Crypto markets extremes can be BIG PROFITS. Once we know markets go to extremes, and we know how to measure it, we can put that on our side. Very few traders wait for that advantage, and fewer still are prepared in advance to exploit that advantage.
And that’s what this video is all about.
I’m sure you’ve heard the Cliche ‘cut your losses, hold your winners’, this will keep losses small, but it misses a second factor every pro uses to exploit the advantage of market extremes – for the big profits.
Most of your money from trading is going to come from trades that take off rather quickly from when you put them on. That is the reason today’s video is so important.
As crypto traders, we are after a better return than most would consider fair in any other investment.
Many crypto trading plans have the trader in a position at all times, the thinking being that the market is either going to go up or go down. Perhaps you have been trading crypto this way, and maybe making 60% correct calls and still struggling to consistently grow your portfolio. Often, trying to guess every market move just encourages over trading, second guessing and a string of small losses.
Without the strategy we cover today, you will find that trading still isn’t even a 50/50 game.
You may win more often than you lose and never recover much beyond your losses.
It is natural to want to take a profit to prove that we are right. Being right does not, in itself, make the most amount of profit. It’s important for us to keep a good position as well as impress upon your own thinking about having a correct position initially.
Maybe you’ve put on trades and waited for the market to prove it was a bad position. And when your position are correct, the next step is wondering when to get out. It’s human nature to do it this way. It’s the source of many trading difficulties.
The time to get out of a position is not when the market is proving your position to be a correct one. You have the opportunity to be wrong as often as correct, but when you are already proven correct, this is certainly the time to step off of first base.
Our first risk control rule for crypto trading keeps us protected from our lack of certainty and the second risk control rule helps to enforce the certainty in those crypto market extremes that do prove correct.
This is the second part of two special videos on risk control. If you haven’t watched the first one already, be sure to go back and watch the video on Rule Number One.
Without a correct method to keep you in your winning trades and to press your correct positions, you will never recover much beyond your losses.
When your trade is correct you must be bigger at that time. This will require a rule, a strategy, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. And here it is:
Rule #2
Press your winners correctly without exception.
Sounds pretty elementary but correctly is the key. What you hear quoted most of the time is “cut your losses.” Cutting your losses is vital for survival, but you need this pro strategy if you want to make profits.
There certainly will be debate on how you know when to add to a correct position and on how a market can turn a correct position into a wrong position. I’ll get into specifics in a later video when I show you the flow chart for ‘The Five Stages Of The Trade’ – it is so important because Rule Number Two shows up in three of the Five Stages Of The Trade.
I’ll share our most important add-on plan at the end of the video, but first, let’s unpack this – and get a birds eye view of this Pro Tactic.
Press your winners correctly without exception.
Rule #2
Just because you have a position in your favor does not mean you must now add to that position. “Correctly” means you must have a qualified plan of adding to your position once a trend has established itself. The proper criteria for adding positions depends on your time frame of expectations in your trade plan.
“Without exception” the rule indicates it is not an arbitrary decision on the trader’s part whether to add. It is not optional. Keep in mind that a correct way of adding in one trade plan may not be correct in another.
You might be a day-trader just trading back and forth, a short-term swing trader, or a trend trader only. Each trade plan will have a different criteria for adding on.
Most traders also want to get out before the market turns and takes away any profit they may have. We may let losses get larger because we are wanting to be right and hoping the market will reverse… and yet we may only let the gain get started before taking those profits… taken together, this will cause your losses to be larger than they need to be, and your profits smaller than they could have been.
Rule 2, it states only that you must add to correct (proven) positions and that it must be done correctly. The rule makes no exception on adding to correct positions. The intent of Rule 2 is twofold: Reinforce your correct position both mentally in your thinking and your execution and to increase the size of your position.
The rule does not tell you how to add, as this is your requirement in the trade plan you develop.
Trend traders will start small and get larger when they are correct, but day-traders will start larger and get smaller when they are wrong.
