In Defense of Traders

I sat down to write a couple of sentences about traders (you know, people who spend their working hours trying to buy low and sell high) and it turned into something a good bit longer. With so many of my friends asking me about how to get into cryptocurrency right now, maybe it’s a good time to share these kinds of thoughts.

By the way, if you want any help understanding what cryptocurrency is, why it’s exciting, where you can get some, or what you can do with it once you have it, do feel free to reach out to me. I’ve been nerding out hard about this stuff for months now.

I used to think that professional traders are just leeches who extract value by pushing money around from one place to another without actually creating anything.

Now that I am older and less stupid (and also a greenhorn trader) I realize that any time you make a trade on an exchange, there is someone on the other side of it that wanted it to happen. Your participation in the trade creates value for the other party, just as their participation creates value for you.

Moreover, consider that it is very difficult to make a buck in a highly transparent, competitive, and rational market. In a market like that, prices are stable, everyone pretty much agrees what things are worth, and it’s very hard to buy low and sell high.

Therefore, a trader who is consistently profitable is either:

1) a very lucky fool, or

2) being rewarded for acting counter to market anomalies (like the same asset trading at different prices in different places), failures to “properly” price assets (like a company’s stock trading lower than its fundamentals would merit), and deficient human psychology (like people FOMO buying into a useless asset’s bubble, or panic selling at a loss into a temporary dip).

In markets, that’s how inefficiencies get fixed — the people who notice them first exploit and profit from them until they’ve been smoothed out.

That’s why there’s so much opportunity for profit in cryptocurrency right now: these are still young markets, largely untouched by Big Finance. There’s still a lot of low-hanging inefficiency to be exploited.

But not for much longer…

So with all that said — go forth and move some assets around! If you make good money, you’re being rewarded for helping to discover the truth (or you’re just lucky). If you lose money, it’s your punishment for being wrong and/or foolish (or you’re just unlucky). C’est l’finance!

Finally, some bits of advice to anyone thinking of actively trading. I’m no wizard of the markets but I’ve definitely picked up a thing or two.

1) The Cardinal Rule of Markets: be greedy when others are fearful, and be fearful when others are greedy. This goes for a lot of things, actually — not just finance.

2) Buy the rumor, sell the news. Price tends to go up when people are anticipating “big things”, and it tends to dump when those things are actually unveiled — even if they *are* rather big! The price generally rebounds pretty quickly. I’ve seen this happen again and again.

3) Don’t panic sell! If you buy something and the price goes down, and you sell, you’ve just locked in a loss. If you believe in the asset in question, don’t sell — buy more if you can. That way, you lower your average cost, and when the price goes back up, you’ll be happy that you stayed strong.

4) That said, be deliberate. Have a plan for your trades. Calculate your risk and manage it by taking profits regularly and setting appropriate protective stops on your positions.

5) Don’t get too greedy with your profit targets, and accept when it’s time to eat a loss.

6) Your emotions are your enemy when you are trading. Conquer them.

7) I added this one just for good luck.

Have fun 😎

Is your money in the right format?