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I’m pretty damn adept these days when it comes recognising bubble tops.
But didn’t realise just how attuned I was, until quite recently.
For the past six months or so I’ve been working for a friend.
Initially, helping him with accounting, but then taking on added roles with marketing and web design (my web skills are far from stellar).
It’s a nice diversion from trading, and one I’m enjoying.
While I spent years cutting my teeth learning to trade, my friend was building up his business from the ground up.
He’s a good businessman.
He’s also been blessed, lucky, or skilled enough (I’ll let you decide) to have some investments (gambles) go his way.
From bitcoin to silver, to marijuana stocks.
Finely tuned intuition
I was quietly going about my work one day recently when he sits down next to me. He switches on his PC and heads straight for the latest crypto market prices.
I glance over and see the whole sector lightening up green.
My mate starts high-fiving himself.
He tells me he’s had the best trading day EVER.
Netting a cool 15K GBP give or take in a day or so.
And he’s done it in that oh such bastion of fundamental value…Dogecoin.
I’ve never made 15K in one day. I’ve never come anywhere close.
What I have done multiple times though, is high-five myself- usually prematurely.
I’ve come to realise just what a self-congratulating high-five is when it comes to trading – an indicator of a market top.
He tells me the Dog coin is going to $1 – it’s written in the stars.
I hadn’t looked at the price chart of the Dog coin.
I didn’t even know that much about it – save that a few spotty kids were making my Google News feed because it was making them millionaires.
Something didn’t seem quite right though – it all seemed so easy.
I was about to say to him, ‘why not sell now?’, or ‘why not sell half?’.
Instead, I said, ‘cool’ and carried on my work.
Never high-five your winners!
I don’t begrudge my friend his 15K.
But I really don’t care if he loses it either.
Waxing lyrical about a great trade doesn’t impress me a bit.
Managing risk does.
Perfect market timing does.
The size of your latest win – never does.
With regards to trading, I’m superstitious.
I believe I never make money shorting, never make money on 4-hour, or 1-hour, or 30-minute charts.
Some markets I know will reverse on me, the moment I open a position.
But my biggest market hoodoo of them all is that of high-fiving myself after winner.
Large wins have proved all too often to be the precursor to a parabolic top in my personal equity curve
Boasting about wins, or even worse, profits not yet taken, has become a flashing red sign of danger ahead.
A dumb trade from all angles
Anyone whose taken the time to learn about trading knows the nominal value of a win doesn’t mean shit.
A million-dollar win is not a great trade if you risked the same amount.
You can make money and it’s a bad trade, and you can lose money, and it’s a good trade – which is one reason why trading is so deceptive.
When you truly understand that the size of a nominal gain is a useless metric in determining your trading prowess, congrats you have evolved as a trader.
Now, my friend’s trade was dumb from all angles.
Hell, I wouldn’t call it a trade – it was a gamble, and one of the highest order.
No idea of how many dollars were at risk.
No thought to position sizing.
What was the exit strategy? Was there even one?
These were the thoughts going through my head when all that high-fiving was going down.
And, it’s this complete ineptitude, and total ignorance to developing any sort of trading ability, that dominates the crypto markets.
A comedy of errors
I’d heard that Dog coin was set up as a joke. How true this is or not, I have no idea.
If it is true though, it’s a sad indictment of how out of whack monetary policy and the speculation economy have become in these Covid-19 ridden times.
After my friend’s recent high-five incident, I went home and did a little detective work.
The first thing I did was pull up the chart. Nice. Parabolic. Dangerous.
Then I read a bit of the news.
Turns out that Elon Musk was appearing on Saturday Night Live that very weekend.
And that was the main reason cited for the Dogecoin being pumped up so much.
Yes, you did read that correctly.
The Dogecoin was rising because one of its main enthusiasts was making an appearance on a comedy show.
You can’t make this shit up, I mean seriously.
The link to the Elon Musk SNL clip is at the bottom of this post.
But if you can’t be bothered to watch it, let me summarise by saying Dogecoin traders weren’t happy with Elon’s performance.
By Monday, the Dog had sold off heavily and has been going down since, along with the whole sector.
You make money in your own business and lose it in someone else’s
The above phrase is among my all-time favourites. And is one I get to say rather a lot at times like this.
Bitcoin as I said here, is one of the best trading vehicles I’ve ever seen.
Anything that can stretch 200% above its 200 SMA is a trader’s wet dream.
Note, the word in bold – trader.
Most in the crypto space are not even close to being traders.
And are therefore likely to lose their shirt or more besides.
A few will come away like bandits, more through sheer luck than any financial genius they may have.
But even these are likely to lose what they made next time around, not having learned what it takes to trade such a volatile asset.
There are one or two pockets of crypto I believe have potential long-term utility.
But until recently, this sector lost all sense of reality and only now is waking up to the fact this volatile asset class, is not a game for amateurs.
Elon Musk’s smirking face in the clip below pretty much sums things up.
If the whole sector can rise or fall on the back of a comedy performance or a simple tweet, then I’m sure if you were Elon Musk you would be smirking too!