Learning about trading bitcoin? Start with cutting losses and analysis of my recent loser.

In trading, you can only control the entry, exit and position size. Once you are in a position, price is out of your control. If your trade setup is good, your position is statistically likely to be profitable, but never guaranteed. I personally think our brain sucks shit when dealing with random variables: poker, trading, and gambling. Traders, including myself, hold on to losing positions for too long, not willing to cut loss, not willing to let it go to fight another day.

Ever read those motivational books/poster about success or perseverance? "Do not give up, do not lose hope" they said. For typical careers and businesses, having such mentality is good and often attributed by those who are successful. Unfortunately, in trading, this type of mentality is a disaster. 

I tend to analyze my losers more than winners, so I'll go over my most recent big loss. I longed at 255 last week expecting the market to be bullish. I went long because bitcoin price is still at a higher low and market bounced nicely off of 240 support. Shortly after entry, bitcoin price did bounce higher to about 263 the following day, pretty good trade I told myself!. My original trading plan was to ride it while it is profitable and get out if price falls to entry, essentially a risk free trade!

By Monday, market crashed back down. Within a 15minute bar, market dropped to 245. My alerts went off, I told myself that I would sell as soon as price bounce a little. It is a low volume day and we are at support. Nope, market says fuck you, no bounce. Some dip buying, but not a bounce. I try to rationalize myself, still expecting this imaginary bounce. The worst part about this is the psychological aspect of trading; it is a total mind fuck to have a winner turned into a loser. Hopium was strong during this short period of time.

Market dropped another 10 points after the weekend to 235, still no bounce. I yelled at my computer, "Where are the buyers? da fuck? aiiiii, I am done" I got out because my experience and discipline told me so, but I was still upset! Hope, and self-rationalization cost me 11 more points.

In trading, what is clear to me is to keep losses at a controllable level, 3-5% is reasonable. Exits might need to be wider or narrower, but use position size instead of bigger % of account instead. There will always be new trading opportunities, lets fight another day. I hope my experience was helpful, leave a comment on what you think, share your losing stories, you'll feel better. When I write more of these stories, hopefully I can compile them into a bitcoin trading guide.