A crypto-trader’s diary — week 1
I have decided that I want to become a person who trades bitcoin for a living.
This is not a ‘how to’ post, because I don’t know ‘how to’ yet. (And for my web developer friends, this has nothing to do with web development.)
But having seen all the info out there telling me it’s easy, and being a bit sceptical, I think it might make interesting story.
Perhaps I’ll learn that trading bitcoin really can be an alternative to working for the man. Or maybe I’ll fail and everyone can have a good laugh at my expense.
We will see.
My dream is that, with a few hours effort each day, I can increase my net worth by a percent or so, and do so reliably enough that I will no longer need a day job.
My days will then be filled writing novels and tending to an ever-growing menagerie of marsupials.
Since I’m at the age where I’m thinking about retirement (late thirties), I am approaching this endeavour with a minimal appetite for risk. Which means my first task is objectively proving that my dream is possible without trading real money.
I will approach this scientifically, using the gold standard of scientific inquiry: a Randomised Controlled Trial (RCT).
To generalise — for those that don’t know — the gist of the scientific method is to define a hypothesis, then test it (among a bunch of other steps). And specifically, to try and falsify that hypothesis.
So everything I do must be an attempt to show that this isn’t possible.
Hypothesis: it is possible to predict the future increase or decrease in the value of bitcoin against the USD based on previous price and volume data.
The trial: I will make trades for one month (with fake money). I will have two controls. 1) a ‘buy and hold’ — that is, just buy bitcoin at the start of the month and hold it until the end of the month. 2) randomised buying/selling — I will pick a random time each day to buy, and a random time an hour or so later to sell. (I’m purposefully misusing the R in RCT to fit my plan.)
I will keep a log of each trade (that probably goes without saying) and plot the charts on top of each other (I will post the charts in these weekly posts. I will post so many charts). I might do multiple random lines if I think that’ll be useful.
If using all my wit to buy and sell at the right time can’t out-perform either of my controls by 20%, then I will consider the hypothesis false and chuck in the towel. This will be failure that feels like success. Or maybe the other way around.
(20% is just one of the many numbers I’m pulling out of my hat. This is, after all, still week one.)
At the beginning of the week I knew almost nothing about the blockchain and which cryptocurrencies and ‘altcoins’ were out there; I was oblivious to the various trading platforms and even what a ‘wallet’ is and how I get my money in one.
And I am still oblivious.
Because that’s not the order in which I want to go about this trial. I want to learn some trading fundamentals first, because I know once I jump in I’ll get carried away and find it hard to go back to sitting in a lounge chair with a lump of thinly sliced tree in my hands.
There is a lot of information out there for those wishing to trade cryptocurrencies. I can’t consume it all, so I figured it’s worth being diligent about what I do and don’t consume.
Early on in my one-week career as a crypto-trader, I based my selection of videos to watch on the number of views they had. During these formative days, I learned that there are a lot of people who have made some trades — often over a few months — had some success, and then made a video about it.
Good for them.
But I could put a thousand monkeys in front of a thousand bitcoin exchanges, and 500 would make a profit (of which 400 would go on to make a YouTube video about their ‘system’ and implore their viewers to ‘SMASH THAT LIKE BUTTON’).
Of course no one mentions they were trading in the second half of 2017 when the price of bitcoin went from $2,000 to $18,000 anyway (!).
That’s a lot of rich monkeys.
Here’s a great chart I came across yesterday. It’s as old as the hills and neatly generalises the phases of a bubble.
Let’s layer that over bitcoin (as many before me have done):
That peak is just around the end 2017. Merry Christmas.
If someone wants to show me how they made money in crypto starting in early 2018 I’m all ears.
So, I have decided to ignore any videos with a thumbnail sporting a fist-full of cash and a person screaming at me…
… and to instead find out what professional stock traders read, and then see if that applies to crypto (I feel so cool abbreviating it like that).
I now have Investopedia on hand at all times to get my head around the lingo. It confirmed that what I will be doing (reading charts) is called ‘technical analysis’. Investopedia also had a nice list of books to read.
Here is where my first loss occurred: I bought Getting Started in Technical Analysis by Jack Schwagger for $15. I know they say that you shouldn’t judge a book by how cool the author’s name sounds, but I’m only human.
