Day Trading Continues!

On Friday I closed my BTC x20 long in profit $1100, and my Rune x5 long in profit $450. I'm now up over $2000 from day trading in a week and a half. Not too shabby considering I've won pretty much every bet I've made so far. It's especially nice because now I'll likely be able to pay off my credit card and get some USD buffer in my bank account without have to continue distressed-selling my Hive bag. Always nice to not sell my number one.

I thought I was done with day trading for a while...

All my positions were unwound.
But this this happened:

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We got back to Saturday and the market once again just froze in place like it did the week before. This was the perfect opportunity to test my theory and open a x100 long for the first time ever. But how much money should I actually risk?

Risk Management

When gambling it is extremely important to be self-aware and understand the risks being taken. In this case, I want to open an x100 long, which means that if price dips even 1% I will certainly get margin called and liquidated. This is an insane amount of risk, and we need to mitigate that risk by using a very tiny amount of margin. My previous x20 bets were in the $200-$300 range and so this one should almost certainly be less than that. I decided somewhere between $20-$100.

So of course I chose $100.

Why did I pick the absolute highest number in the range I was considering? Because I'm on winner's tilt. I have won every single gamble I've made over the last 1.5 weeks and I'm up $2100. If I lose $100 I'll still be up $2000. No big deal, right?

Well it actually kind of is a big deal. I need to understand myself and continue hedging risk against my own hubris. My luck is going to run out eventually, and when it does I need to keep it together and continue making smart decisions.

There's a common expression that states, "Easy come, easy go," and this is truer within a gambling environment than anywhere else. When we get lucky and are up a huge amount we tend to feel invincible and make arguably stupid and risky decisions because of it. Winner's tilt can be even more detrimental than Loser's tilt depending on how the gambler handles these emotional triggers.

So what happened?

Like I said I followed through on my bet and placed an x100 long on Saturday evening. Within 1 hour (these are 15-min candles) Bitcoin started shooting up above the deer-in-headlights baseline. The Sunday frontrunning happened a little early, and I timed it perfectly.

So now I'm feeling very smart once again as lady luck has again blessed me with her grace. This position is currently up 125% and $125 because it was an x100 bet using $100 worth of collateral. Price only had to increase 1.25% in order to get a 125% gain. Of course if we dip to $68k the entire position gets wiped out and I'll be down $100 when everything is said and done. I don't believe that's going to happen. Rather, I think the ETF will turn the money printer back on Monday at 7:30 AM and I'll be bigly in the greed green.

Just because my gamble just happened to work out for me this time (thus far) it does not mean I made a smart play. I know for a fact that this $100 bet (borrowing $10k) was extremely overaggressive and I allowed it to happen because I was on winner's tilt. Now the market has rewarded my bad behavior so I am even more inclined to make this mistake in the future. However I'm not going to fall into that trap like most degens would because I have the discipline and the experience from playing poker professionally to push me back to a centered stance of strength. I will NOT allow my easy money to "go easy". I will claw and scrape for all my gains. This is the way.

If I could go back in time and change my bet to borrowing $5000 with $50 collateral I would do it. Why? Because this is a smarter bet. It does not matter that I was rewarded for bad behavior. Those who cannot understand this logic have a lot to learn about gambling before they'll ever be good at it. The end result has no bearing on whether or not we made a good decision or not. It's very counterintuitive thinking.

Bankroll

Your bankroll is the total amount available to you that you're willing to gamble and lose. Once you run out it's game over and you have to quit gambling or refill your bankroll. Most successful professional gamblers will almost never (or actually never) run out of bankroll. This is because they understand how the manage their bets and it is almost mathematically impossible for them to get unlucky enough on the average to get wiped out.

When I was playing poker my bankroll was around $3000 and it was extremely rare that I would ever lose more than $1000 of that at any given time. This makes sense when we consider I was buying into cash games at $100 a pop or playing in tournaments with an entry fee of $60 or less. Some days I would be down $800 and others I would be up $2000. If that sounds stressful, it's because it is. Working an 8-hour day and losing $800 is not fun. This applies to day-trading just as easily as professional poker.

In crypto it can be hard to differentiate our bankroll from our total stack. However, every serious gambler needs to completely separate these two bags. In my opinion a crypto user's bankroll should be somewhere between 1%-10% of their total stack depending on their appetite for risk. So if we controlled $10k worth of Bitcoin we would at most perhaps gamble with a bankroll of $1000. Of course this is open for debate but I think it's important to throw out conservative numbers for anyone seriously considering trying to day-trade as a hobby.

Expectations

How much should someone expect to make day trading crypto? Well, if you're new to the game I have some very bad news: 90% of all gamblers lose money on the average. If you have no personal experience in this arena you must expect that it is almost guaranteed you're going to lose money until you get enough experience to acquire some kind of edge against the rest of the market.

Someone who tries very hard, is extremely disciplined, and puts in a good amount of hours might be able to accomplish this feat within a year. For me personally it took years before I became a profitable poker player. As far as crypto is concerned only just now within the last week have I ever felt like I had the chops to day-trade Bitcoin profitably... and I've been attempting it here and there since 2017 (aka 7 years). It's not easy.

