Stereotypes and errors in cryptocurrency trading

In any professional activity there are stereotypes that are mistakenly considered axioms, that isstatements that do not require evidence. But if this does not apply to the laws of physics or theorems of geometry, then many of these stereotypes should be called into question, since they are often based on errors.

Consider some trading stereotypes that are presented as axioms, but in fact are erroneous and pull to the bottom of those who follow them.

Stop loss and take profit should have a ratio of 1: 3

That is, for example, a stop loss of 100 points and a take profit of 300. Allegedly, such a system ensures profitable trading with minimal risks.

As a person with practical trading experience inin a variety of markets, I say that this does not work anywhere at all. And trying to trade in crypto this way is 100% the way to a leisurely and, I would even say, comfortable, withdrawal of the deposit in a mode that is gentle on the psyche.

The reason is obvious — probability of operationa foot is directly proportional to the distance to that foot. The same applies to profit. Therefore, in such a system, stops will be triggered often, and profits will be triggered rarely. There are some chances of success only in a clearly defined trend, but the market is in a flat 70% of the time. And here short stops will almost always work, because a short stop always ends up in the zone of crowd stops, and crowd stops are almost always removed.

It is impossible to achieve success by trading according to such rules, although in theory it looks good (it is clear that only for people who have never traded in the markets, well, this is how this theory is presented to them).

But this is exactly the “strategy” that all sorts of market gurus teach, both in courses and in private.

You can not "catch knives"

This term refers to buying on a decline orsales are on the rise. That is, actions against the main trend. Although buying low and selling high is exactly what you need to do for successful trading.

And this is logical - the longer the price went to oneside, the greater the chances of turning around and moving in the opposite direction. Yes, there are many important points that influence the result — at what levels to do this, in what volumes, how to manage risks, but cheap assets must be bought, and expensive ones must be sold. If, for example, Bitcoin now falls to 6400, then buying it at this level will lead to success with a much higher probability than selling it.

Therefore, “catching knives” is often part of successful trading systems.

Can not be averaged

You bought Bitcoin at 7000, and it fell to 6600. Is it logical to buy more, provided that there have been no significant changes in the reasons for buying it at 7000?

Of course. If you hold this position, it is wise to take advantage of the opportunity to make the entry price even cheaper.

But the “gurus” say that this is not possible). And they recommend doing what is the following stereotype.

You can’t stay out of the loss, but you must close it and then re-enter at the best price

If we take the example I gave above (with Bitcoin at 7000 and 6600), then the “gurus” recommend closing the purchase at a loss from 7000, and buying cheaper, below 6600. For example, at 6500 or 6400.

It seems logical, but it’s from the same series,that stop to profit is 1:3. It is immediately clear that this… theory was invented by those who traded only on a demo account. Because in practice the price in most cases will not reach 6500 or 6400, but will soon go up, leaving you with a loss and without a position.

If you think that the movement will be upward -keep long and increase the position if the deposit allows. If you think that the market is going down, close the long position, open a short position. But closing a negative position in the hope of opening it lower is stupid and illogical.

It’s clear that sitting and looking at the loss growthalso not necessary. Your trading plan should answer questions when plan B comes and what you do in this case. Closing a losing position, in whole or in part, is a completely working option. But it’s stupid to do this just to enter below.

Be sure to put stops

Stops are a useful tool for limiting losses when used correctly. But they are not needed in every transaction. And their incorrect use will simply slowly liquidate your deposit.

Technical analysis as the main tool for making trading decisions. This is the same as prescribing treatment for a patient according to his temperature schedule. The efficiency is also the same.

But who and why popularize these stereotypes? Is it really all in order to squeeze 0.1 Bitcoin from Vasya Pupkin when he comes to the market and opens a position, putting a stop at a profit of 1: 3?

The whales, the Masons, or the Rothschild clan have nothing to do with it. The question is in the industry of trading education in financial markets in general and in the cryptocurrency market in particular. Professional traders are those who live on the income from trading. They have their own trade, investor accounts, funds ... This is concentration, irregular working hours, constant tension. There is no opportunity to seriously engage in training for those who wish, and there is no motivation, because in order for the income from training to be comparable with trading, it is necessary to set a price that hardly anyone will pay.

Because training is not professionaltraders, and professional teachers of trading. They at best traded in the past, but did not succeed: someone leaked the depot and didn’t try again, someone seemed too risky to trade, someone just realized that 100-300 bucks from each without any risk he is interested in the hypothetical possibility of superprofits in trading, which still need to be received.

Mass trade training industryfinancial markets began with Forex in the late 90s and early 2000s. At that time, large forex kitchens, primarily Teletrade, spread networks of branches throughout Russia and the CIS countries, and training was an important stage in attracting clients, because the majority had no idea about forex and financial markets in general. And in order for these people to transfer money to Forex, they had to be given a simple and understandable picture, even if it did not coincide with reality. This is where the theories about mandatory stops in every trade, the stop-to-profit ratio of 1:3, and the importance of technical analysis came from.

Reducing the complex to the simple, primitivism andsimplification works when you need to convince the client that everything in the market is simple and clear, and he will definitely earn money if he follows simple rules. Every two weeks, dozens, and then hundreds of branches produced future Soros, armed with the knowledge that stops must be placed on every trade, stops to profit 1:3, the decision to enter a trade is made on the basis of technical analysis.

After facing a brutal reality, most of them left the market. The most cunning and unprincipled went to Teletrade teachers or managers in order to recover losses.

I was sent several crypto lessons for evaluation. After reviewing, I realized that their authors either studied in Teletrade courses, or, more likely, their teachers studied there.

I had a friend - not the last person inTeletrade. I learned a lot of interesting things from her. Teletrade's main profit is the company's profit from book B (loss of client deposits). But this was clear even without inside information, but here are the details: 70% of drains are triggered stops.

That is, a tool that is designed to minimize losses becomes the main source of these losses.

How does a typical crowd trade?

Enters the market and opens a position.In which direction, as a rule, he determines either his own interpretation of technical analysis, or the analysis of some guru, which he made, again on the basis of technical analysis.

Sets stop and profit.In 90% of cases the stop is triggered. He repeats the procedure several times and realizes that something is wrong. He begins to do the same thing, but without stops. The price goes against him, he waits for a reversal until it is too late to do anything…

Then he begins to look for signals or remote control, and drains the remainder there, or begins to realize that he was taught something wrong, and creates his own trading system.

As we already said, there is a crowd (the majority) in the marketalways in the red. The minority who takes the crowd's money wins. Therefore, to succeed, you don’t have to do what the crowd does, you have to do the opposite. And all the actions of the crowd in the market are based on the stereotypes listed above. Therefore, for success, it is important not to take them as axioms, and to include in your trading system only what brings money, and does not take it away.

I’ll tell you how the big players trade in the next article.

Posted by Pavel Gromov, author of the Crypt Chief channel.

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