Anyhoo, I bought this book for Kindle and have a hot tip for you: don’t buy any stock trading book — where you’re going to be looking at a lot of charts — for Kindle. This book is like “notice the pattern in the chart in figure 1.8”. But figure 1.8 isn’t on the current page, no no! It’s, like, 8 pages ahead, so then I’ll swipe, swipe, swipe, swipe, swipe, swipe, swipe, swipe. And then think what am I supposed to be noticing about this chart? So I’ll go back. Swipe, swipe, swipe, swipe, swipe … is this far enough? Nope. So I’ll swipe, swipe, swipe some more.
I got about ten pages (and 140 swipes) into the book before I grew concerned I was going to wear through the screen, so I gave up and went to a bookshop.
I’m as susceptible to the sunk cost fallacy as the next guy, so I couldn’t bring myself to buy the same book in paperback form. Instead I bought How to Make Money in Stocks by Bill O’Neil. I’m halfway through and it’s quite interesting. It’s very focused toward longer-term trading of real companies, and taking into account the underlying performance of a company, but it still feels like it’s worth reading.
I’ve had a nagging voice in the back of my head all week: “c’mon, be serious now, can you really know a stock is about to go up before it goes up? Aren’t all these charts just cherry-picked to match the ‘pattern’ that you’re telling me is real?”.
Well, How to Make Money in Stocks is doing a pretty good job of convincing me that this thing called technical analysis is indeed possible, because the book is quite honest about how difficult it is, and how infrequently a solid, reliable pattern shows itself, and how it will only be reliable under certain market conditions. The 100 cherry-picked, annotated chart examples span from 1880 to 2008, which says something about how few and far between solid predictive patterns are (according to this one dude).
Billy boy also does a good job of explaining the reasoning behind this. About how ‘shakeouts’ are scenarios that cause inexperienced traders to sell, and reducing volume indicates the general public losing interest in a stock and it dropping out of the news, and a huge volume increase can indicate that ‘the institutions have shown up’ to buy in bulk — because the traders in the institutions all read the same books and look for the same patterns.
All the while, the book is making the point that “it’s not that simple” and that it’s a lot of work.
The other book I bought was a little more flashy, but got the thumbs up from a Nobel prize winner: Cryptoassets, by Jack Tatar (another tasty name!) and Chris Burniske. I’ll start reading this next.
I’ve also watched a few of the more serious YouTube videos by people that have traded professionally and have a healthy dose of realism in their message. This was worth the 90 minutes:
And this was worth the 50:
I’ve probably spent about 12 hours so far reading and watching videos (and five writing this post). I feel like I could do double that again — accumulating knowledge and hearing different views — before jumping into actual charts and trading platforms.
I feel like I should continue to hone my bullshit-detecting skills and therefore get more bang for my buck out of learning time.
Maybe I’ll share my favourite bits of hilariously terrible advice each week. I have one for this week: a gem from a YouTube video about drawing trend lines:
“There’s no right or wrong way to do it, it all depends on what resonates with you personally”
No right or wrong? Resonates personally!? What fresh nonsense is this?
Even with only one week’s experience, I’m almost certain that there is a wrong way to draw trend lines (in a loop-de-loop, with a crayon, for instance). And I’m hoping there’s a right way, too.
It will probably take me to the end of next week to finish off those two books. So be prepared for a thrilling ride next week.
I’ll also revise everything I’ve said so far; I will have no allegiance to my beliefs of prior weeks, and the adjust numbers as I go.
There’s another way in which this trial may fail. I might hate it.
I like being a web developer, I have fun writing code, solving problems, putting pixels in your eyeholes.
Maybe staring at charts for hours on end will bore me to tears. But I hope that I will eventually become at one with the chart; I will see its personality, like a pet snake. I will know the way it behaves at different times of the day, sense when it’s hungry, when it needs to go potty, when to stay clear, when to give it a little snek pat.
I really was torn about writing this blog post. Does anyone care? Does anyone want to read a weekly, detailed description of someone that knows nothing approaching trading in a not-at-all exciting way? If you did like this, SMASH THAT LIKE BUTTON. Otherwise, since Medium doesn’t have a down-vote button, you can let your silence do the talking.
Thanks for reading, stay tuned for an update next week. Unless this only gets a lousy thousand claps in which case I’ll take the hint and keep my digital mouth shut.
And here’s week 2.