
Loss ( Loss Loss) = 5% of $100 = $5
Expected Value = ( 0.51 × 10 ) + ( 0.49 × − 5 ) Expected Value=(0.51×10)+(0.49×−5) Expected Value = ( 5.1 ) + ( − 2.45 ) = 2.65 Expected Value=(5.1)+(−2.45)
=2.65
So, on average, each trade has an expected value of $2.65. Now, if you make 100 trades, the total expected profit would be:
Total Expected Profit = = 2.65 times 100 = $265
So, after 100 trades, with the conditions give above, you would expect to have $265 in profit. Or a 2.65x on your portfolio.
Obviously these numbers are just for easy visualization and you may not want to execute 100 trades perfectly to gain 265$ but this example was simply to show you that trading, given the right construct, is not actually gambling and can genuinely be profitable over time.
„Seems easy enough! Nothing can go wrong“ - If you are currently thinking that we would advice you to keep reading because as easy as it sounds, is usually not how easy it is to actually do it.
The entire setup which we outlined above can easily be invalidated by one of the few things and more: risking more than what you planned for, not having an exit strategy or stop loss. How these things should be managed will be outlined later. Just to showcase tho: If we amplify the numbers mentioned earlier by … let’s say a 1000x - your profit after a 10% increase will be 10.000$. Now while it may be absolutely rational and easy to say that you would simply exit the position at that point many underestimate the power of greed. Once you are actually in that situation where you can see numbers you have only dreamt of clear as day right in front of your eyes, exiting becomes very very hard. One very good way to circumvent this is to simply have a solid plan. If you have repeatedly studied over and over again and manifested that no matter what you will exit after a 10% profit- you will know once you are in the situation that anything that your brain is telling you- which isn’t taking profit- is pure greed. Annother way to make it easier is to simply place stop loss and take profit orders. It is way easier to control yourself with not moving a take profit higher than it is to make a completely new one from zero.
If you however risk a big part of your portfolio, do not have an exit strategy and a stop loss, your chances of being profitable over time are decisively more slim.
Annother important part is: to be aware of your skills.
Assuming you have a net worth of $10k. You have done 3 trades in your life, with 100 bucks, with little successes. Should you increase your portfolio size from 100$ to 5k? Probably not. You most likely aren’t good enough. Being overconfident is one of the easiest ways of blowing your account. Why? Because it isn’t rational. Making a trade because „I know I am good at this“ isn't a good trade. It’s just gambling with confidence because your other gambling trades didn’t blow up in your face.
On the topic of emotions in trading we personally do believe that most people will need to learn their lesson in a painful way. For the absolute majority of people it will be tremendously hard to actually distinguish what is rational and what is greed if they have never given into greed and found out that they were actually played by their emotions. Of course we don’t want to generalize this too much as there certainly are people who may be able to do it right from the start. But once again we want to remind you: If you trade you should be aware of your personal skill set. Many people get lucky in the beginning and start to become overconfident. This may lead to an individual easily giving into greed and then loosing really big when it goes south. We have outlined more specifically how risk management can look in our trading strategy section but we just want to remind you here that most people shouldn’t risk a, for them, large sum of money in the beginning because they simply don’t yet have the skills. Painful doesn’t mean you loose your place to sleep obviously. It simply means you have lost so much that you have internalized that you will not act like that again.
Picking the wrong assest is also noteworthy. There are things which simply do not adhere to any fundamental logic or pattern. Meme coins, some penny stocks … even if you have a good strategy picking a meme coin is, again, simply a gamble!
After outlining what many do wrong and what expectations may not be ideal to have we will now delve into how we think you can practice to become as good as fast as possible.
learn
There is no way to become a solid all around trader by just reading information, even if it is the best there is. You simply have to put yourself into the situation where you actually have to use the knowledge you have built up and where you will see how you personally act in these circumstances. There is no substitute for experience. Yes if you are well prepared and capable you will be able to navigate situations properly when they come around for the first time but experience gives confidence and, more importantly, an edge over new traders of whom there will always be many.
We are not conveying financial advise, we give you information upon which you yourself can decide what to do. We think that entering the market with real money makes it tremendously more interesting and educational than using a demo account, however, we would recommend to use very very little money in the beginning. An amount where you wouldn’t mind if you just straight up threw it out of your window.
So how can you train? A framework:
First we will outline the steps. Then we will go into more detail on them.
Step 1: Chose a small selection of coins or stocks to focus on.
Step 2: do your preferred analysis.
Step 3: enter the market based on your analysis with clear entry and exit points! Execute the trade as good as you can. Document your trades in a book or on an excel sheet.
