Trading will Ruin Your Life

Bitcoin Data Newsletter

Hello Everyone!

In this edition of the Bitcoin Data Newsletter, I wanted to discuss the dangers of trading crypto, because the reality is, it is a sure path to destruction of your finances.

This is the wake up call that many will need, because whether you are inexperienced or have been in the crypto space for a long time, you are equally susceptible to the dangers of trading. I have heard too many horror stories of those that have lost everything.

It is especially easy to be trapped into trading when looking around the crypto space and seeing traders making massive profits. Assuming their trade isn’t just completely fabricated, they also fail most times to show you their losses. You have been set up to lose.

Are there exceptions to this? Sure. Will you be one of them, almost certainly not.

You’ve heard the statistic that only 5% of traders end up being profitable overall, but this number is nowhere to be found in data and the true number is much smaller. This newsletter will break that down, and tell you what you need to do instead.

This Newsletter Will Cover…

• The Statistics

• The Lie you’ve been told

• You’re a gambling addict

• What Profitability Looks like

• The Solution

The Statistics

Here are some trading statistics copied directly from: https://tradeciety.com/24-statistics-why-most-traders-lose-money

I have included all of them because of how interesting these numbers are:

1. 80% of all day traders quit within the first two years.

2. Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.

3. Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.

4. The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually.

5. Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.

6. Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability.

7. Profitable day traders make up a small proportion of all traders – 1.6% in the average year. However, these day traders are very active – accounting for 12% of all day trading activity.

8. Among all traders, profitable traders increase their trading more than unprofitable day traders.

9. Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income.

10. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios.

11. Men trade more than women. And unmarried men trade more than married men.

12. Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features.

13. Within each income group, gamblers underperform non-gamblers.

14. Investors tend to sell winning investments while holding on to their losing investments.

15. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002.

16. During periods with unusually large lottery jackpot, individual investor trading declines.

17. Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss.

18. An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks.

19. Individual investors trade more actively when their most recent trades were successful.

20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.

21. The average day trader loses money by a considerable margin after adjusting for transaction costs.

22. [In Taiwan] the losses of individual investors are about 2% of GDP.

23. Investors overweight stocks in the industry in which they are employed.

24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

So the real number, is less than 1% of traders are able to profit net of fees. This was not even data taken on crypto which amplifies fees, and volatility, making the number likely infinitely smaller.

These statistics were also taken from early 2000’s data, and individual risk tolerance has now seemingly increased, making it ever more likely to turn to trading as a means of gambling.

They’re Lying to You

“Successful” traders that you see on social media are lying to you like their jobs depend on it. Why? Because it does.

If traders are consistently showing you that they are winning, you are more inclined to listen to them. What they won’t show you is that they are vulnerable to the same things everyone else is, failed trades and bad decisions.

You assume these people are part of the 1% of profitable traders but there is no way you would ever know that without looking a their entire trading history.

Another issue is, that bad information is coming from even those that give you good advice. When I first came to the crypto space, I watched countless videos telling me that trading takes time, don’t quit. They give you the solution, use proper risk management, stop losses. But they leave out one critical part… more time in trading does not equal more success.

Can you afford to go completely broke waiting until the day until you are finally profitable?

Let’s think back to statistic number 2. “Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain.”

If traders were winning, this would not be the case.

Trader influencers tell you another important piece that often gets overlooked… only use a small percentage of your portfolio. I have seen this number typically at about 1-2% but the highest 5%.

Let’s talk about the reality of this… one of the allures of trading is turning a small amount of money into a much larger amount. Those that turn to trading mostly do so because they don’t feel they could ever make a worthwhile amount of money with what they have by just holding onto a crypto. But it just doesn’t work that way.

For example, let’s imagine you have $1000 to trade with. The most you would allocate according to good trading strategies (5%) would be $50. Using no leverage, let’s say you manage to secure a 10% profitable trade, that’s $5. You’ve likely had to wait awhile to make this trade, and then with a winning trade you have only walked away with $5 on a $1000 account.

And that’s a winning trade… you then have to factor in trading fees, taxes, and losing trades which many traders neglect to mention.

So the very thing you are trying to avoid becomes the exact same problem, to make a lot of money, you need a lot of money to begin with. And this was the most conservative estimate, if you use the 1% account balance people preach, that’s risking $10 of $1000, making your profit on a 10% winning trade now just 1 singular dollar. (not including trading fees).

Which brings us to the next topic, leverage. It is very rare that I see traders openly advise leverage trading, but it is not rare to see them flaunt their winning leverage trades.

But you don’t have to be told to use leverage to come to it on your own. Because when you realize the reality of responsible trading, you seek higher returns… and leverage trading seems to combine the best of both worlds, with only risking a small portfolio percentage and greatly increasing your returns.

Leverage trading does increase returns, but it also increases losses to the same degree. Leverage trading also comes with additional fees, and you now have to deal with the funding rate, which is money you pay out at set times to the non-majority. Meaning if most people are long(betting that the market will rise), the funding rate would be a positive percentage, and that amount of your active position would be paid to those who are short. So even if you are technically break even, the funding rate can slowly destroy your account.

