Stock and Crypto traders lose money for a whole bunch of reasons. In crypto, one of the biggest things is we don’t know who the winners are yet. There have been some winners to date. However, if you buy a selection of coins or tokens, most of them will probably be worthless if you hold them forever. If you also purchased a bunch of new coins in 2017 when there was a big flurry of activity on the ICO front, most of those are now worthless. Therefore, the buy and hold strategy in crypto is terrible.

Most people freak out and say, “Oh no, but if you bought Bitcoin and held that since the beginning, you’d be a billionaire.” And yes, that’s true. You would be a billionaire probably if you put a decent amount of money in, but this is hindsight now for Bitcoin. If you try and pick a new coin now and hold it forever, chances are it’s not going to be the Bitcoin since we’ve already got one. Thus, buy and hold as a generic strategy is dangerous.

If you buy and hold the blue chips, maybe you’ll make money in the long run. However, another problem in crypto is that the volatility of the market is so huge, the bull market is huge, and the bear markets are extremely brutal. If anyone’s been trading crypto for a little while, they would’ve seen massive price drops, and it takes a superhuman cyborg to sit through those drawdowns and have no emotional reaction since it’s tough. So buy and hold is challenging.

Second, most traders are not doing much more than gambling. If you look in the chat forums, Facebook and WhatsApp groups, Discords and any trading signal groups, most people are hyping something up, hoping it will get them rich. Unfortunately, gambling in any market doesn’t work. There are always great stories of, “Oh, I bought this, and it went to the moon,” but that’s the one story you hear. You don’t hear about the five other bets the person took that lost all of their money that went to zero. Thus, most traders are gambling, and you need something more than just a hot tip, and we’ll get into what that is.

The third is emotion — when price swings are so big, we can’t help but get emotional. When something is pumping, we get the feeling of greed. When something collapses, we have a sense of fear. If you have the feeling of greed, you’d want to throw more money at it because you’re going to get rich. However, the trouble is there’s a lot of pump and dump in crypto wherein not everything continues to go to the moon forever.

Therefore, if you throw more money into it, you get close to the top, and the dump will hurt you. We’re driven to hold on when things fall because we don’t want to take that loss and hold on for too long. We end up with a bigger loss and eventually think, “Ugh, can’t take it anymore.” We capitulate and hit the sell button or make irrational decisions because we’re scared.

The brain goes into fight or flight mode as soon as you fear. In fight or flight mode, the blood gets diverted from the brain and into the muscles. In this case, you get ready to fight or run away from the tiger, lion, or bear. In that mode, you’re not thinking clearly and don’t make intelligent decisions. You have to think about the last time you fought with someone like your spouse or friend, but you don’t say the most sensible things because you’re in a fight or flight emotion.

Fourth is position size, which is a killer. “This one is going to change the world. It’s going to change. This is the future. This is going to go to the moon. I’m going all-in.” It’s like all-in is the stupid thing I have heard out of a trader’s mouth. You should never be all-in because we don’t have a crystal ball. It might go to the moon, but it might go to zero or nowhere.
Position size is critical; you’ve got to place lots of small, evenly sized trades because some of them will be successful or even unsuccessful. We’re not geniuses, and I also have lots of losing trades. We can’t go all-in on one because if we get the unsuccessful one, we lose all our money. So we can’t risk having a big bet on a losing trade with a bad outcome.

Lastly is leverage — this is the most volatile market on the planet. I don’t know what makes traders think they also need a 100:1 leverage since it just makes no sense. You’ve already got an asset class that is moving huge amounts hour by hour, let alone day by day or week by week. So, traders think about the profit potential of the leverage first. However, that’s the last thing you should be thinking about.

The first thing you got to think about is the downside potential. “If I buy this much and put on that much leverage, and it drops, what will happen to my account? Will I survive trading that way?” You’ll get a different outcome if you think about it.