The Weight and Wait of a Trade
Trading as we all know is fraught with risk, nor is this a negative. For life generally is a risky enterprise, with the point being to manage or steer that risk as best we can. On the one hand, there is the tendency to play it too safe, and we become too timid. On the other hand, is the tendency to take on too much risk, and we soon become too reckless. The optimal course generally pertains to the middle course, of a courageous one, and on venturing out, there is that necessary element of ‘navigation’ involved. The intention of this article will be to illustrate a couple of what I consider crucial tactics that might aid a trader with those ventures, and in becoming more successful in securing their aims [what is your ultimate aim, more digits on a screen or the enjoyment of real assets?].
First of, trading is always and everywhere a practical activity. This may seem a truism, but consider the prevalence of people’s habit to look at a trade in the abstract, where that trade is thought to be either ‘right’ or ‘wrong’. It is the lack of context, of the particular trade relative to a larger scheme within which it might make sense, that typifies the abstract trade. In this sense, an abstract trade is an absolute. And of course, this kind of trade can indeed be absolutely wrong or absolutely right… depending on one’s luck [or projected theory].
But if a ‘trade’ were completely dependent on luck, it is hardly deserving of the name of trade at all. This kind of ‘trade’ would be more like gambling, whereas practical trading is quite a few steps removed from that entertaining [or desperate] activity. Where with gambling luck is given absolutely free play, trading incorporates elements of rationality that would sit alongside that element of luck [luck like risk can never be eliminated]. Indeed, you could consider trading to be situated on a spectrum half-way between complete randomness and luck at one end, and rationality at the other.
What I’m looking to emphasize in this article is the rational element of the trade, and specifically how that trade relates to the larger context [the rational here refers to the practical/ context, not the theoretical/ absolute]. Two of the most crucial factors that make up this rational element of trading are the weight of a trade, and the wait of a trade.
The Weight of a Trade
What advantage [or disadvantage for that matter] does a trade have if it is too light? And what potential damage does it have if too heavy [not too heavy, not too light… something of a ‘goldilocks zone’ is required here]? These are the initial questions that a practical trader might entertain before engaging with a particular trade. Put in the balance is the weighting of a particular trade and as weighted against one’s larger positions. This will always be a relative weight, to be considered in terms of a percentage as opposed to a nominal amount. For example, your particular trades are likely to grow larger as the funds at your disposal also increase.
This relativity of the ‘weight’ of money [as relative to you] is something I delved into further in the 'Weight of Trades' article. Where to one person 100 dollars would represent a significant sum, a significant sum would be yet higher for another person, and then yet again a lot higher for another person. Get this balance right, and much of the anxiety too often found in trading, will be left behind [remember, the practical trader wants to take as much of the emotion as possible out of trading in the utilization of a rational system].
Particular trades can also be grouped into various kinds of trades. So for example, if one were swing trading the volatility of a coin on a shorter time-frame, and as a hedge against longer-term trades and investments for the accumulation of USD, then these kinds of trades can be taken as a whole. These trades would together be weighted against your longer-term trades/ investments [and indeed ultimately against the worth of your real assets]. Once again, a balancing act here is involved.
Where one trader may only choose to trade a few coins, those particular trades are going to be a lot weightier as compared to another trader who choose to trade many coins…. but in the aggregate/ grouping, their weights would be similar [an incentive to increase trades in different coins would be diversification, an increase in options; a dis-incentive not to trade too many would be the difficulty of managing too much complexity… once again a balance is to be struck depending on what suits a particular trader].
As far as a general weighting of the hedging swing trades goes - always to be considered a pure play on volatility for the re-accumulation of USD funds - I ideally like to have that fund potentially pushing up toward 50% of the value of my over-all trading account [the overall trading account consists of the value of cash/ stables, swing trades in more volatile minor alts, and longer term position trades in major alts, and also possibly includes the core longer-term BTC position… depending once again on a trader’s preference and appetite for risk].