Trading Crypto In The Long Term
These two rules are to give you the long-term ability to continue to trade with the least amount of drawdown and the best possibility of making the most money in the long run.
Huge drawdown is the critical reason some traders go out of the business. You must start your trade plan with rules created to protect your equity. I am presenting those rules to incorporate into your plan. Experience has proven these rules a necessity in survival and reaching your objective of making the most return with the least amount of risk.
It’s easy to focus on the predictions, on the potential profits, and unknowingly put the risk control rules on the back burner.
In the last video we focused on Rule Number One, the strategies that will keep you in trading for the long-term. This keeps risk small at the start of the trade – but there are times when we want to increase our exposure to a market when our position has been proven correct.
We must address Rule 2 when creating the trading plan – before the trade is placed.
It is a solid rule and its importance cannot be diminished in trading. Until you see the reward from Rule 2, it is very difficult to understand.
Many traders will leave a plan to add to winners on the back burner when it is time to add unless you fully understand the need for this rule.
I believe most traders want to have a certain size position, and that is the position they place from the start. This is not a correct way to allow you to use Rule 1 and definitely Rule 2 properly. When you see an expected move from the start of trading, your thinking is counter to ever adding in the first place.
True, you should be at least twice as big or larger when right than when wrong, but you must work that position into your trading plan. You never risk it all on the initial position being correct or you are defeating the rule.
I want the traders to ask themselves two questions:
“Do you put only part of your expected position on from the initial entry?
“Are you planning for adds prior to your initial trade?”
If the answer to either of these questions is no, then you must go back and rethink your trading program. I have said it before. If you can think it, you can do it. Perhaps the traders aren’t thinking it to begin with because it certainly is not expected thinking without the proper planning.
This is your enemy . . . to love to be right. Your motivation must be to love to do the right thing in trading by either reinforcing correctly your position or removing it should it not prove to be correct.
By incorporating Rule 2 in your game plan from the start, you will be eliminating the desire to be proud when the market moves your way and want to take profits to show that you are right. Traders love to be right.
You will become the best trader you can be by being wrong small, not right small! Get that in your mind now. You are going to have to press your winners if you really consider yourself to have the ability to make a living or extra income from trading.
Otherwise, face the truth that you are only playing to break even.
You must understand that you are not the one who will determine your market position size. It is going to be the crypto market and must always be the market. Rule 2 is going to tell you to put a complete plan into effect before taking the initial position.
I cannot help you with over-trading or being under-margined. You must correct that situation before you can ever expect to be on even ground with the big funds. You must at all times be able to put only a portion of your expected position on at entry and be able to at least double your size somewhere along the route of an expected move.
The protection is Rule 1, but the biggest protection is Rule 2!
Now I am going to tell you why Rule 2 is the biggest protection of all. You never suspected what I am going to point out.
You have all heard that you should not add to a loser! Well, Rule 2 takes care of that from the start by keeping you with a smaller entry position in the first place. You never have your entire position until you are getting the move you had expected.
Now, why would I encourage you to have half of your total position at entry?
Because it is a losers’ game from the start and you knew that from Rule 1. Now, from Rule 2, you find out that, to trade it correctly, you were never really suppose to have your initial position upon your entry of a trade.
Traders are over-trading most of the time when they say they can’t seem to justify adding to an existing position. Most of the time a trader does not think about the reason for adding because they have their initial position on from the start. This is their maximum risk from the start.
That is never what you want in trading. You must take some risk but never your maximum. That is exactly what they are doing if they cannot plan for added positions along the way.
Strategy For Adding On To Successful Trades
Correctly adding to a proven position must be organized so that a top-heavy trade isn’t established because that will ruin a good trade in a minor reversal. Each add onto an original position should be done in smaller and smaller steps.
As an example, if you had a $6000 trading account, and you planned to put 10%, or $600, into a specific trade. Put $300 on as your initial position, add on another $200 if your criteria are met, and be prepared with an additional $100 to add if the position continues the trend. This gives you twice the original position size when all three positions are in place. I practice using a 3:2:1 ratio in establishing a full position.
