The best way for most people to succeed in trading and crypto trading is to adopt a systematic approach. A systematic approach means you have absolute objective rules that tell you when to get in, how much to buy and when to get out. So if A and B, and C happen, you buy. If D or E happens, you sell. This is important for a couple of reasons.
The first one is when you have objective rules that tell you exactly when to get in, the emotion doesn’t come into the decision. One of the biggest problems is emotion. We’ve got to get that out of the way. We have to know when to buy and know when to sell, even if we’re scared or feeling greedy. The systematic approach helps because you know exactly when and when to get in.
The second thing that is powerful about having a systematic approach is if you can write your rules down in if-then statements like they’re purely objective like a formula, then you can test them. If you can test them, you can be confident that they’re profitable. If you’ve looked at some trading books or read some trading blogs, you’ve probably seen some ideas about what you should do, when you should buy, and when you should sell.
You should buy if this crossover happens or if this indicator does that. Most rules don’t work very well, but you don’t know that unless you know how to test the rules. Thus, having objective rules is excellent; it gets rid of the emotion, but you have to be able to test the rules to satisfy yourself that they’re profitable. I’ve tested thousands of different trading ideas over the years and hundreds in crypto. You would think many things work based on your experience outside of trading, but they don’t.
We’ve got almost to do the opposite of what our human nature drives us or compels us to do. Such things as buying tokens that have rallied strongly is a good idea even though it feels expensive because they’ve got momentum in the right direction. Momentum tends to persist, particularly in this market, and selling them when they’re falling is a good idea because the trend is over. Most people want to buy something when it’s cheap, and when it keeps failing, they want to hold on to get back to even, which is almost the exact opposite of what you’ve got to do to make money.
Different strategies work; you can buy things that are going up, hold them till they go up further, and when they turn around and go down and sell them, you’ll make a lot of money. You can also buy things that are going up but then have a sudden dip against the trend. Then, if you buy it, chances are there’ll be a rally. However, you’ve got to define the dip and how big it is, and that has to be objective.
The critical thing is to have a system, a set of rules, and be able to test it on past data so it’s profitable. Once you know it’s profitable, diversify and hold lots of positions with those rules so that it doesn’t matter if you’re wrong on one of them, it doesn’t matter. If you’re wrong on two of them, it doesn’t matter. You’ve got to be prepared. You’re going to have a lot of losing trades. Most successful traders have 40, 50, 60, or 70% losing trades, but the key is your winners have got to be big.