The Crypto Trader Book Summary

🎩 Top 3 Quotes

• Ever hold on to a losing trade. Ever. Ever ever ever. Don’t rationalize it, don’t try and justify it, just don’t do it.
• Those who have knowledge don’t predict. Those who predict don’t have knowledge
• Don’t fall in love with your crypto

📖 Summary

1. Never hold on to a losing trade

Ever ever ever. Don’t rationalize it, don’t try and justify it, just don’t do it.

Preserving your trading capital is your number-one priority and that’s equally true when you’re trading cryptos.

Few losses on that scale will usually be enough to wipe out any gains you've made on other cryptos and severely reduce your capital, which will make it much harder to make decent profits in the future.

2. Cut your losses

Most successful traders have a cast-iron rule that I think every novice trader should adopt. The rule is to close losing trades and cut your losses while they’re still small and inconsequential. Remember this guy? It is important to put stop loss in your trades to avoid big losses.

3. Day trading is for losers

Day traders open and close trades on the same day, they usually execute many trades per day and they do not hold any positions open overnight.

An extensive study was carried out in 2010 by a group of professors at UCLA,30 who found that of the hundreds of thousands of day traders in their sample, 95% were losing money. So perhaps by practicing hard you can become part of the successful 5%? No, they also found that experienced losers just keep on losing.

4. Buy in the early part of an upward trend and sell them near the top

This means I usually miss out on a small chunk of profit at the very bottom of a price cycle because I want to see a new upward trend establish itself before I buy-in. This image shows the typical entry and exit points of a trend trader. As you can see, they would miss the bit of profit at the bottom and the bit at the top but grab a hefty chunk of profit in between the buy and sell points. Market price patterns tend to be fractal in nature, which means they repeat themselves at different scales.

5. How to Choose a Target

Identifying the main trend

In a bear market, all coins go down, and in a bull market, they go up.

Markets have three main states:

1. Trending upwards (bull market)
2. Trending downwards (bear market)
3. Trending sideways (in a trading range).

When the cryptocurrency market is trending upwards, it is much easier to make money buying cryptos.

When it is trending downwards or sideways, making money on the long side is far more difficult but can still be possible.

Bitcoin has always served as the bellwether for the entire crypto market, when he goes, the rest of the market tends to follow.

If you’re unsure of where the main trend is heading

many people find it useful to use moving averages on their charts. A moving average is a line added to a chart to help smooth out short-term price fluctuations and make the longer-term trend appear clearer.

By taking the average of the prices from the previous 200 days, the moving average line is always somewhat behind the actual price – there is a time lag – but it can help you to see the bigger picture.

In the case of Bitcoin, the MA line is usually heading upwards, which helps you to see that – despite all the dramatic ups and downs – Bitcoin has spent most of its existence in a long-term bull market.

6. Trading schools

There are two main schools of thought in trading, fundamental analysis, and technical analysis.

Fundamental analysis: study the underlying factors affecting a price, the true ‘worth’ of an asset.

Technical analysis: a **study of price patterns repeated across many markets and over time.

7. The perfect buy

As you can see, in late 2013, Bitcoin had an incredible price surge, from $130 to nearly $1,200 in less than two months! and then the price came crashing down soon after. Towards the end of the chart, the price starts moving in a sideways direction, it’s forming a base, so we call this a basing pattern.

people are buying and selling in similar proportions, which holds the price within the bounds of the dotted lines.

The top line is known as the resistance line and the lower line as the support. Whenever the price wanders down towards the support line, traders start buying in the expectation that the price will bounce off the support line, Similarly, when the price approaches the resistance line, traders start selling in anticipation of a downward move, which pushes the price back down.

As a general rule, the longer this basing goes on, the more confident you can feel about the eventual breakout because the breaking of a strong resistance line is often followed by a dramatic move upwards. In this case, the basing goes on for the best part of a year.

The eventual breakout through the resistance line in late October was indeed a big move, but as is often the case, the price headed straight back down again to retest the resistance line. The retest can be deemed successful because the price hesitated at the resistance line and then resumed its new upward trend.

The price of Bitcoin rose more than 6,000% in less than two years, one of the largest price rises in financial history.

8. Don’t chase the breakout!

Now, what if – for some reason – you miss that breakout point? Here’s how a regretful trader’s thought process tends to work

They miss the breakout and the FOMO sets in, but they don’t buy immediately because they reasonably expect the price to have a small correction after such a large sudden rise, and so they’re hoping to buy during the price dip… but the price doesn’t dip, it rises further.

Now they’ve got super FOMO, but they’re thinking it’s definitely too late to buy now, they have to wait for the dip.

But the price just keeps on rising faster and faster, and finally, panic buy, which inevitably marks the top of the short-term trend.

As the price goes parabolic37 the short-term traders who bought much earlier start to offload their Bitcoins to lock in their profit, and the price plummets.

Our miserable panic-buying trader loses nearly half his investment in just a few days! He keeps holding on in the hope of a recovery, but as the price falls below the original breakout point, he is terrified he’s bought into a massive price collapse and so he panic sells. As the panic sellers sell, the bargain hunters buy and the price swiftly recovers.

So when should I buy it?

The best way to do that is to buy at the breakout point and set a stop-loss to make sure if the price falls much below the breakout point, you get out with no more than a small loss.

A good rule of thumb many professional traders use is to only buy within 5% of the breakout point.

If the price has risen further I usually disregard the breakout and wait for the next opportunity.

8. Chart patterns

1. Right-angled triangle The original breakout was followed by a period of consolidation, but it didn’t just bounce randomly, it bounced in a tighter and tighter range.