All credits for this work go to Phantom of The Pits and thanks to Art Simpson for permitting me to share this work.
ULTIMATE Crypto Trading Risk Control (RULE NUMBER ONE)
What would happen if you could go from struggling to profitable in your trading with two simple rules that could shift the odds into your favor?
I found these rules a couple of years after I started trading back in the 1990’s, after I lost all my money, twice.
I had learned all about entry patterns, but I hadn’t learned anything about risk control.
When I created my first crypto trading course in 2015, I reorganized all the random information I picked up over the years, and placed it into the order I wish I would have learned it.
So I’m introducing these rules in this video series before I reveal my trading plan entries and exits. I want to help new traders establish a foundation that will help ensure that you don’t lose all your money, like I did.
You don’t need to make these mistakes to learn these lessons, you can learn from observing my mistakes. And I’m happy to share them. I paid a lot for them.
Crypto Trading Risk Control Rules
Many of you have experience with trading already. These trading rules have provided some of our students with a flash of insight that immediately improves their crypto trading results, and others, like myself, may need a bit of study to build the belief around the profound shift.
And if you are new to trading crypto, and you are looking for a Beginners Guide to Trading Crypto, learning this approach at the start will definitely improve your odds of success.
Before you consider placing a speculative trade, you must be able to repeat these two key rules from memory – out loud – without reading them.
These two rules are simple to memorize and state. That’s part of their beauty. But these two short and simple rules have profound implications on your trading – no matter what trading methodology you may favor, be it chart patterns and technical analysis or be it fundamental analysis and news events… these two rules can shift the odds in a game that is normally stacked against you.
If you are serious about making money trading in any markets – learn this before you trade, think about it, practice it, just as a pilot learns and practices in simulations before they fly for real.
Profitable Trader Shares Common, Learned, Habits
The people who are profitable generally share common methods, common standards and common rules that they all abide by, even if they are wrong 70% of the time and right 30% of the time – they can be profitable in today’s difficult crypto markets.
You may have been trading cryptos, maybe making 60% correct calls and still be struggling to make profits. If this is the case, I invite you to imagine what would happen if these two rules actually did tip the odds into your favor and help ensure smaller losses and bigger profits!
More Than Buy Low Sell High
When I first reveal Rule #1 and Rule #2, they may seem over simplistic. So before I do that, I want to uncover the subtle elements to these rules and consider the consequences over a long time frame.
By the end of this video. you will come to understand the profound impact this approach can have on your trading and any other risky thing you are doing.
No matter what kind of risk you are taking. you want to incorporate Rule #1 and Rule #2 to help you protect yourself against negative consequences, and to make the positive results even bigger.
Once you see how the effects work together to help ensure your profitability – Rule #1 and Rule #2 will naturally become a part of all your trading.
By practicing these crypto risk control rules with your micro-investing, you can develop habits and wisdom that will help you gain similar mastery over your fiat cash stack as well.
Rules for Life
Often these rules can also apply to other areas of your life where you can use them on setting goals, correcting missteps quickly, and boosting the successes of any of your endeavors.
Growing your mirco-investments is a lot of fun! Dealing with money should be fun! And this is a great place to learn and practice success habits with money!
Correcting Common Trading Mistakes
One student wrote in: “I was trying leverage trading this week on gold and silver and I noticed I was really anxious of being at loss and I notice that I would get out very quickly if I’m in profit.”
This is a wonderful example of natural human emotion, and it’s the reason you want to start off small, with no leverage at the beginning.
Just play. Just get used to it. At the beginning you have to learn not to be anxious about a loss, you have to expect it, plan for it. It’s part of the work that your money is doing on your behalf.
We must change our thinking about the difficulties of a loss. Instead, start with the perspective that the loss will help protect you against the nasty things the market can do.
They who lose best, are the biggest winner in the end.
I’m so very grateful for that comment because I also have the same emotions many times in my trades! …especially if I’m over-trading with a position that is too large, or if I’ve put on a trade with too much leverage and my stoploss is too close to the market.
