Un-Common Sense...
I have recently recorded a video titled “Fear + Greed = Stupidity”
I would say that lack of patience is the number one problem of traders who have come to me for mentoring or education over the years doing this.
There is a term used in the industry known as the 90-90-90 rule;
90% of traders, lose 90% of their money in 90 days. Just think about that for a second!
There are two types of money, 'smart money' and 'dumb money'. You, 'retail' traders are 'dumb money'.
The investment banks and institutions consider themselves the 'smart money'. Their job is only to move the dumb money into the pockets of the smart money, and they do this every day, all day long. (making the rich richer & the poor ...............well broke).
It amazes me, that it takes several years to go through university for many professions, yet the assumption is that you can work part time as a trader (after the 9-5) and come and dominate in crypto or FX – and we wonder why 90% lose 90% of their money in 90 days…
In order to make money in the markets, you need liquidity. The 'dumb money' provides the liquidity that the 'smart money' uses to get in and out of trades. Trading is a zero-sum game, every single penny you make is because some other poor soul lost it. For every buyer there's a seller and vice-versa (in an efficient liquid market).
Have a read of this little parable by Paul_Varcoe
Think of the ‘business model’ of the exchanges and brokers; many have built their empires on this one simple rule – they are happy to give leveraged accounts to people as they know it’s only ‘dumb money’ that take them up on the offer, pushing people into the funnel is a repetitive cycle. Many brokers offer commission to introducers for what’s known as “FTD’s” first time deposits. Some offer introducers commission on spreads. They know all too well; the dumb money pouring in is the fuel for the machine.
Humans are naturally designed to lose; we have the fear of being hurt and the welcoming of pleasure, this goes on to create more endorphins. So, when we see a red P&L or open position, we naturally want it green so we leave the losses run. On the HOPE of it coming back. But when we are green, we cut the profits for the FEAR of it turning red. Again, step back and have a think about this point.
Now combine what I have just said above;
Fear + Greed = Stupidity and smart money are here to make you broke, as well as the fact that exchanges have based their business off the 90-90-90 rule.
What to do about it?
1. Do you use wide stops? If so, you’re just making the brokers rich and guaranteeing losses on your part. After all, the market always trades towards the stops. How else will it shake out all the weak players before making the real move? Using the right techniques, you can learn to enter and manage your risk a whole lot better.
Many “gurus” will be teaching methods that most retail traders fall for, this is another machine for making money off dumb money. I have seen these educators talk about not using stops or trading standard off the shelf tools.
You ever hear some guru say "The price is about to break support off the back of a hanging man, RSI is overbought and price broke out of the Bollinger band channel. It has also crossed under the 21-week EMA" (or some other shait like this), just remember that the price doesn't care, it'll go wherever the composite man needs it to go...
2. Statistics show there are certain times to trade various chart formations, stochastic are great in ranging markets and RSI are better suited for trending conditions. All of the dumb money are busy trading RSI in range bound markets as it’s the only tool they know how to use. Knowing when to use tools will go a long way – you get to a point of not really needing them, but until then acquire some more tools for the tool-box. A screwdriver is no good for hammering in a nail.
3. Do you know when to reverse your position? Since the market loves to catch everyone going the wrong way, this is a great and highly profitable tactic, but you have to know how and when to do it. I had a ton of people tell me how wrong I was on the call made in March for BTC – perma bulls, in an exhausted market. Glad to say my 30k call for the drop from 62,500 was on point. Over shot by 2k, but what’s that among friends? (See rocket post, in the related ideas)
You have to work the market both ways, or at least learn to sit out during the corrective phases. They do happen from time to time!
4. Making a plan – people are busy trying to catch the bottom, this is reminiscent of that lego batman scene “first time” after several attempts of calling the bottom. They will be right at some point. The number of posts on TradingView calling the BTC spring in the most recent drop – scary. When building a plan, it should be focused on risk management and a systematic approach for both entries and exit.
I would much rather catch 60-80% of the swing with high probability, than try to obtain the full A to B move with little possibility.
5. I encourage the traders I mentor to “Trade less. Earn more.” You need to learn that its better to make a bit with 95% certainty than to try to make 100% with only a 10% chance of hitting the home run! And in this way you keep your liquidity costs low and add to your earnings at the end of the year.
If you’re looking to trade crypto – take a look at this;
On the psychology side;
And finally here’s the logic for why the cycles can last a “little longer” – see yesterday’s stream!
tradingview.com/streams/4ihyEYE7Qy7qyTxt1lQhw/
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
I would say that lack of patience is the number one problem of traders who have come to me for mentoring or education over the years doing this.
There is a term used in the industry known as the 90-90-90 rule;
90% of traders, lose 90% of their money in 90 days. Just think about that for a second!
