if you’re smart, you don’t need leverage; if you’re dumb, it will ruin you. The smart and the dumb—and all the rest of us in between—should pay heed.
We learned in the '20s that markets with participants playing heavily on margins could be more dangerous than markets where people are dealing in cash.
Do you margin trade?
Yes, but in a very limited area of crypto-currency. The problem with my “trades” is that they have been on underlying currencies in which I wish to create a long term holding. So there are no stop losses involved.
I have to admit that this is a very haphazard approach to crypto trading, and I recognize this, but still take up to four trades per month.
To improve this, I am in the middle of re-entering leveraged Forex trading, and the strategy and planning has become a very long winded affair. I believe that I am at the point where I just need to finalize my choice of two indicators via which to complete a trading plan for Forex. If that back tests with positive results, I will use that in forward testing for 3 months. If that demonstrates a positive edge, I will reuse the same strategy and plan, and start all over again testing for crypto-currencies with which I am familiar.
The difference between this formality for Forex and the same for Crypto currency is that the former is a plan to increase funds in new bank whose existence is defined in quantity, whereas the latter plan is to mitigate risk to our existing crypto investments against a large drop in market price. I had thought the crypto market could drop by about 40% around end of September, but it in fact dropped around 50% during May and June. on the one hand, this is an urgent activity because of the relatively high value of our crypto holdings (relative to last year, anyway).
Suffice it to say that I have been more successful in the short term with crypto investments than any other investment in the past 20 years, which may be due to not using any leverage. However, the objective of using leverage is not to earn even more profit - it is to have a plan in place to use a portion of what I perceive to be “excessive profit for a specific timeframe” to “buy insurance” against the market going the other way.
I have reread this many times but can’t seem to grasp. May I ask you to elaborate?
It’s simple. Our crypto investment went up 6X in 10 months. Recently it has collapsed by 50% but that is still 3X over 15 months. the objective of using Forex strategies and plans is to hedge Crypto holdings and to mitigate the losses that come along with any market in which you wish to long term hold the underlying instrument.
Example. You hold 1 BTC that you bought in Nov2020 for $10,500. It is now $50,000. You do not wish to sell the BTC holding, but you wish to protect against a drop in value to less than $40,000. You short sell a leveraged BTC. I am not clever enough yet to figure out even what the protection level is that I deem applicable to our investment use case, but once I have decided what that figure is, I may be shorting cryptos. It sometimes takes me a long time to get my head around these things. I find them difficult - and that slows me down. Meantime, I just have to put up with the ups and downs of the market.
So this is an example of a hedging strategy?
Does it ever get too costly to continue? Or no, because price has to move either up or down, so in your case, if BTC goes up, your 1 BTC is worth more, and of it goes down, you’re minimizing the amount it goes down?
Do I have that right? Do traders just keep this up forever?
I don’t know. As I said, I re-entered an interest in Forex learning to find a strategy and plan that works for my Crypto investment case. I didn’t say I am doing it in practice. I think I know what to do, but I have to get that written down and backtest it for results. Too busy setting up my mining rig atm 