When trading a crypto market, you have to give it room to move. That means you have to trade a small enough position that you can comfortably give it that room to move within the technical levels.
Before starting each trade, it is vital that we prepare the correct position size according to the size of our account equity. It takes repetition and practice. Like learning anything, it will start out difficult, but soon it gets easier, and with practice, it becomes second nature and almost effortless.
Our premium community of traders refer to these two rules all the time. Lets review a few examples in order to appreciate the profound implications that each rule brings to your trading strategies.
Behavior modification, without doubt, is the key to trading success — it starts with how we think, yet we also need to change our beliefs in order to truly change how we act in certain situations.
We must be very clear about the trading situations we can control, and the situations over which we have no control.
I offer these lessons that I have learned, and that I am practicing – as guidance, but it is your own determination that will make you a success. I can share the knowledge, but it is your efforts that will make these rules into a belief and a habit.
These two rules will be responsible for protecting your assets, and will help to keep you in the trading game forever.
I can be very costly to make mistakes in trading. You don’t need to learn from your own mistakes in trading, you can learn about correct trading from observing others. I am happy to share them if they shorten your road to success.
Preparation For Crypto Trading
First, you must be properly prepared for the trade.
Second, you will do your work and you will let your money do it’s work
First, in your crypto trading career you will find that the markets go back and forth without going anywhere a lot of the time. Second, in your trading you will find you do not ever control the market but only your position. You can stop your position wherever you wish. I want you to drill that into your thinking also. You can stop the market’s effect on your equity any time you wish. Simply stop (remove) your position.
You must realize you are required to work with your positions and not let the market work on your positions.
The main reason I’m creating these video tutorials is so that I can become a better Trader myself. There have been times where the market did a total surprise to me and I got killed in the market, taking big losses. And after the fact I wondered what I did wrong in my Trading and what I discovered was I didn’t even know what the right thing was.
Fact is I had not taken the time to consider what a big move could do to my trading account. You may hear the cliche that the BIG money is on the surprise side. What this really mean is that the BIG LOSERS are on the familiar side or the expected side of a trade.
Today we’ll uncover the two keys that separate the big winners and big losers.
In the beginning, it didn’t ever occur to me that I should be preparing for the possibility of a big move against me. I was over-positioned, even though I thought I had a good protection plan, and, I was mistakenly doing the work that my money should be doing.
Everything I did in my trade planning was based on estimates of how much I could take out of the market. My trades were actually designed to lose and the worst part is that I don’t even know my strategy was ruining a good trading system.
Many times, when I thought I was smarter than the market and kept sticking to my predictions… I ended up taking a big loss in such a little period of time. Maybe this has happened to you as well.
Why does it happen? Mostly because my plan didn’t consider, “What if I am wrong?” My thoughts are always expecting to be right… after all, why would I put on a trade if I didn’t think I was correct?
Herein is the key to being a successful trader. I have learned this over and over again in my trading career. I haven’t found any crypto youtuber who will tell you what I am about to reveal.
In trading, if you have bad luck, you will eventually have to stop trading. To be prepared for that bad luck is a requirement in trading. You will not survive if you do not plan for bad luck. My first steps in trading remove the bad luck altogether.
Plan For Bad Luck
We must plan for the assumption that the trade will go against you as long as it is a possibility and not just when it is probable. This is a very important point in trading correctly!
This will be the surprise side in trading. The surprise side is a possible outcome but not a very high or likely probability. Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side.
Trading is not a favorable game in most circumstances, and that is what we must use as our assumption in trading. The big mistake made by traders is thinking and expecting trading to be a favorable game.
The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.
The market will tell you when your position is a good one to hold. Most traders do the opposite of what is correct by removing positions only when proven wrong.
Think about that. Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct.
You never want to be in a position that is never proven correct. If you only get out when the market proves you wrong, it is possible to have higher risk due to the longer time period required to prove your position wrong.
So here is Rule Number one:
In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct!
