16 trading rules for the crypto day trader

Ever been long a big crypto position and watched it drift down into oblivion?

It was only dropping a little – nothing to worry about.

Then you looked at your account…

Those little drops became a river of money cutting a giant canyon through your account.

Or maybe you did your homework and had a trading idea all mapped out. But you let somebody talk you out of it, only to watch it soar.

Every day trader and swing trader will accumulate scars. And you will eventually pay a lot of financial tuition. Those scars and tuition are the foundation of trading rules and principles.

Through slumps and periods of profit, trading rules provide guidance on what to do. They help you operate in situations that you will see again and again.

Now, you might be starting out and may not have any rules of your own yet.

You may not have enough scars nor paid enough tuition.

So if you are looking for some rules for day trading or swing trading crypto, borrow these:

1)  Trade Bitcoin with a plan

Mike Tyson said that everyone has a plan until they get punched in the face. And yet, there is an easier way to get punched in the face.

Start trading Bitcoin or Ether aggressively with no trading plan at all.

Trading plans and the results are essential data. They help you figure out what you did well, what you did poorly. These data will help you see when you got lucky and when you were good. Or not so good.

And over time, it will help you hone your crypto trading decisions.

Different types of traders have different kinds of plans.

As a crypto day trader, you should know which patterns you are looking for. You should be clear on how you plan to exploit them. Having a plan outlining what you will do cuts down on mistakes. It makes you resilient in emotionally charged trading situations.

Your trading plan is your guide when you are confused or unsure. It’s your rational self in all market conditions.

2)  Think for yourself

Every trader has a story about how someone talked them out of an idea. Then, the story recounts how the idea took off and left them behind.

Of course, blaming the other guy is a convenient way of avoiding responsibility.

It’s the trader’s version of the victim card.

The truth is they didn’t do their homework. They didn’t make a trading plan. And because they didn’t do those two things, they lacked conviction.

Don’t let some clown on social media talk you out of your idea so easily. And forget about day trading based on every news story. That’s a mug’s game.

Develop your own thought process and do your own thinking. Do your own analysis, create your plan, and execute it.

That’s how you create conviction and get better as a trader.

3)  Own your crypto trading results

Closely related to thinking for yourself is owning your results.

If the losses are due to scammers, the wins can’t be due to brilliance.

Traders that describe their results this way have a problem.

All results are information. But this information is only valuable if you are willing to own it. Good traders accept responsibility for their decisions, good or bad.

Your account knows the truth. You alone own your gains and your losses.

4)  Avoid bitcoin trading tips

Ever had a so-called trader start telling you how, when, and what to trade? He claims to have made a stack, so it gives him the authority to “help” you.

It happens all the time.

There is always someone with a hot tip out there.

Buy this.

Sell that.

It’s going to go!

Don’t miss out!

When you are taking tips from people, you are relying on their judgment and thinking. And there may be no judgment or thinking behind the recommendation at all. But there is almost always an underlying motivation. Every bit of free outside advice on a trade has an underlying motive.

Why, for example, would someone share something so valuable?

Are they long?

Or are they quietly offering their position while telling you to buy it?

Do they need you to be their security blanket? You know, hold their hand by being in it too.

Are they seeking notoriety?

What do they expect in return?

Or do they know something they shouldn’t? Are they putting you at risk by sharing it with you?

And if you are following their thinking, how do you know what to do next? Because when things go wrong, they won’t have an answer for you. And they won’t share your losses.
Traders that own their results don’t take tips.

5)  Don’t trade bitcoin to pay for something

When a trade follows a defined process, you can make objective, rational decisions.

But when you decide to trade to pay for something, objectivity is gone.  It’s no longer a process. You’re focused on something else. Making a statement. Now the trade is about ego.

It’s even worse than that: it’s neediness.

You need the trade to work to buy the new car. You just need a few more points for that boat, house, or a swanky vacation.

Now the trade is purely emotional.

