Why I am (Now) Open-Minded on Trading Cryptocurrencies
In June I wrote a piece entitled ‘Why I won’t Trade Ethereum’, which some of you may read. In it I presented all of the reasons why I didn’t and wouldn’t trade Ethereum, and by extension why I wouldn’t start trading cryptocurrencies generally.
Six weeks later and I find myself forced to backtrack slight and to at least open my mind to the idea of trading cryptocurrencies. As a natural risk taker and neophile, I have begun to ask myself – why am I closing my mind to a new trading idea? In the last year I have been open minded on every cute and colourful concept that has come my way. This one is certainly high risk, but it is also high reward. If I had wanted to be a grinder, I’d never have left my job in the City…
This is not to suggest I have just remortgaged my house and dived right in… Where there is reward, there is risk, and where there is risk there needs to be caution and professionalism. But, equally, running with my tail between my legs doesn’t really appeal. Maybe I am getting cold feet about getting cold feet!
Conditioned to Avoid Risk
The Forex trading market and education space has matured in recent years, as the awareness of the general punter has increased. One of the principal results of this is that most responsible trading educators now preach a Risk-Management first methodology. The mantra of the modern, successful and long-term trader is often ‘get edge, test and prove edge, trade edge with small position size, grow account incrementally, use the power of compounding’.
This is wholly appropriate and is certainly the way I approach my trading, but what it does is create a risk-averse mindset. But, by their very nature, people who choose to use their risk-capital to personally trade Forex, rather than give it to a Financial Advisor or chuck it in an interest-only ISA, are likely to be risk-takers!
No matter how switched on and scientific you are with your risk-management approach, if you trade Forex you are doing something far more risky than if you stick you money in the bank, or under the mattress.
Risk Takers Need Opportunities
Sometimes people misunderstand ‘risk taking’ and believe that people do it for the risk itself. I don’t believe that is true, at least for most people. Most risk-takers, be it physical risk like climbing Everest or financial risk, are in fact doing it for the reward.
That is why I trade Forex. I swing trade around my various business activities. The business activities pay for my life in the short term and put money in my trading account. I trade for the long term future of my family and am happy to take some risk with that money because I want to do at least 20%+ a year. The 3% I’d be lucky to get in an ISA would likely be below upcoming inflation rates – losing me money in real terms.
Balls to that.
Nevertheless, trading Forex alone is still somewhat constraining. Forex is a hard, hard game that it is very difficult to make big returns in. But Forex traders are now beginning to look across the internet at ‘Bitcoin millionaires’ who made one good call 5 or 7 years ago, and are now in their mid 20s and never need to work again.
Forex traders – probably risk takers – need opportunities for reward. Otherwise they will just act destructively in their principal business of Forex Trading.
Cryptocurrencies are the Coming Opportunity
Recent Two Blokes Trading interviews with Siam Kidd (here and here) have really opened my mind to the possibility of these cryptocurrencies. He used to be massively against them, but now has changed his mind. If a guy like Siam who has been in the market for years can change his mind, why can’t a guy like me!?
I gave up a well paid job in the City of London to start my own business. I gave up that business after two years – just as it was beginning to make real profit – to start trading and creating a podcast – two things I knew nothing about! Tom left University with a good degree and decided to go to a war zone in Afghanistan. He then gave up a career in teaching to join this idiot in an unproven business.
We are both natural risk takers. So why are we being pussies about Cryptocurrencies?
Blockchain will Change the World
As Siam pointed out, 2 billion people are yet to come online or get a bank account. As I learned in the Ashraif Laidi webinar I recently attended, a huge portion of the migrant labour remittance market is now going through Bitcoin channels. Apparently, 20% of the remittances of Filipino emigrant workers in South Korea is through Bitcoin. These people probably don’t have real bank accounts, won’t in the future and will decide to send crypto remittances as the fees are way cheaper than Western Union.
He also told us how Smart Contracts (a key part of Blockchain tech) will destroy existing middlemen businesses and tear up established business models. Reading even briefly around the topic I can see that what he is saying is potentially spot on! So how can we profit from this?
Cryptos Do Have Fundamentals
Now, what is interesting about this, is that a bit of analysis can show you how much real world events affect the price of Bitcoin. The Indian demonetisation of 2016 can be correlated with an attendant spike in Bitcoin. On his webinar Ashraf Laidi suggested there was a direct link. People had simply moved their wealth to another untrackable, nontaxable haven! He mentioned other events such as the Cypriot currency controls of 2013 and the Russian ruble devaluation of 2014 that could be correlated with a huge rise in Bitcoin activity.
If Bitcoin can be shown to move with fundamental and sentiment changes, then surely it can be traded? If it can be traded then it can be tamed and brought under a proper risk management system.
The recent Hard Fork of Bitcoin on 1st August 2017 was a classic example of price rising ahead of a news announcement, and then plummeting when the announcement is negative. It was very similar to the price of GBP before and after the surprise Brexit votes. Could you predict these price movements with enough accuracy to make short term trading profits. Some people clearly believe so.
You may ask what is the point, why don’t you just apply this knowledge to Forex trading and stay away? Well, as I said, the flipside of Risk is Reward. The volatility of these currencies is massive. If you trade on leverage you could be utterly destroyed. But, equally, it gives you the opportunity to make money.
Will technical trading work for trading cryptocurrencies? Could you plot a Fibonacci retracement on the ridiculous rise of Litecoin or Ethereum? Will there one day be a RANsquawk for cryptocurrencies?
I have no idea, but I am going to try and find out!
I may currently have no idea how to go about trading cryptocurrencies. And, certainly, a lot of the issues with low-liquidity markets and flash crashes are still present. But, trading is a risky game. If I approach it professionally, I at least owe it to myself to explore the idea of trading cryptocurrencies.
Good luck and trade responsibly!
If you wish to trade cryptocurrencies, The Two Blokes recommend XTB where you can trade the five major cryptocurrencies. But, do you own research and stay safe!