Managing Risk

If we're guaranteed to lose money day-trading as a novice then how do we avoid going bankrupt during the learning process? The answer is by using very small bankrolls with even smaller bets. Not following this rule is how most crypto users get absolutely destroyed and blow up their entire account. They bet too much and the leverage is too high. In fact using leverage at all can be a mistake in a lot of situations. The spot market definitely has its perks (volatility trading).

My advice would be practicing with very small amounts. Imagine the price of Bitcoin is trading within a channel between $50k and $55k and we want to bet on it. Well that's a range of 10% up or down, so it could be appropriate to use 10x leverage in that situation. Maybe even more. However, there's no need to risk more than a couple dollars on a bet like that when your account is in practice mode. $1 can borrow $100 on x100 leverage if the bet being made is extremely specific and is only open for a short time.

Freerolling

There are also actual practice accounts that can be used that allow users to trade with "points". So you can bet as much as you want and it doesn't matter because "points" are a meaningless metric and you can't trade them for dollars. "Points" can be printed out of thin air.

Again, as someone who's played a lot of cards... I don't necessarily recommend this strategy. Why? Because it is quite simply not the same. When playing a "freeroll tournament" in poker nobody cares if they lose because they have zero skin in the game. Trading with "points" is not a good way to practice because emotionally and psychologically we don't actually care if we win or lose. This results in playing the game in a way that we would never do if it was for actual money.

The entire point of practicing is to make measured responsible bets and tame our emotional responses. Winning or losing an asset that has zero value doesn't help us achieve this goal. Better to just bet very small numbers to at least get something out of it, no matter how small the numbers may be. At least that way the FOMO and FUD still exists even if it is tame and less crippling.

Revenge Trading

A revenge trade is a common form of loser's tilt in which the emotionally distressed gambler will double down on one or more losing trades to "make it all back". This is a very bad way to make decisions because the initial trade that ended up losing usually ends up being the best decision out of all the subsequent blunders.

Take the x100 I opened yesterday for example. Let's assume that immediately after opening that position the market dipped 1% and the position got liquidated. Now I'm down $100. There's a very high chance that I would want to double down with another x100 trade at this lower level to make up for the previous loss.

The reason why this is a revenge trade is the initial reasoning for making the bet. The edge I was trying to capitalize on was the idea that the market gets frozen on Saturdays after ETF money printer gets turned off. The price dipping and liquidating my position destroys this narrative. So even in the face of being proved wrong by the market I would want to double down and delusionally make another bet while convincing myself it was a smart idea even though the initial premise has been disproven.

If we catch ourselves being trapped by this kind of emotional tilt it's best to just step away and stop trading entirely until we can emotionally center ourselves again. Sometimes it's best to just quit for the day and continue the grind tomorrow.

Counter Trading

Doing the opposite of what people are saying on social media and financial shows seems to be a very good strategy for these markets. When the mob wants to buy, we sell, and vice versa. When Jim Cramer tells us, "Bitcoin isn't going to find its footing," we buy. When he says, "What did Bitcoin ever do for the world?" We leverage even more.

This is a classic example of the cold-hearted market doing everything it can to relieve the fools and cowards from their hard earned assets. I call this the psychic market vampire. The only way to win is to become one with the shadow. Gambling on a gut feeling is never going to work long term no matter what stories the compulsive gamblers tell us.

vs HODLers

One of the interesting things about crypto that makes it unique is that an asset like Bitcoin just keeps going up over time. Exponentially so. This makes it much easier to trade without getting absolutely wrecked. If a HODLer makes a 100% gain year over year but a trader makes 50% they might feel like a genius even though they're losing money without even realizing it. This is very common in crypto and extremely uncommon everywhere else. Perhaps this is a testament to the superior value of this new asset class.

The Rake

Remember how I said 90% of all gamblers lose and only 10% win? This is actually a direct affect of the rake, which is the amount of money the house takes for themselves. In poker the house might take $5 out of every pot. This doesn't feel like a lot when the pot could be $300, but it adds up to a lot of money over time and makes it very difficult to win money on the average. Without the rake, 50% of gamblers would make money on average and a lot of them would get very close to breaking even over time on the bell curve.

On a centralized exchange the rake is a trading fee. On Coinbase this fee might be 0.5% while on Binance the fee is only 0.1% which makes it a lot easier to turn a profit. There are also different fees for being a maker or a taker (limit vs market orders). In addition, trading on leverage can incur a funding rate fee in which the user must pay heavy interest rate on the loan that they took.

The interesting thing about perpetual futures markets in crypto is that this funding rate doesn't generate revenue for the exchange so much as making sure that the market stays balanced. Longs will pay the shorts or shorts will pay the longs depending on how offbalance the books are. Thus this ends up being another way to earn income by betting against the greater market.

Conclusion

In the time it took me to write this my x100 long is down quite a bit. From +125% to +50%. A long this aggressive could get liquidated at any second. Bitcoin is very unforgiving that way especially when sitting at all time highs. We'll see if I can avoid that dreaded margin call! If not, lesson learned. I won't be doubling down on this one.

Gambling can be a very difficult and stressful experience, but also rewarding and thrilling. The ultimate problem with it is that it's extremely addictive and can trick us into making very stupid decisions. However anyone that follows the advice listed above won't get completely wrecked like the rest of the degens.