Neediness is an emotional extreme that kills results in every decision.

One of the fastest ways to lose is to start day trading Bitcoin to pay for things.

6)  Adjust your trading during adverse personal events

You and I are emotional beings, and sometimes things happen in life outside of the market.  And sometimes, those situations are disruptive.

You might experience a death of someone close to you.

Or have a breakup.

You might have a new baby at home, and your sleep is way down. Or you might have other stressors due to injury, a car accident, or something else.

Any time you experience a highly charged emotional situation, scale back your trading. Either reduce your size or cut back your activity temporarily. Watch your thinking in your trading journal to see if you remain on track. As the issue passes, adjust activities to normal levels.

7)  Bitcoin FOMO is a NO NO

Fear of missing out is real. But there is something worse. It’s having an idea, failing to execute, and watching it take off like you expected.

Don’t chase something because it’s moving. Stick to your plan and strategy.

Bitcoin will be there tomorrow.

Get back to the basics. What does your analysis tell you? What is the next step?

Then make a decision.

Someone has to buy the top, and someone has to sell the bottom. But that someone doesn’t have to be you.

8)  Make a sacrifice to the trading gods

Sometimes trading gets hard. You feel like you’re getting slapped around by the market. When that happens, you’re in the mixer.

The mixer is what it feels like when you are stressed about your position, and you don’t know what to do.

Indecision might mean you are confused about market conditions, a position, or overwhelmed with emotion. The way to snap out of it is some small trades.

Missing a big Bitcoin move to the upside but don’t want to buy the top?

Buy a small amount to relieve the pressure.

Long a losing position, but your stop loss hasn’t been touched and tempted to sell?

Make a sacrifice to the trading gods by selling a tiny portion. Taking action with a small sell will free up your mind and move you back into rational mode.

The way out of the mixer is small actions designed to reduce mental stress and restore internal order.

9)  Never let a day trade become an “investment”

Let’s say you’ve decided to day trade Bitcoin, or maybe Ether. And suddenly, the position does something you didn’t expect. What do you do?

Follow your plan and sell when the stop loss is met?

Or, if you don’t have a plan, do you sell and reevaluate?

Or do you hold it and start referring to it as an “investment”?

A trade should never turn into an investment because you didn’t follow your plan. Or worse, didn’t have one in the first place.

Not “booking the loss” doesn’t make it less of a loss.

When a trade “becomes” an investment, you are creating internal conflict. You know you made a mistake. You know it’s a loss. And because of that, you are now emotionally invested in the position.

A trade that becomes an “investment” is another name for a loser.

How do you know your trade is becoming an investment?

Well, the first indication is the need to justify holding it. And if you are frantically looking for reasons to “prove” you are right about a failed trade, you are expressing neediness.

Avoid the need to be “right” and focus on your process by doing your research before the trade.

10)  Never add to a losing crypto trade

Now, if you have a trade that turned into an “investment”, you can magnify the mistake. Your situation can go from bad to lethal by adding to the losing position.

Now you could reframe it and call it “dollar-cost averaging” to make yourself feel better. After all, if you liked the asset at x, you will love it at a lower price. Right?


Dollar-cost averaging is fine if that’s part of your entry strategy. But it’s not good if your stop loss got crucified, and you are now “averaging down” because you didn’t sell.

Adding to a loser often compounds the damage for individual traders. It creates an unnecessary emotional burden, and it will ramp up the stress.

The solution to a losing trade doesn’t include adding to the burden.

11)  Leave the highs and lows to bitcoin

In the book: The Hour Before Dog and Wolf, Coates looks at traders’ psychology and emotional behaviour in extreme conditions.

When the market is bullish and strong, you’re making money. As you make more money, your confidence rises rapidly. As confidence increases, position sizes expand, and research becomes loose. Then your risk management tends to get sloppy.

When your emotional state is at a high, your confidence is greatest. And that is when you are most vulnerable.

