Every trader learns many lessons from the sometimes turbulent and sometimes slow waves of digital currency trading, along with the many gains and losses. Niklas Göke, a young German trader, is one of the people who has seen his capital increase 18 times during the historic peak of the market; But by using the wrong method, he lost all his profit. Goke, one of the leading writers and traders on the Medium website, in Content Published on the same website, he shares with his readers 9 simple but interesting lessons he has learned while trading digital currencies. Read the following article by Nicholas Goke.
As of January 2018, my digital currency portfolio was worth $ 350,000. At the time, I had only invested $ 20,000 and made an 18-fold profit.
If I was smart, I would cash some of that money, and if I was a genius, I would cash it all. But I was neither smart nor a genius. Because of this, I sat down and watched my $ 350,000 investment go down to $ 30,000, reaching its lowest level in 2.5 years. All this time, I was investing. Since then, my stock portfolio has improved slightly; But it is still far from its peak.
It is only when you go through a financial bubble that you realize what to do when faced with financial bubbles. If you read all the psychology books and deals in the world, none of them will tell you how to manage real experiences.
I was able to learn this only in the ups and downs of the market and I do not regret any part of it. It was a wonderful pastime and I learned a lot in times of crisis. Some of my initial assumptions went wrong; But others are still true.
I wanted to have enough time to think about this. It’s been three years since I first started studying digital currencies, and today I can talk about it.
In this article I will tell you about 9 lessons I learned about money and investing. Keep in mind that I am not an investment advisor. This is about my personal and personal experiences. These tips focus more on the do’s and don’ts.
1. Count the chickens at the end of autumn!
I don’t think I actually lost $ 300,000, because you can’t lose what you don’t have. This money never reached my bank account.
To date, I have not critiqued a single cent of my digital inventory. I have sold assets to buy other assets, either at a profit or at a loss. But I have always used the money I earned to buy more assets, and I think this strategy works well. Traders always say:
Treat the money you invest as if you have lost it all.
However, some days I pretended to have this money. I felt like someone who had $ 300,000 in the bank. This is not a good thing; Because when you realize later that you do not really have this money, you will feel very sorry. Always count the chickens at the end of autumn!
۲. Think first about profits, then about taxes
In Germany, any interest in digital currencies held for more than a year is tax-exempt, which is a tempting promise. So my plan from day one was to keep all my assets for at least a year.
Unfortunately or fortunately, my profit came and went much earlier than a year ago. If I had paid $ 100,000 in profit tax, it would have been better for me to make no profit.
On the other hand, the ambiguity was that under German tax law, any profit you make on the sale of an asset in one year is taxed on your total income, and as a result, increases your tax bill for other things.
In any case, if you make a profit, cash it and save it. This!
3. Make a profit when the situation is unbelievably good!
Old screenshots show me that on December 23, 2017 (December 2, 1996), my portfolio reached $ 100,000 and on January 7, 2018 (December 17, 1996), the value of my assets was $ 300,000. When your portfolio triples in two weeks, this is probably a good time to save profits.
For several months, I spent between two and three hours a day studying Blockchainchain technology and digital currency markets. All signs indicated that the situation was favorable. I was watching the video of professional analysts in this field through YouTube and I completely remember that one of them said referring to a diagram with a vertical slope:
If someone tells you that now and in this situation of the chart, it is not time to save profit, know that your head is fooled!
But since saving profits at that time was not in line with my goals, I did not realize the need to save profits, and as a result, I never made a profit.
If I had the knowledge I had now, I would have saved a small profit when I realized that a good market situation would not last long and decline. Whether this is a planned profit savings or not, it will give you peace of mind.
4. Schedule an exit before you arrive
My approach to investing is to use every dollar I can put aside for an indefinite period of time. I’m not in a hurry and I know that the biggest jumps happened in an exponential curve at the end of the curve.
However, you should always have a plan for unforeseen circumstances. For example, I never asked myself:
What should I do if my portfolio grows too much before it is tax-exempt?
So, I never had an exit plan. The best time to plan your departure is before you start investing. For example, your program could be:
If this asset grows 100% per year, I will sell 50% of it.
Planning does not necessarily mean executing programs. But if you do not have an exit plan, you certainly have nothing to do with it.