Positions established must be reduced and removed until or unless the market proves the position correct!
In other words, the one criteria for removing a new position is because it has not been proven correct. We do not wait to remove a position until the market has proven the position incorrect.
There is a big difference here.
If the market does not prove the position correct, it is still possible the market has not proven the position wrong. If you wait until the market proves the position wrong, you are wasting time, money and effort in continuing to hope it is correct when it isn’t.
Hope is a beggar.
If you are hoping your trade is correct, it obviously wasn’t ever proven to be correct. Remove the position early if it doesn’t prove correct. By waiting until a position is proved wrong, you are asking for more slippage as you will be in the same situation as everyone else who is being proven wrong.
What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct.
Most traders do nothing and let the market stop them out – and then it isn’t their decision to get out at all — it is the market’s decision.
But this approach will increase your losses. Instead, consider this thinking: When your position is right, you have to do nothing instead of doing nothing when you are wrong!
Lets consider the kind of thinking that might keep you in a losing position too long
Who is to say a position that was not proven correct turns from a bad position to a correct position?
If we fear being wrong when they get out and we are worried that the market will show us we should have stayed with the position, then we don’t take early losses when they are small, and it becomes more difficult to take a loss as it gets larger.
It’s the occasional big losses can take away the money you had working on your behalf, and it’s the big losses that demoralize you, and take you out of trading.
Our first job, our primary responsibility is practicing the swiftness needed in keeping your losses as small and quick as possible. It won’t always prove to be correct, but you will stay in the game this way, you will avoid the big losses this way.
I didn’t know what my choices were when it comes to assumptions about what is possible in trading. I started with the assumption that my job was to make money by trading, but this totally backwards. My job in trading is to take losses quick and small.
I now know that these ultimate crypto trading risk control rules assume my position is wrong until the market proves my position is correct. It is my job to know my trade is wrong.
I’m going to illustrate why it is that 80% of new crypto traders lose money and quit trading after a few months to a year.
Maybe you lost money trading cryptos because of the way we learned our trading skills.
If you are like I was when I first started out, you set out to learn about trading from books, crypto video tutorials, online forums and social media personalities with large followings… then you transferred money into an exchange, and were ready to find some price patterns and put on some trades!
Maybe you were just like me, and you told yourself:
‘Don’t worry if you take a loss, it’s only your first trade… what do you expect?’
So you did what you said – you put on a few trades that started well, but a few good trades and a few bad trades later, then perhaps a good trade turned into a big loss.
Then what happened?
The fear of failure, the fear of loss is comes in, and now you are not sure what to do next!!
Now what’s the problem with the way I started out? What is the problem with the way many new traders may have started with cryptocurrency trading?
Let’s analyze why new crypto traders lose money:
Why 80% Of New Crypto Traders FAIL
The problem is not that you don’t know chart patterns, you’ve studied many of them.
The problem is not that you are not paying attention to the markets – you are watching the markets on your phone throughout the day (and night)
The problem is you did not have a specific plan in advance for what to do in this trading situation!
When we put on a new trade and it does something unexpected, it’s a time of stress for us, isn’t it? And at that moment in time the fight or flight reflex kicks in, adrenaline is released and the neocortex of the brain puts our strongest habit into action.
Why is crypto trading so hard?
This is why I recommend that you focus on just one trading strategy, because if we have not learned trading rules and risk control rules and then practice them, if we do not ‘drill for skill’ by repeating this trading strategy over and over until it become a belief that becomes a habit, we’re simple not going to use our trading rules correctly at the right time.
We are going to look back after our trade is closed, and will say ‘oh, if only I had done that, what a difference it would have made…’
You see, in trading, it’s not what you know that counts, it’s what you do as a habit.
Often it is of no value to you, just to know about several different trading patterns, indicators and risk control strategies.
Your key to success in trading, is to follow your trading rules spontaneously – as a habit – when you are managing your positions. So start with laser focus on one strategy and get really good at it before adding more skills to your trading toolbox.
