Trading Bitcoin while thinking like a financial advisor

One of the challenges in trading is starting with a trading idea that isn’t your own.

You’re on a forum one day, and someone says you should buy Bitcoin, an altcoin or some token.

They proclaim it’s a no-brainer, but they rarely show you all the thinking or the trading plan.

The identity of these advice volunteering members is often unknown.

Their track record is unverified or lacks context.

The advice is a mix of cliche, canned answers and “just buy some and put it away.”

Or put another way, nothing that someone who was planning to get wealthy could use.

When the asset starts moving in the wrong direction after using this advice, what do you do?

Hodl it?

Should you sell some?

Buy more?

And what if you used all your savings on this one trade?


This is what can happen when you borrow someone else’s trading idea without understanding the thinking behind it.

Bitcoin has upside…and downside

There are lots of ways to build wealth in an asset like Bitcoin.

You can be long from the start and ride through the ups and downs like a bronc rider at the Stampede. All you have to do is hang on ‘till you ring the bell.

Or you can nail the timing on key trades and use the volatility to your advantage.

Or you can be a part of building the movement that asset is a part of and grow with it.

Bitcoin gives you lots of different ways to get some upside.

However, putting all you have in a speculative crypto asset at the wrong time can be problematic.

Despite some spectacular moves, Bitcoin hasn’t been all horns, hats and whistles.

Making bank with Bitcoin or any other cryptocurrency requires more than listening to all the free advice on the interwebs.

You are going to have to borrow some thinking from (gasp) traditional finance.

Thinking like a financial advisor

Depending on your life’s experience so far, you may not have interacted with a financial advisor.

A good financial advisor plays a couple of key roles in their client’s financial life.

One is helping them avoid doing stupid things when their client feels flush things like taking a flier on a money pit AKA a “unique development opportunity” in some remote place.

And another is to help them think clearly when things start getting real on the downside. For example, when the market is down, and it’s too late to sell.

In these two scenarios, a financial advisor earns their keep.

So as you get involved in Bitcoin, Ether or DeFi, it might make sense to borrow some of the thinking from a good financial advisor.

Making wealth in crypto by asking key questions

Let’s say you have twenty grand in savings and want to get involved in crypto.

A professional (licensed) financial advisor would start by assessing a series of things before suggesting anything.

Because it’s tough to give you any useful advice without understanding your full financial picture. After all, wealth isn’t just about money. It’s a way of thinking about “money.”

A professional financial advisor would start with an in-depth conversation including,

Your personal and professional goals

Your income and assets

Your investing and trading experience

Your risk tolerance

Your time horizon

Now, if you posted a question about generating wealth in crypto and the person that answered didn’t ask you these questions first, there’s a reason for it.
They don’t know what they are doing either.

Investment money versus play money

If you don’t have a financial advisor and don’t want to hire one, you will have to do it yourself.

Being your own money manager means asking yourself important questions.

What are your goals?

Your risk tolerance?

Do you have a time horizon?

What is your financial experience?

Starting with these questions, you can get a better idea of what might be the right plan for you.

Then looking at your savings, and thinking about the best way to get exposure to an asset class like crypto.

But you don’t want to lose all of your savings if your bet goes sideways.

So, your first step would be to compartmentalize your funds.

Protect your downside so you can assume risk

Compartmentalizing funds means dividing funds into investment money and play money.

Your investment money, or the majority of it, is probably better suited for established wealth development and investment products. These funds could be allocated to professionally managed low-fee products like index funds or ETFs.

On the other hand, your play money could be for higher risk, more volatile, speculative activities. Like trading Bitcoin, Ether or dabbling in DeFi.

Play money allows you to pursue opportunities where outsized gains are possible. And you can do that without the burden of worrying about losing a lot of your starting capital.

Volatility and risk of losses will impact your decision-making. However, by allocating a small portion of your resources to speculative cryptocurrency assets, the mental burden of losses and volatility is minimized.

So compartmentalizing your funds can also protect you psychologically.

Bitcoin as a part of a financial barbell

So how do you compartmentalize your funds?

You could decide to allocate 10% of your twenty grand, or $2,000, to your play money bucket. You could use this for speculative trading activities.

The balance of the savings could then be allocated to professionally managed low-fee products a sort of barbell approach.

With your speculative money, you could buy some Bitcoin. Or you could grab some Ether and explore DeFi.

You could also break your Bitcoin allocation into tranches of 5-10% of the $2,000.

You could plan to execute each tranche at predefined levels.

You can ladder into the position by buying small amounts as the market moves around. That way, you can attempt a better overall cost basis.

Then you can hodl the position or trade it.

If you decide not to hodl the position, you can trade the position around in various ways.

For example, hodl half of your speculative position as your core position. Then trade around the other half as the market ebbs and flows.

Your core position gives you ongoing exposure.

Your trading position helps you build your trading skills and reduces your cost basis.

Well, it can reduce your basis if you trade well.

Wealth isn’t a choice between a mansion or a tent 

Whatever you decide to do, it’s key, as in all decisions related to your funds, to own the decision.

It’s your money. They are your goals. Your risk profile. Your experience.

And it’s also your responsibility.

That anonymous advice-giver on that forum, that talking head on TV or in the press doesn’t know all these things about you.

But you do.

So don’t use ALL of your wealth-building capital on speculative activities like trading Bitcoin.

Think like a financial advisor, not an asset evangelist.

Compartmentalizing play money from investment money will give you a lot of psychological breathing room if something goes wrong. Because when you have extra reserves in other assets, you can start over.

The definition of wealth-building does not include taking a flyer on one asset, never mind a speculative one.

Because when you put all your chips on the table for one roll, you don’t get to choose whether you end up with a mansion…or a tent.




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