You start playing around with different trading strategies to become more profitable, but you slowly spiral into the life of a gambling addict disguised as a hopeful day trader.

The Gambling Vortex

Statistics 6, 14 and 15:

6. Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability.

14. Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002.

15. During periods with unusually large lottery jackpot, individual investor trading declines.

Trading responsibly goes against the natural human psychology, which destines you to fail. You’ve probably heard that in order to effectively trade you would have to be a robot which is technically true, because it requires you to execute a trading strategy despite losses, which is extremely difficult to deal with.

So, you’re already dealing with the fact that you need a lot of money to make good money, but let’s say you did have the money to do this. Prepare for the worst mind game imaginable.

You start out trading responsibly, but even without using real money and back testing a strategy, the desire becomes overwhelming to adjust the trading strategy. You make minor adjustments to avoid losses and without realizing it create a new trading strategy that is likely not profitable.

Trading if done correctly is not very fun, especially considering the typical lackluster non leveraged profits, and having to endure sometimes many losses in a row.

Even trading requires patience, waiting for the right setup, making incremental gains all the way up. But peoples desire for big fast money is too strong. People naturally hate to lose, and they will do anything to avoid it. Losing causes people to get angry, which leads to revenge trading.

Taking losses hurts, and the natural response after taking a loss is to take on additional risk to overcome the loss. The hope is that you can make back from your losses, but how that usually plays out is you doubling your losses. It is extremely common for this to result in the loss of your entire account. Leverage trading can greatly accelerate this, giving you a great gambling stimulation, “But what if I’m right and win big?”

One win will never be enough. You think after you win you can be satisfied and walk away with your profit, but even if you did hit the jackpot and make big money fast, you are likely to lose it just as fast.

The desire is then to turn that money into bigger money, putting you back on the odds table. I have seen the story many times, of people making large gains, and then losing everything.

It’s hard to admit you have a problem, because trading doesn’t seem like gambling. It feels as though you just haven’t learned enough, if you do it for long enough you hope you can become a day trader for a living. The illusion is that it is an issue of intelligence, but that is just not true.

What Profitability Looks Like

Statistic number 20 and 24:

20. Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.

24. Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.

When you start losing in trading, it is easy to feel as though intelligence is an issue. You may think, to be in the 1% of winning traders you need to be very smart. Endless learning does not fix your problem.

No matter how many indicators you use, patterns you learn, it is never enough to avoid losing in trading.

Trading is not a logical game, its a game of emotional discipline. One that over time, no one can conquer.

Think about the statistic, 1% of traders are profitable, at all. that means even 1 dollar. So how many of these traders do you think are very profitable? The number is likely infinitely small.

For some people, they will will have to trade themselves to find out this harsh reality. When you trade, you will lose, no matter how good the strategy is. You are naturally geared to despise losing. So what do you do? You try different strategies, they lose too, you change the rules, you lose even more.

You’re constantly in search of “the secret". “There must be some trading strategy that makes me rich…” In your search to stop losing trades and maximize the euphoric feeling you get from winning ones, you will lose every last dollar you have.

Trading is actually very simple, you follow a basic set of rules that is proven to work through back testing.

This could be as simple as watching market structure, looking for uptrends and then confirming it with an indicator. Lose, Lose, Win, Win, Win, Lose, Win. The idea is that your wins will eventually outpace your losses making you profitable over time. You are playing the house as the casino. Some profitable trading strategies have an even less that 50% win rate, and are able to profit by making their wins bigger than their losses.

And that’s it… the only secret is, you won’t have the emotional strength to do it.

Stop while you’re ahead, you can thank me later.

The Solution

Well CryptoCon, what am I supposed to do? You don’t advocate for trading, and you’re unsure at best of Bitcoin’s long term prospect…

Most of you will know that I buy and sell on long term time frames. I accumulated during 2018-2020 below $10,000, I waited and sold all of my coins at $54,000 in April 2021, and then I bought back in at $16,500 in November 2022.

Some people would consider this to be trading, since I am technically buying and selling Bitcoin even though it is on a longer term time frame. However there is a key difference between what I am doing and trading, and that is mentality.

Holding on a long term time frame gives you the best chance at profiting and in almost all circumstances will outpace trading strategies. It also requires you to be truly patient, something that gives you respect for what you have waited to earn. Then, you are not a gambler. You take a risk, and are patient for the longer term outcome.

It also keeps from another mentality, which is never selling. As much as people in the crypto space adore to preach the inflation beating narrative of Bitcoin over time, it will not be that way forever. Returns are diminishing, and selling according to long term data protects you from this.

Using long term data to make informed decisions gives you the best of all worlds, great returns that you can keep.

Don’t let trading destroy your life, because it can do it quicker than you think.

Thanks for reading this edition of the Bitcoin Data Newsletter! If you would like even more of my content, I write a Bi-Weekly Premium Newsletter full of 100% exclusive data to help guide you through the market. Premium members also get access to a private, general discussion telegram group where I post extra information on my Daily Twitter posts, and logical thinkers come together to navigate the market.

Be sure to leave any comments or questions you have, I am here to help you!

Good luck to everyone on their own individual journey!

Best wishes,

CryptoCon