Daniel X. Bustamante, Co-Founder and Lead Coach
In the past few years, especially last year, Crypto trading has been on an amazing rise. While Coronavirus affected the world in more ways than we can understand it also gave birth to a new age of traders: Crypto Traders.
The idea of crypto-currencies, really blockchain, has been around for a while. Now we can get into the favorites, whether I like them and other topics but I want to discuss, in this blog post, the idea of trading them as another asset class.
Again, I know some are real believers in blockchain, and I agree to some extent, but I want to keep this focused on what I do best: Trading.
Volatility to a trader is what makes it all tick (no pun intended). Whether it’s been Dax futures, WTI crude oil, or e-minis I’ve been trading volatile products for 15 years (as have many of our great instructors). You see, the volatility in these products is where traders thrive. Yes, the types like Warren Buffett and others who buy and hold works too, clearly. However, we as traders want products that move.
When most people think about volatility they think of it as a bad word. It’s not. In fact, we thrive on this and it’s an idea that I discuss heavily in our OptionsAbilities course.
When a stock, future, ETF, and even Crypto move a lot it creates an opportunity to be a buyer and a short-seller. It does not matter, at least to me, whether it’s going up or down but more so as much as how the asset moves.
Think of it this way. Do you want to buy a piece of property thousands of miles away from say a major city (some will say yes to get off the grid and I may be with you!) hoping that one day it appreciates? Or, do you want to buy a property that might be in a hot area where developers and investors are looking?
If you want a faster return you would pick the latter choice.
With trading markets, you want to trade assets that move heavily. Now, this does not have to be your only strategy, of course, but it is one major one that plays a role in my trading.
The volatility in crypto markets is just insane. I have never seen so many products move as they do. In traditional markets we see crude oil, natural gas, and select stocks move like this all the time but I can count 10 of them now.
In crypto trading the amount is endless.
That creates opportunity as well as FOMO (fear of missing out). There are many reasons as to why this can be and I’ve listened to some extremely smart people discuss them.
In trading WTI Crude oil that market tends to move well because of the liquidity that trades within it. Meaning: There are not a lot of buy and sell orders on the order books so the price of the asset can be pushed around at will. With crypto, you see price pushed around at will as well.
In fact, Bitcoin was down nearly 40% as of recent and while most see that as bad it was a great short, provided you used a certain tool to short it.
With Crypto volatility I believe what you are seeing are major ‘network effects’ taking place.
There is a great article on Binance here about it.
Crypto has attracted all walks of life to it. Maybe because it’s more accessible or less complicated than traditional trading? That I am not sure of but the amount of users trading in these markets creates those network effects which in turn creates products that trade as well as they do.
Trade it Don’t Date It
Recently I was long Leslies pools and tweeted out that I was exiting the position after 6 months. One of the tags I used was ‘trade it don’t date it’ and I had a few messages about that line.
When I look at markets I look at them from a traders perspective: How and what can I trade that moves a lot? That is what I ask myself.
Crypto does just that. In fact, just recently I traded two crypto stocks and made about $2,000 on the options on those stocks.
It was the volatility underlying in Bitcoin over the weekend that made me come in that week and buy those particular stocks. You see, the spillover effect from crypto creates opportunity in crypto based equities as well.
Now this is one of the ways to trade crypto, through equities. What I am working on right now is trading futures on cryptos through an exchange that I am still researching. Once that get’s going further I will be discussing that likely here in the blog as well as on YouTube.
You see, what I care about is what moves. Yes, there are certain cryptos that I believe in but at the same time, I don’t want to wait 10 years for them to come to fruition. Sure, I do separate part of my holdings for the long term but that is a 20% cap max of what I do, the rest? Trading that volatility.
This may work for you or it may not but I wanted to share some insights as to how I look at crypto trading and these markets. I believe we are barely in the early stages of all of these crypto markets evolving and if this volatility stays as it should then it will be an exciting few years ahead.
Thanks for reading.
Daniel X. Bustamante