Step 1 (explained): We think watching more than 5 and trading more than 3-4, assuming the position is held for days or weeks and not longer time frames, results in not really watching any of them properly. Doing few very good is better than doing many but all of them not very well.
How do you choose which ones to focus on?
You will want to look for anything that has a relatively high volatility. Meaning that the asset you pick moves a lot in a short time frame, both up and down. If you pick Coca Cola, Which tends to only move a couple percent a year, it will be more difficult to find entries for your trades because the stock simply doesn’t make big moves in any direction usually.
Annother plus is also if there is a lot of information available around the asset. For example, For Bitcoin, there are free heat maps, order books, analysis and opinions all over the internet. Trading something like BTC will most likely allow you to go deeper on your research and make better decisions because there is just such a broad spectrum of information available. For the traditional stock market it can sometimes be harder to find as good of resources for little money. Yes there are things like Bloomberg Terminal which give out very high quality information but most people don’t want to spend 20,000$ a year for information.
And of course: Pick something which you are fundamentally convinced of that it is actually a good investment. Things like penny stocks and meme coins are often very attractive since they can give mind blowing returns, however, these are often not fundamentally good investments and resemble a casino more than actual trading. When trading the goal is to be consistently profitable over a long time frame, not make one trade which is a 10x and 20 trades which go to 0. Again, that’s gambling not trading. One rule of measure here could be predicability. No one knows where the price of anything will go for sure and if they say so they are lying. But for some assets it is definitely easier to anticipate what is coming. If a memecoins price is only based on how many people find its name funny that is not even a bad foundation, it is none at all.
Step 2: do your preferred analysis.
Step 2 (explained): There is not best method. If there was everyone would use it. Pick one which suits you and which you can actually pull off. Creating a routine which sounds really good but you cannot follow long term will only results in failure.
Yes some methods are probably better than others. However, if your strategy works more than 50% of the time you will most likely be profitable if you do proper risk management. A strategy which has a lower win rate that you can consistently stick to 100/100 times will outperform the strategy with a higher win rate which is so hard for you that you only stick to it 60/100 times.
As a general rule when it comes to methods: Usually less is more. If you have 20 indicators and more support and resistance lines on the chart than price candles you are most likely in too deep.
The usual route of how people make their strategy is as follows:
Left curve: They do not know what works and what doesn’t so they learn the basics like Support and resistance, volume or order flow. They aren’t really profitable with their strategy because they are missing key concepts like risk management and experience so they go on to middle curve
Middle curve: They start overanalyzing. They use countless indicators which they think will give them an edge because they think other people aren’t smart enough to find them or spot patterns they have spotted with these indicators. They may now be more profitable but chances are it hasn’t improved their trading as significantly as their newly gained confidence is telling them.
Right curve: They go back to the fundamentals. Orderflow, Volume, support and resistance, market sentiment … a small amount of indicators. Proper risk management. Emotional control. Executing trades as they had planned.
You most likely do not need a fancy strategy. You just need to learn a few key lessons and stick to the basics. Yes there may be things which will improve your trading by 2% but if you neglect the 98% that are left because you haven’t put effort into them you trading will still suck. Most people that are „good“ at anything can do the fundamentals really well. Only when it comes to being „amazing“ is when mastering everything comes in.
The market is only as complicated as you make it. It is just a place where people can sell and buy an asset. All that indicators do is tell you where people buy, if longs and short are balanced, if there is a lot of buying and if a pattern is reoccurring which in the past indicated a certain result. This is why many good traders often just trade based upon order flow and liquidity because that is what is actually happening when you go into the finest detail of the market.
If you have found something which you think will give you a gigantic edge without a lot of work ask yourself this:“Have I really found an indicator, with my x time trading experience, that is so good that all of the millions of other traders and Billion dollar companies, which have the sole purpose and motivation to make as much money and as big of a return from the market as possible, have not found before me?“ -Yes maybe you found something that allows you to outperform everyone with ease but its just by no means something that happens often.
We have below compiled a list of key learnings which we think most traders go trough to become actually good. Read them with the intent to understand why they may be the way the are with the knowledge you have already learned.
List of key learnings:
Less is more when it comes to analysis.
The market moves on sentiment. The price is what people think the value of the underlying asset is and will be in the future, not where in a perfectly rational world it may actually be.
Your brain will try to trick you. Stick to the plan you have made before fear and greed started affecting your judgment.
Most traders aren’t profitable. You will most likely follow them if you do what most do.