There are two types of money, 'smart money' and 'dumb money'. You, 'retail' traders are 'dumb money'.
The investment banks and institutions consider themselves the 'smart money'. Their job is only to move the dumb money into the pockets of the smart money, and they do this every day, all day long. (making the rich richer & the poor ...............well broke).
It amazes me, that it takes several years to go through university for many professions, yet the assumption is that you can work part time as a trader (after the 9-5) and come and dominate in crypto or FX – and we wonder why 90% lose 90% of their money in 90 days…
In order to make money in the markets, you need liquidity. The 'dumb money' provides the liquidity that the 'smart money' uses to get in and out of trades. Trading is a zero-sum game, every single penny you make is because some other poor soul lost it. For every buyer there's a seller and vice-versa (in an efficient liquid market).
Have a read of this little parable by Paul_Varcoe
Think of the ‘business model’ of the exchanges and brokers; many have built their empires on this one simple rule – they are happy to give leveraged accounts to people as they know it’s only ‘dumb money’ that take them up on the offer, pushing people into the funnel is a repetitive cycle. Many brokers offer commission to introducers for what’s known as “FTD’s” first time deposits. Some offer introducers commission on spreads. They know all too well; the dumb money pouring in is the fuel for the machine.
Humans are naturally designed to lose; we have the fear of being hurt and the welcoming of pleasure, this goes on to create more endorphins. So, when we see a red P&L or open position, we naturally want it green so we leave the losses run. On the HOPE of it coming back. But when we are green, we cut the profits for the FEAR of it turning red. Again, step back and have a think about this point.
Now combine what I have just said above;
Fear + Greed = Stupidity and smart money are here to make you broke, as well as the fact that exchanges have based their business off the 90-90-90 rule.
What to do about it?
1. Do you use wide stops? If so, you’re just making the brokers rich and guaranteeing losses on your part. After all, the market always trades towards the stops. How else will it shake out all the weak players before making the real move? Using the right techniques, you can learn to enter and manage your risk a whole lot better.
Many “gurus” will be teaching methods that most retail traders fall for, this is another machine for making money off dumb money. I have seen these educators talk about not using stops or trading standard off the shelf tools.
You ever hear some guru say "The price is about to break support off the back of a hanging man, RSI is overbought and price broke out of the Bollinger band channel. It has also crossed under the 21-week EMA" (or some other shait like this), just remember that the price doesn't care, it'll go wherever the composite man needs it to go...
2. Statistics show there are certain times to trade various chart formations, stochastic are great in ranging markets and RSI are better suited for trending conditions. All of the dumb money are busy trading RSI in range bound markets as it’s the only tool they know how to use. Knowing when to use tools will go a long way – you get to a point of not really needing them, but until then acquire some more tools for the tool-box. A screwdriver is no good for hammering in a nail.
3. Do you know when to reverse your position? Since the market loves to catch everyone going the wrong way, this is a great and highly profitable tactic, but you have to know how and when to do it. I had a ton of people tell me how wrong I was on the call made in March for BTC – perma bulls, in an exhausted market. Glad to say my 30k call for the drop from 62,500 was on point. Over shot by 2k, but what’s that among friends? (See rocket post, in the related ideas)
You have to work the market both ways, or at least learn to sit out during the corrective phases. They do happen from time to time!
4. Making a plan – people are busy trying to catch the bottom, this is reminiscent of that lego batman scene “first time” after several attempts of calling the bottom. They will be right at some point. The number of posts on TradingView calling the BTC spring in the most recent drop – scary. When building a plan, it should be focused on risk management and a systematic approach for both entries and exit.
I would much rather catch 60-80% of the swing with high probability, than try to obtain the full A to B move with little possibility.
5. I encourage the traders I mentor to “Trade less. Earn more.” You need to learn that its better to make a bit with 95% certainty than to try to make 100% with only a 10% chance of hitting the home run! And in this way you keep your liquidity costs low and add to your earnings at the end of the year.
If you’re looking to trade crypto – take a look at this;
On the psychology side;
And finally here’s the logic for why the cycles can last a “little longer” – see yesterday’s stream!
tradingview.com/streams/4ihyEYE7Qy7qyTxt1lQhw/
Disclaimer
This idea does not constitute as financial advice. It is for educational purposes only, our principle trader has over 20 years’ experience in stocks, ETF’s, and Forex. Hence each trade setup might have different hold times, entry or exit conditions, and will vary from the post/idea shared here. You can use the information from this post to make your own trading plan for the instrument discussed. Trading carries a risk; a high percentage of retail traders lose money. Please keep this in mind when entering any trade. Stay safe.
Related publications
Disclaimer
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