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Surviving winning streaks as a crypto trader


Most experienced and successful traders, given enough time, could find a promising strategic variation to trade.

The problem is that they run out of time. () During the glory years – the times when strategies were working well – they didn’t save their money.

() Never did they consider that the glory days, as in Springsteen’s song, would soon be behind them. 

…I have seen more successful traders derailed by personal financial 

mismanagement than for any other reason. 

-Brett Steenbarger. Enhancing Trader Performance: Proven strategies from the cutting edge of trading psychology. 



Great bull markets in any asset class are filled with opportunity. Liquidity is high. Large positions can be added and distributed with ease. Trading mistakes are easily forgiven and accommodated with gains elsewhere.

You feel optimistic at first. Then confident. As your account size grows, that confidence becomes consuming.

People start asking you for your opinion on all matters relating to crypto and the market you trade. Eventually, people start asking for advice about areas outside of trading because of your success.

You are making so much money, you start to view your own skills in a different way, almost god-like. Your position size grows exponentially with your overconfidence.

After a while, you will be spending a lot of time thinking about the symbols of your success. That European supercar, swanky vacations, maybe a nice piece of property.

You are now emotionally invested in your interpretation of your success.

And this is when the trouble starts.


Hodl those hot hands

Hot hands in sport are common. The basketball player who can’t seem to miss a free throw, or seems to drain every three-pointer. The baseball pitcher delivering strike after strike in a pivotal game. Or watching a hockey player put one game-winning goal in after another, game after game.

But these hot streaks and statistical eventualities don’t last forever.

For the trader, hot streaks increase the equity in your account and define your increasing equity curve. They develop confidence in your skills. Hot streaks help you define your process, style and focus.

The more successful a trader has been in the prior run, the more they will ignore warning signs of a market change. When the change comes, the trader brimming with hubris will struggle to adjust.

That struggle will challenge their deeply engrained self-image of success and market mastery. And the longer that struggle takes, the more money will be lost trading conditions that no longer exist.

From page six to page one

During bull markets, there is a buildup of financial issues, malfeasance and mistakes. As the run extends itself, these issues accumulate but are ignored.

Then there is a point where the market shifts focus and this festering pile of problems moves from page six to page one in the market consciousness. Market conditions become extremely volatile, then the selling starts.

Traders with fat accounts are undeterred by these changes. After all, they’ve demonstrated market mastery, and their confidence is at its highsis high. When the repricing begins, these traders are sticking to what got them there.

The first big dip in a mature bull run is frightening. A few buy it cautiously, and the market recovers. The win is bittersweet. The trader nailed the buy, but in retrospect, “knows” they should have been bigger. They won’t make that mistake the next time.

When the next big dip comes, with the memory of the previous dip and recovery fresh, the trader is ready. They will load up this time.

The result is an oversized position that drops like a cinder block tied to a chain of overconfidence, tossed into a sea of red.

The trader’s previously god-like gains sink along with their confidence.

The burden of discipline

For traders, bull runs eventually lead to a focus on goals and gains at the expense of process, discipline and risk management. In long bull markets, the trading plan becomes a burden that interferes with making gains. Position size becomes a competition for bragging rights.

Substantial gains inflate into peak hubris.

These deficiencies become a heavy burden as the market turns. Without discipline, the ability to see problems clearly becomes impossible. Position size reduces flexibility as volatility increases and liquidity starts to fade. Hubris slows down the ability to recognize the change.

This delay leads to fighting the market on the way down, wasting valuable energy, emotional capacity and money.

The longer the delay in adjusting to the new conditions, the greater the cost in assets. These evaporating assets are the ones the trader requires to work through the down cycle.

The process of preserving assets

In a down market, a trader can lean on three key things: your process, your emotional intelligence, and the gains you set aside from the previous bull run.

A focus on trading process will keep you looking for problems, identify biases and help you see changes as they develop. Risk management and discipline will keep your position size management based on evolving conditions.

Process allows you to observe your emotional behaviour as valuable information. Most market players are overconfident, undisciplined and fearless near the top. They are conversely overcautious, lacking in confidence and over disciplined at the bottom.

Actively looking for reasons why you’re wrong will help you make adjustments more quickly as conditions change. That may mean cutting back your trading size, using tighter stops or stepping aside periodically when your trading process stops working.

Avoid the cinder block

As you accumulate gains, set aside reserves for the eventual turn. These reserves will seem like an inefficient use of capital during a bull run but will act as an emotional stabilizer when trouble comes.

The less you have to worry about how the expenses will get paid and whether you will be able to recover, the more rational you will be. Rapid losses at maximum position size can become catastrophic, freezing the trader from making decisions and making it impossible to adjust.

This is the cinder block chained to overconfidence. A failure of risk management.

If you have cash, are looking for trouble and focus on process, you will do a lot better than those who ignore everything due to their own hubris.

Remember, this time is (never) different.

Let lazy gains be your guide

As you build your trading skills, understand that bull markets will make you lots and lots of money, if you play them right. Whether this performance is repeatable will depend on several factors.

The way to stay in the crypto game is to start planning for trouble as you become successful.

The time to start building a reserve is when you are flush.

The time to consider crypto market weakness is when these weaknesses are dismissed and move out of focus.

The time to prepare for trouble is when your confidence is highest, and your gains are the result of your laziest crypto trades.

The time to start making these decisions is not when you have everything on the line, and the market won’t forgive your mistakes.

As Steenbarger astutely observed:” “…I have seen more successful traders derailed by personal financial mismanagement than for any other reason.”  

Surviving a hot hand means focusing on managing your gains, behaviour and finances when times are good.


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