On the downside, losses lead to a reduction in activity and size. Depression can set in. And these negative behaviours can spiral. You won’t just scale back but stop altogether, right when you need to be bold.

Things are never that good or that bad.

Use a process like your trading plan to manage your interpretation of the market’s ups and downs. It will keep you from attaching your heart to every trade and getting emotionally exhausted.

It will also help you profit by rationally acting contrary to emotional extremes by others.

12)  Don’t pick tops or bottoms. 

Do you know anyone who has nailed a Bitcoin trade at the top or the bottom of a move? I mean, really did the trade, not just jawboned about it.

Picking tops and bottoms and declaring these publicly creates a need. This need is to be consistent, and in this context, your results will suffer.

By making the call, you will put yourself in a position where you need to be consistent. And that means abdicating your decision to your big call or be called out by your “friends” on social media. More than one crypto day trader has written about this situation and its negative consequences.

Don’t be seduced by the need to be right about the tops and bottoms in the crypto market. Trying to buy bottoms and sell tops is a very expensive pastime.
Instead, follow your plan and quietly feast on meat in the middle of the move.

13)  Sell when you can, not when you have to

In liquid markets, you can add and move large positions with ease. When times are good, spreads are tight, and slippage is low. Assets like Bitcoin will move like water in these conditions.

But when trouble comes, spreads widen, liquidity dries up, and selling even smaller positions can become hazardous. Modest positions can receive significant haircuts if you are forced to sell. This is especially relevant when you are thinking about a large position in an illiquid asset. You know, like that crummy token you got stuck with.

Now imagine how much you can magnify the liquidity problem in adverse conditions when you trade Bitcoin with leverage.

March 12, 2020, is a great example of adverse conditions, leverage, and what happens when people sell when they have to. The Great Financial Crisis in 2008 and Long Term Capital Management in 1998 are also great examples.

The size of your position in the context of changing market conditions is an important consideration. Always.

14)  Crypto day trading stories

People love to brag about their wins, and that can be infectious. It can also be a dangerous thing to emulate.

Many times you end up comparing yourself with stories that are only partially true (or completely false). You rarely ever know the full truth behind these stories and claims by various anonymous avatars.

Keeping up with other crypto traders can be emotionally draining. And these fictional stories will interfere with your long term development. If anything, you should do the opposite. Complain loudly about your losses to throw off your competition.

Ignore the stories and stick to your own game and process.

15)  Do not use more than…of resources on any one trade

The amount of resources you use for any trade is contextual.

A systems trader may choose a probability based amount where the higher the probability, the higher the resource allocation. Bitcoin day traders might choose a fixed dollar amount per trade or number of Satoshis. Swing traders might use a fixed percentage of assets.

If you are starting out and have a small account (but it’s all play money), that percentage might be very high…or all of it.

Whatever amount you choose is related to your risk tolerance. It will also be relative to how you plan to manage those risks.

There is no fixed trade amount or percentage you have to use. Just keep in mind, if you lose all your coin, you can’t play tomorrow.

16)  Small changes enhance trading results

Your trading approach will inevitably go through periods of underperformance. There can be various reasons for this. But if the approach has proven to be sound in the past, it may require some small iterations to get you back on track.

Big changes in your trading approach or completely starting over can create mental and emotional chaos. And the more significant the changes, the less likely you are to understand what the problem was

Keep your trading iterations small and do them one at a time. This will reduce emotional problems and help you work through difficult periods.

Borrow these trading rules and make them your own

Trading rules are ideas and principles garnered from market experience. Whether you are a Bitcoin day trader, Ether swing trader, or a crypto dabbler, having some trading rules is an advantage.

The longer you trade crypto assets, the more you will see places where various rules apply.

They become shorthand for situations that you will repeatedly experience over time.

Remember, you can have any rule or principle you want, but they should be clear and relevant to your activities. And it should also keep you out of trouble.

Because it’s no fun saying you used to be a crypto day trader, but you blew yourself up choking on a bunch of Yam.




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