So really, this is going to a short vent post. And to be clear, this isn't a rant about people ignoring my advice, that's fine, I don't really care it's their money.
As alot of you would know I regularly post on the whirlpool forum (www.whirlpool.net.au) and that forum as a great sub-forum on Finance.
The finance forum is great melting pot of many different ideas, thoughts and people. There have been a number of ongoing discussion about trading, investing, crypto etc. I've been reading and participating in the forums for a while.
However, what I'm seeing now is that lots of traders write off the current market with quip, it's different this time. In reality its really not.
Lots of those offering advice have usually been through the pain and know that really the markets never really change.
In summary, ignore advice at your own peril :-)
So this is really just a short post about something I saw on Whirlpool. Essentially there is quite a long thread called Advanced Crypto Trading (or something to that effect), where people are essentially talking about the advanced aspects of crypto trading (or at the moment whatever ALT coin is mooning...).
Essentially what I am seeing in the crypto world (and other markets) is a massive bubble, which meets all the tests outlined in the Behavioral Investor:
1) the assets prices have increased by massive amounts (i.e sharply, like 100-200% a day).
2) There is massive and public excitement about the getting rich quick
3) There is a media frenzy (hell even the ABC had an article about bitcoin today)
4) Envy inducing stories abound
5) there is a growing interest in the asset
6) There are plenty of theories about why this time is different
7) Lending standards have definitely declined and Governments, world-wide, have been handing out free money,
You can see almost all markets would pass these tests currently, so I think it safe to say there is a bubble.
That being said, I'm not saying you should sit back and avoid the bubble, thats just plain stupid, if you avoided trading bubbles, you'd lose out on a lot returns.
I think the trick to trading a bubble is to trade cautiously (small positions), set a stop and compound as the bubble expands.
I said it on whirlpool and I'll say it here, no-one can predict the future, but you should make sure you and your capital are protected by stops, hedges, something.
Recently I saw a great post on Whirlpool.net.au which basically described YOLO trading as essentially abandoning risk management and position sizing on the basis of you only live once (and the post essentially surmised that it mostly younger investors - not so sure on that one but possibly I guess).
From my perspective, I essentially see a YOLO trade as putting it all on black at roulette table. You've got a basically 50/50 chance that you lose or win the trade.
Statstically speaking you could have a series of wins (and you see this in posts on rWSB, Whirlpool, rASX_bets and various other trading groups and forums), but eventually the stats wil revert to mean and those traders lose the lot, particularly if a series of wins has build an attitude of it will bounce back.
Essentially I think an all bet is just a symptom of the get rich quick mentality that many have and incredibly dangerous to long term success in this game.
As I write this (Monday evening on 19 April 2021), Bitcoin has just suffered a 15% fall on the basis of speculation that major jurisdictions may undertake regulatory action (at least that's what some analysts are saying).
This to me just shows how quickly these highly speculative markets can turn, and before some one accuses me of being no-coiner or the like, I'm currently holding a small position in a crypto-backed Exchange Traded Product.
Basically, my rant here is that trading something like crypto needs to be carefully managed, but even so can still hurt. I'm trying to work out what to do with my position which is down around 8% from Friday's close and rapidly approaching my stop (at about 0.5% of capital at risk). These big swings can be hard, even if you're aware of your psychology and actively manage it and have proper risk management techniques in place.
The other thing I find interesting, despite the fall in the major crypto assets, the meme coin Doge is still climbing, go figure. Utter madness.
.I wanted to create an extra space where I could post in a bit more informal, short form way and this the space for it. I also wanted to leave the main blog for longer, more detailed posts. I'll continue to update that weekly.
But this section is likely to updated a few times week or more. I'll just have to see how frequently I get inspired.