Sentiment can flip in a matter of seconds. Observe how people, who were convinced price would go up way further, switch up after a small 5-10% dip. Do not be like them. Do not act on panic, fear or greed.
Do not act on fear of missing out.
If you have missed a move wait for the next one. There are many opportunities every day.
Deviating from your risk management will leave you vulnerable to getting burned in the market.
The market plays mind games with you. It may have you convinced, because it has happened exactly like that the past 3 months, that any time there is a dip it will get bought up right away, then you trade upon that and this time the market does something different. You get mentally conditioned by the market. Be aware of that.
Do not become overconfident.
Patience pays.
Consistency is king.
Market sentiment can be a sign of what will happen next.
Understanding yourself will help greatly while trading. Why do you want to act that way? Why do you think it is a good time to buy? Remember: Confirmation bias exists. If you are greedy you may suddenly see a lot of signs that price will go up and ignore a lot that it won’t. Because the contrary opinions go against your own hypothesis which, of course, you want to be true.
There is no profit until it is in the bank
It is ok to be wrong. No one can predict the market every time. Learn from the mistake and don’t blow your account on one trade.
If anyone says they know for sure what is going to happen next they are lying. No one knows. There is no certainty ever. Do not let your mind trick you into thinking an outcome is so likely it must happen.
Step 3: enter the market based on your analysis with clear entry and exit points! Execute the trade as good as you can. Document your trades in a book or on an excel sheet.
Step 3 (explained): Having a clear strategy can look something like this:
„I will enter the market when price goes to 100$, setting my stop loss at 90$. I will take profit on 80% of my position once price has reached 120$. My analysis tells me we will go to 125$ and the market is screaming for 140$ but since I want to be reasonable and don't want to miss the entire move because I am getting greedy I will slightly front run (sell before everyone else does) the market.“
This example has a clearly defined entry and exit as well as a price where you close the position. It also demonstrates rational thinking which is separated from greed. Also: the example shows that just because everyone wants a certain price doesn’t mean it actually will come true.
Be aware of the mind tricks:
„Oh wow price has gone from 100 to 119$ in a day! Market seems really bullish … if only I would now stay in until 140$, surely it is going there, I will make x amount of money“
Yeah. Bullshit. That is just one example of how your mind may try to trick you and how the greed may get to you. Do not fall for it. Stick to your plan. Of course it is possible that new information enters the market and it makes sense to close a position early or stay in for longer, however, it is very hard in the beginning to distinguish between a rational decision or one that is driven by emotions.
Documenting your trades: We recommend to document every trade. You can simply use an excel sheet for this, there is no need for a fancy software. Just enter the asset you bought, when you bought it and when you sold it, how much you sold, how much leverage you used, how much Profit or Loss you made. This will allow you to
visualize if you are actually profitable
See data on how long you usually hold trades and if you are risking too much money
Learn if you have f.e. sold to early and analyze why you did
And most importantly: Actually learn from it. Learn from your mistakes and improve upon them! We believe in you!
Concluding: Like any skill trading is no different. If you want to actually become good there is no way around actually putting in the work and the time. You most likely won’t be a good trader in a month.Not even in 2. Maybe in 6. Very much depending on how quick you learn and how hard you work. That’s why most people quit, because you have to consistently for months keep at it, maybe even without seeing the results you hoped for. Sticking to the plan. Putting in a lot of time.
Most can’t do that. That’s why it is important you pick a framework and a strategy that will allow you to stick to it. If you go from not doing anything to 12 hours a day looking at a chart, how sustainable is that?
Most likely not at all. Slowly phasing into it helps. One step at a time. One foot in front of the other. If you are able to apply and to keep in mind the learnings we have given you in this course you will most likely be able to fast forward months of learning. Most people however, need to actually learn and feel the pain. That is exactly why it is important to start with an amount of money that won’t hurt if you loose it.
We recommend revisiting the course more than once. Reread what you have learned in the section about the market and about Psychology. Consume the information as many times as it takes so that you actually understand it. The measure is if you can answer an abstract question on a given topic, meaning a question which goes beyond a definition where you have to use your knowledge to find an answer yourself, you most likely have understood it.
For most people: reading Information once will most likely not equate to either understanding and or using it to the full extend.
If you have chosen that you want to become a trader: Great! But be ready to put in the work. Do not give up when it becomes hard, that is exactly when you need to keep pushing. Again: most aren’t profitable, because most aren’t doing the work needed.
Good Luck!
You can now continue with reading one of our research papers or having a look at our latest update on BTC, ETH and for Premium members SOL and other selected assets.
You may also be interested in reading the trading plan we have outlined in detail.