All of this, the liquidity, the alts and BTC should be once again counter-balanced in real assets, which may involve the skimming of profits now and then [this strategy here is fully discussed in the 'Fool-Proof System']. Having discussed the weight of trades, I’ll now move on to the wait of trades.
The Wait of a Trade
Perhaps the most difficult part of a trade is the waiting of it. We have in mind the desired result, and look for a quick return, and so take on further risk. An integral part of the contrarian approach to trading [discussed in earlier articles] is to foster a longer-term time-frame. Besides the contrarian aspect of this, which always gives you the competitive edge against the mass of market participants, there is a technical aspect to it. As mentioned in 'Objectivity':
If time were to be placed on a spectrum, with the shortest of periods at one end and the longest of periods at the other, randomness and possibility would belong to the shortest periods, while pattern and probability would belong to the longest periods. There would be varying degrees of probability/ randomness depending on what point of the spectrum you were dealing with - at the one end, minutes would be near completely random, at the other end, years would have a much higher degree of probability. Just as with any science, where momentary observations only start to make sense when accumulated into a mass over a longer period of time, so too with TA. It applies most effectively to longer time frames, where lines might be drawn, and trends discerned.
Here the practitioner of TA is distancing themselves from the immediacy of the market [the sentiment]. As represented on the chart, time is compressed to show a larger stretch of time, and here, in this abstraction, the chartist has the possibility of discerning trends. Besides being a technician, the chartist is, in a sense, a behavioral scientist. This is because the market is seen as a sum of human behavior, a mass of market participants driven this way then that by both rational and emotional responses. This is to say that a volatile market such as Crypto currency is resolutely seen first and foremost as speculative by the practical and rational trader [who may also be a hedged investor].
If the competitive edge in a ruthless free market of speculation is to be found in increased rationality [always a practical not a theoretical concern], then TA will seek to take advantage of this. Enter the ‘shorter-term’ swing trade, where the mode of thought is willfully somewhat skeptical. Or rather, where the trade simply looks to capitalize on the shorter-term volatility with the market in the meantime thought perhaps to be getting ahead of itself [the role of speculation covered in the ‘Could Bitcoin Really be a Bubble?’ article].
Of course, the question here is how are we to define ‘shorter-term’. And this is crucial. The shorter-term swing trade is not a multiple day trade [usually leveraged and riskier], nor is it a multi-year position trade [yes, positions in major alts to be traded require years, stretching out to the next fully manic market… should it come]. Rather, the swing trade is in a middle position that more often than not involves multiple months. The course it runs is between the ‘rocks’ of the leveraged day trade on the one hand, and the ‘whirlpool’ of the hodl on the other. And of course, a wait, or stretch of time, or mindset is required for such, something that the average trader might be too reckless for… and the hodler/ investor too timid for.
Of course, the hodler may insist on the certainty of their eventual arrival to riches, and say trading is too risky. And they may be right. But the practical trader/ investor also hedges in entertaining the thought that they may also be wrong. In this regard the least risky option actually involves some trading in order to hedge against all Crypto positions [BTC included]. There is no room for false assurances here for those that look reality fully in the face and realize they don’t [and couldn’t possibly] know the future with cast-iron clarity. No room for self-deception, however sophisticated and persuasive it might be…. though there be plenty of room for a quieter confidence moving forward.
It’s been the aim of this article to describe the way in which trading could actually be considered a desirable activity [if not an obligatory one] for the investor/ hodler investing in a speculative market [far from wanting to disparage the BTC market by focusing on speculation here, I see speculation as the means for BTC’s eventual and likely capitalization]. The focus has been on the shorter-term swing trade, and in particular on the weighting and waiting of those trades that makes the trades more effective insofar as these tactics increase the odds of success.
But of course, some of this also applies to the larger and longer-term position trades of your major alts…. though these trades stand on the opposite side of the ledger in this equation, where they are held for the meantime while swing trades cover the risk of that hold. But even those too are to be eventually sold, at a later date in a manic market should it come, for the purchase of real assets…. for there is always that core position in BTC that the investor in us can sit on.
Until next time,
Stay [relatively] safe out there,
Dave the Wave.