5. Numbers seldom represent reality
Most people get tired of the markets. Because they prefer the numbers in the markets to show them reality, but the problem is that numbers usually do not show the facts.
The stock market can be a small version of the future of the economy by neglecting it. Digital currency markets could also reflect the value of China’s blockchain networks in the future. When it comes to dark and pessimistic people, prices are not very attractive. Also, if market participants are optimistic and cheerful, prices will be favorable and positive, no matter what the current reality is.
Every day, the price of some digital currencies is falling sharply; While the value of some of these currencies is rising more than usual. The same pattern applies to companies that are in the stock market.
Numbers seldom reflect reality. But as long as you match your performance with the market figures, it does not matter much. Do not let unpleasant emotions and feelings overwhelm you and prevent you from optimally managing your capital.
6. If your “limit” is known, other things do not matter
In films about Wall Street and the stock market, the question is often asked, “What is your limit?”
It seems that all people active in this field consider a certain amount of money, after which they retire and stop competing in the markets.
Wealth, unlike trading, is not a zero-sum game. What you earn can be to the benefit of all and to the detriment of no one. In the meantime, your limit can be your guiding star. My limit is $ 10 million.
The net worth of the thinker, philosopher and investor Naval Ravikant is between $ 4 million and $ 4 billion. I will never forget his words:
Every time you see one of these billionaire entrepreneurs donating to a hospital or charity, you should know that he has extra capital and, in fact, did not need the money.
If I had $ 10 million, my life would be secure until I died. This is a big goal, but it is also easy, because I do not want a $ 600 million personal boat life. I just want to live free.
If you set your limit, your route and destination will also be specified. Nothing else matters. Once you know your long-term goal, you can more easily save a profit or have more courage to lose capital.
7. When you believe in something, commit to it
After hours of research, I have come to the conclusion that the Blockchain has a lot of potential, but like the Internet in 1993, there are still many obstacles to this technology.
It takes years to build the infrastructure on which to build efficient blockchain applications and attract large crowds. There are several ways to do this that may fail. However, if it works the right way, everyone will benefit.
Shares of Amazon fell 95 percent from $ 100 to $ 5.20 in the following years after the .com bubble burst. Now that Amazon is trading at $ 3,000 per share, this decline looks like a very short stroke in the company’s stock trend.
Ultimately, the important thing in investing is to get more out of the money you invest. Currently, my stock has dropped 20%. I had already experienced a gain of 1,650%. Will these two positive and negative price waves look like two computational errors two decades from now? I do not know. But I believe in this industry and for that reason, I have not given up yet.
8. Make high-risk investments when you are young.
Most people when they hear that I invest most of my money in digital currencies tell me I’ve lost my mind! In my opinion, investing in high-risk assets makes perfect sense when you are young.
When you are young, you do not need a lot of money. You have enough energy to compensate for financial losses. Also, the sooner you invest, the more profitable your compounding will be over the next few decades.
I want to buy the most risky assets first, not last. If I lose $ 100,000 now, I can make up for it. But if I arrive late, it will be a big part of other people’s profits and I will be unlucky. The bigger my digital currency portfolio grows, the more I invest in the traditional stock market. After that, I can think of index-based mutual funds, real estate and other investment options.
The older you get, the less risk you take and the more you seek safe returns. Start boldly and gradually become timid. You should not bet all your assets when you are 60 years old. You need to put all your assets in the middle when you still have enough time and energy to get it back.
9. Save from the beginning and with all your might
My friends earn between $ 0 and $ 4,000 after graduating from college and entering the job market. I often tell them:
How you spend your first paycheck will determine how you spend your next month’s paycheck.
If you spend all your salary in the first month, you will get used to spending all your salary. Five years later, your investment will still be zero dollars, and you will be left with the growth curve of those five years, the years that could have yielded the most.
Even if you do not have much income, it is better to set aside 10% of it and this will not harm you at all. Maybe even 30% and maybe 50%. However, as much as you can, and as long as life does not become difficult for you, set aside some of your income to invest. Do it now.
What is your method of saving for a while and then investing or investing everything right now, the only way to learn how to manage and grow your money is to commit to saving and investing your money.