This tightening of the trading range formed the pattern of a right-angled triangle when the price fleetingly fell below the lower dotted line, this could be a sign of the failure of the triangle pattern, It is better to wait patiently for the breakout to begin and then buy at the right time. In trading, a right-angled triangle is simply a triangle pattern with a horizontal top or bottom edge.

Statistically, these horizontal edges tend to be more reliable as trading signals than triangles with diagonal support or resistance lines.

2. Symmetrical triangles

Triangles are very common in charting. Unfortunately, as already noted, if they don’t have horizontal edges they’re not particularly reliable as trading signals. As they’re symmetrical, they don’t give much of a clue as to their future direction.

It is better to wait patiently for the breakout to begin and then buy at the right time.

3. Wedges

Wedges are basically upward or downward-sloping triangles, also known as pennants.

Usually, they are continuation patterns, which means they are a short counter-trend reaction during the main trend. So you might get a strong trend upwards, but they can break out in the wrong direction, So while you’re watching a wedge develop, just keep an open mind about what could happen next.

4. Flags

Flags are another common continuation pattern similar to the wedge/pennant, the main difference being it is formed of parallel lines.

Here is a continuation flag pattern. the price rises then consolidate sideways sometimes with an upward or downward slant before resuming the upward trend.

A recent paper from the Hamburg University of Applied Sciences finds the flag to be one of the most reliable chart patterns.

5. Head and shoulders

Head and shoulders are one of the most reliable patterns with extensive academic evidence supporting its use to improve trading profitability.

This is a head-and-shoulders top. The second shoulder formation alerts you that the uptrend is over and a new downtrend is about to begin.

The neckline is where the price bounces back up after the first shoulder and again after the head. A breach of the neckline after the second shoulder marks the completion of the pattern and the likely start of a new downward trend.

Head and shoulders bottom

it’s a mirror image of the head-and-shoulders top.

As with triangles, it’s preferable for the support, resistance, and in this case the neckline to be horizontal rather than diagonal.

In the real world, head-and-shoulders patterns often look far more complex and a lot messier than the textbook images.

Like here in Ethereum.

Don’t jump the gun

You may think that you can make a lot more profit instead of waiting for a breakout of the neckline, you simply got into the trade early. But there is nothing that does not fail.

Once the price moves lower than the second shoulder, it indicates that the head and shoulders pattern has failed.

9. Volume

Apart from the price itself, the most useful indicator is volume.

Volume is a series of bars along the bottom, showing the quantity of trading during a given period of time.

Typically a volume bar is green or lighter colored if the price has risen during that period, and it is red or darker color if the price has fallen.

when a chart has been quietly trending sideways for some time, a sudden breakout is usually accompanied by a large increase in trading volume. But if the volume doesn’t increase, the breakout will often not follow through and will turn out to be a false breakout.

9. Patterns into patterns

You will often find you identify a pattern only to later realize it has morphed into a larger pattern of a different kind.

Here you can see the price quadrupled in less than a month! After such a massive rise, we would expect a period of consolidation, and possibly even a full-blown crash, so let’s look for clues as to what might happen.

It looks like a symmetrical triangle is forming. so, as we know, that could resolve itself with an upwards or downwards breakout. Let’s see what happens.

And finally, All these smaller patterns were just part of the formation of a large right-angled triangle.

So the lesson here is not to get too hung up on any individual pattern.

Patterns represent possibilities, not definite signposts. Keep an open mind and accept change, transformation, and pattern-morphing allow the changes to alter your expectations. That way you will be ready and not resistant when the true pattern reveals itself.

10. Crypto Fundamentals

You might discover a groundbreaking find out there and want it to be a long-term investment, but I still caution against buying them until their price chart shows positive signals.

There are too many brilliant new technologies out that end up on the scrapheap, and you don’t want your life savings to end up on the scrapheap with them.

How do we determine the fundamentals of a cryptocurrency?

You have to ask yourself a number of questions.

1. Why would people start using it? For bitcoin, attempts to satisfy the need for fast, money transfers and allows people to bypass the banking system altogether, without sacrificing the safety or security of their funds.
2. How many crypto coins/tokens are the developers planning to produce? The total supply and the rate at which new tokens are produced will both have implications for the price of the crypto. Flood the market with tokens and it will be difficult for each token to maintain its value.
3. How active are the developers on GitHub? The online platform where developers upload their experimental code for other coders to comment upon and improve? If the developers of a cryptocurrency aren’t part of this thriving online community, you should probably start worrying.

11. ICOs

Investing in Initial Coin Offerings can be a quick route to riches or it can be a total disaster.

It is very hard to predict which ICO will go, research showed that 70% of tokens were valued at less than the amount raised during their ICO.

That’s why I generally prefer to wait until a new token is listed on a large public exchange and has established an upward price trend before I buy.

To invest in a new project, follow these steps

1. Register through the crypto project’s own website

2. Buy some Bitcoin or Ether and transfer it to your own private wallet

   During the ICO you should receive instructions about sending your BTC or ETH to the project’s own wallet and about how you will receive your new crypto tokens.

Be extremely careful that the ICO is genuine and not a scam website.

phishing websites sometimes look identical to the genuine article but have one or two incorrect characters in the website address.

12. The Golden Rules for Crypto Traders

• grow your profits
• cut your losses
• trade the trend until it bends
• keep your trade sizes small enough to sleep at night
• do your research on crypto and read the white paper
• don’t fall in love with your crypto
• diversify and spread your risk
• keep your charting clear and simple
• winnings are real money, not gambling chips
• never chase missed breakouts
• never chase losses by throwing good money after bad
• never try to catch a falling knife
• run away from tips, rumors and opinions
• control your inner voices and psychological biases
• avoid scams; if it sounds too good to be true, it usually is.