I’m not sure if I need to add anything to the title, to be honest. Sometimes it’s the simplest things that become the hardest things to accept. Like the fact that trading is hard. There sure are a lot of people in crypto that don’t think this is true. That’s pretty much what spurred me to write this blog today. It’s the idea that all you have to do is buy and HODL. Nope, not a misspelling. HODL, which started as a misspelling, has become the battle cry for the crypto crowd. The group think is Hold On for Dear Life. The idea is if it goes down, just hold on to your position, eventually you’ll be rich.
As I’ve stated so many times at this stage of my career, I’ve seen this movie before. No this isn’t a Charlie Munger, Warren Buffet, Jamie Dimon, etc denial of bitcoin and crypto. As my readers are well aware, I’m all in bullish, to the point that I work for a crypto exchange. That’s about as IN as you can get. So am I long term hyper bullish on crypto? Yes. But I’ve been trading a lot longer than bitcoin has been around. I was good enough at it to stay in the business for a long time. Dead markets, wild west markets and everything in between. I’ve taught others and spoken with many many traders of different instruments over the years. We all agreed on one thing…to have longevity in the business you needed to accept that it was hard.
Don’t get me wrong. Can you get rich trading and not be good at it? Absolutely! I’ve always believed in luck over skill any time. And generally successful people have some luck along the way. It’s been said those people make their own luck, but either way there’s still some luck involved. And crypto traders and hodlers alike have been lucky; this has been one helluva bull market. I’m not saying it’s over, just saying it’s been going on for a while. The run has had some hiccups let’s call them, but it’s been a 10 year (+) bull market. So looking back, yeah just holding positions has worked. No matter what. And those are some strong hands, or ignorant, or a little of both.
Back when I traded gold futures and gold was trading under $300/oz. I used to hear the same refrain. Gold will make new historic highs. The previous high was approximately $850/oz. back when the Hunt brothers were trying to corner the silver market. My response was simply, “If you survive long enough and your pockets are deep enough, you can wait for any position to come back.” This is not something I would recommend…for a couple of reasons.
First, if you’re trading exchange instruments you’re probably getting a lot of margin calls along the way to support the position. Second, instead of holding that position as it goes against you, just get out. You can buy it back again when the setup seems more bullish. Or you can buy it back cheaper. Or you can simply reallocate the money to a better trade. But getting out allows newfound clarity every time. Third, and extremely important, it’s Painful! Sitting on a position that is going against you and you’re just sitting there watching yourself lose money hurts. And that’s hard. One of the things that will always stand in the way of profits is emotion. Thinking you’re right and the market and the world are all wrong. You may be vindicated eventually; let’s just hope you haven’t run out of money before it happens.
So about that movie. We’ve discussed on more than one occasion the ‘internet bubble.’ When it seemed that anything with .com in the name would make money. One of my favorite examples is always Pets.com. Cutest sock puppet ever! Never made money, stock went to zero (Ok, there’s a trade that isn’t coming back). Everyone and their brother, and their sister, cousins, aunts, etc. thought they were the best traders in the galaxy. Why? Because they were making money. One friend used to trade on his lunch hour and didn’t understand why I wasn’t richer. He was buying things and taking vacations…then it all blew up and he realized no more of that nonsense; couldn’t afford to make money like that anymore, cost too much in the end.
Recently we saw this in fast motion with the Wall St. Bets crowd looking to crush shorts in traditional stocks. Sending Gamestop up over $400/share was a lot of fun…unless you were the one that bought it at $400, because ‘they’ promised we’d get it to $500. This plays out over and over for the same reason Ponzi schemes do. Easy money, or seemingly easy money, is attractive. But most money isn’t easy.
The second favorite refrain in crypto, after HODL, is BTFD. Buy The F*cking Dip. Another strategy that’s fun and profitable, until it isn’t. Buying the dip is great, but how do you know which dip? Or how deep a dip? Or when the dip is done. Buying the dip in gold, in our previous example, probably felt good at $600, and $500, and $400…when do you give up? Throw in your cards? Often it feels like you did it just when you really should have been buying more. But it’s tough! Those emotions again. I’ve got 10 rules of trading; one is ‘Save Emotions For Your Family.’
The point is that there’s a difference between riding a wave and actually trading. The other thing I like to say is trading is not a hobby. Another friend once told me he got a financial settlement and he was going to turn that $100k into enough to live…for a while. After all, his girlfriend had bought him Trading for Dummies. I kid you not. I have known him since high school, so we discussed this plan. We agreed that while not the smartest guy in the room, I’m generally not the dumbest. And yet, after reading books, studying charts, writing successfully implemented trading algo’s, I still wasn’t rich. If it was easy, then even I should be able to make enough…he finally agreed, it must not be easy.
Sounds like I’ve seen the movie, huh? It doesn’t make me feel good to have to constantly point this out. It usually means people have lost money. In this case I hope it saves some people money. Like I said, the story is an old one. In fact my grandmother, immigrant from Hungary who lost her husband early, yet never worked a day in her life after that. How? She found a really good advisor. For even she had the wisdom to tell me when I was younger, `Any idiot can make money in a bull market.’ Now you don’t have to pay attention to me, but I do think we should all pay attention to her.
A quick note: We lost Welles Wilder recently. He invented many of the indicators we use today. I am a heavy user of his RSI and ADX indicators; in fact the TrendStall indicator I built while at Bloomberg is actually a derivative of ADX. I owe much of my charts success to using what he gave us. I always wanted to discuss his use of recursive calculations over simple, and whether that was his choice due to having to do hand calculations vs what he would have chosen if he had a PC way back then. I’ll never get the chance. Hope he’s looking down with satisfaction, knowing his tools are used and taught and discussed, and will continue to be at the center of our industry for many years. RIP Welles Wilder.