Crypto Trading Insights from a Professional Trader

We’ve come across an opportunity to interview an ex-Wall Streeter who’s a professional trader. Settle in and enjoy reading!

What does being a Professional trader mean? How long have you been a trader? Which markets do you trade?

Professional trader is someone whose trading profits are the only source of Income. I’ve been trading for about 20 years, mostly US markets – NYSE, Nasdaq, AMEX, CME, CBOE. Started trading crypto at the beginning of 2018.

What’s your background? How did you decide to go into trading?

What steered me into trading was a concept of making money without having to perform any actual labor, a concept which I discovered when I was a teenager reading Edwin Lefevre’s “Reminiscences of a stock operator” and Theodore Dreiser’s “Financier”. I found it fascinating being able to make quick profits by just applying the power of your mind making bets in the financial markets. Later, I went to an Ivy League school where I studied Economics and Finance, and after graduation worked on Wall Street for a few years. After accumulating what I thought was enough knowledge and experience, I quit my job, put all my savings in a brokerage account, and have been trading on my own ever since.

How was your transition to Crypto from other markets?

It wasn’t that difficult since (except for some nuances) financial markets are similar in that they all are driven by the same crowd mentality, besides I haven’t given up trading other markets. There is not enough crypto action on a daily basis to warrant my full-time devotion of resources to it, so while crypto is “sleeping”, I trade other things. For example, one of the current hottest market trends is the explosive rise of marijuana stocks that are traded on US and Canadian equity markets. (ex: TLRY, CRON)

What skills and qualities are required to be a trader?

It doesn’t take any special education or skills, but one should understand: basic characteristics of the instruments he is trading, the mechanics of the trading process and his own psychological make-up, since that would largely be the basis of trade decision-making process. Also, it’s important to have physical and psychological endurance, discipline, ability to quickly admit when you are wrong and learn from your mistakes, be a quick thinker and decision maker, have passion for the game of trading and making money.

What trading and analytical tools do you use? Do you use trading bots?

Crypto market is still too volatile and evolving to conform to any set of analytical models, so I’m only using the resources that provide basic price information (Coin360, Coinmarketcap). As for trading – I use HitBTC Exchange where all the trading I do is manual. Trading bots used to give traders an edge in the early days, when only a few skilled enough to program API ran arbitrage strategies, but once the competition leveled up, that edge eventually disappeared.

Do you use technical analysis for price prediction?

No. Technical Analysis – is applying visually intuitive indicators, that are based on historical price action only. But as we see way too often, history is rarely indicative of future price performance. I just watch the momentum action and crowd sentiment to determine the market direction.

Which coins do you consider as favorites or having potential? Would you HODL any?

First of all, I’m a short-term trader (as opposed to an investor) without any emotional or enthusiastic ties to what I trade, so instead of having favorites, I only start focusing on a new opportunity after it develops as opposed to anticipating it. Secondly, I play the short side (betting on the price going down) just as much as the long side, so “potential” to me can mean a down move just as well. As for “HODL“, in many cases, I’ve seen people buy something hoping for quick profit and when it went down instead, they started convincing themselves that holding it (as opposed to selling and taking the loss) is a solution in that if they were patient, it will eventually go back up. In reality, you are just sitting on an unrealized loss, and your money is tied up in a bad trade, unavailable for other opportunities. So HODL can become a sort of cognitive trap (unless of course you originally planned to invest long term and hold it no matter what).

What profit potential on any given trade do you consider realistic?

It really depends: in the 2017 crypto run-up it wasn’t uncommon to achieve 10x, 20x even 100x profits, but you have to realize that it was all in the context of a very unique market opportunity. Opportunities like that don’t come often – last time something similar happened was during the “dot com” boom of 1999. In my mind, making 20-50% return is fantastic, but again it all depends on the specific asset, market condition etc.

What are the most common risks in the crypto market?

Besides the usual market risk (asset price going down), a crypto trader is exposed to risks that don’t usually exist in the mainstream markets:

1) Regulation risk – at this point in time, the crypto industry is still largely unregulated, so a trader is not protected by a governing body, which means that crypto exchange policies are not enforceable. Lack of regulation also increases risk of manipulation run by all kinds of rouge players.

2) Asset risk – trading in any asset could be suddenly halted and funds frozen indefinately if the coin/token is deemed to be fraudulant by the Exchange.

3) Exchange custodial risk – the Exchange can get hacked, shut down, or even bankrupted by its owners, putting customer funds at full risk.

4) Crypto “storage” risk – not adhering to the basic common since internet security rules (lost or stolen wallet private key/password, using unsecured wifi etc.)

5) Crypto “transit” risks – accidentally sending coins to the wrong wallet address is irreversible and results in total loss.

6) Night risk – cryptocurrencies are traded 24 hours 7 days a week, so its physically impossible to monitor the situation at all times.

How much capital does it take to start trading crypto?

As little capital as it takes to cover deposit/withdrawal fees, trading commissions, and to satisfy the Exchange minimum lot cost. Since you’ll be making mistakes in the beginning, it’s better to minimize the cost of such “education” – I think $1000 is enough, just to throw out a number.

How do you handle and manage market risk?

Risk is an essential and unavoidable part of making financial bets – you stand to gain something only if you risk something. But risk should be measured and controlled – one way is not to bet more than you can comfortably afford to lose. Spreading risk among multiple bets (i.e. diversifying) is also a good idea.

Where do you see the state of crypto market going forward?

I think that crypto market is too fragmented right now, and we will witness consolidation by the Exchanges, information vendors etc. Also, I think the price volatility will come down due to increased regulation and legitimization of the market participants.

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Nice swaps, #Changellions!