Have you made money in the markets in 2021? Here is how to not lose it in 2022.
2021 is coming to an end, and what a year it was in the financial markets.
Crypto and most risk-on assets experienced huge bull-runs as most people shifted towards digital assets instead of working in huge uncertainty during the global pandemic.
All of this caused financial markets to be way more forgiving than they usually are, offering plenty of opportunities to make a decent amount of money.
Dog coins, NFTs, Tesla shares, Metaverse, or random trash altcoin shilled on TikTok.
If your timing was even semi-decent, you could make money off these things.
This article will not predict if these trends will prevail in 2022. Still, the truth is that even the vast majority of people make life-changing money, they will become too stubborn and greedy to take profits and eventually lose it all.
I decided to do this article to give you some actionable tips and tricks for the upcoming year to help you see trading and investing as a business rather than get a rich quick scheme.
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Allocating your money
I have recently asked on Twitter what is % of peoples net worth is in crypto; the dominant answer of above 75% is somewhat concerning.
what % of your net worth is in crypto?
(those wondering I have around 25% with over half in stables at the moment)
— adam (@abetrade) November 26, 2021
If you could make money with your investments this year, but they currently sit in unrealized profits in a few positions, you haven’t made anything.
Being able to pay yourself rather than being emotionally attached to your positions is the first step towards great long term results.
Another thing is correlation across different markets.
People often talk about diversification, but their portfolio consists of Bitcoin, Ethereum and ten different altcoins spread across different sectors.
Although there are always be sectors and single projects that will, during certain windows, outperform the rest of the market if Bitcoin is going to crash or enter a stronger downtrend, there is a very high likelihood it will drag the whole market down.
And since altcoins are higher beta (=measurement of how asset moves compared to market as a whole) plays than Bitcoin, they will usually go down even more.
To demonstrate this in the example, you can see that Bitcoin dropped from 1st of December approximately 30%, during the same time Harmony also went down, but double the amount, which is 60%.
It is also important to realize that Bitcoin is a mainstream asset nowadays.
Same as altcoin are higher beta plays to Bitcoin, Bitcoin is a higher beta play to other risk-on assets such as stocks and index futures.
Because of that, Bitcoin gets involved in macroeconomic news, unexpected world events and experience higher volatility during high impact news such as FOMC, NFP or CPI.
You are just buying volatility based on your risk appetite if you think about the financial markets and risk-on assets.
If you like to risk, you focus on penny stocks or hunting shitcoins. Those with medium risk appetite buy Bitcoin or some high volatility stocks such as Tesla. Those who still want to speculate in a risk-on environment but don’t want to risk too much usually end up pickup index futures or stocks like Amazon or Google.
Of course, the opposite of all of this is allocation your money to Bonds, Gold or some safe-haven currencies. This tends to be played during the risk-off times, but you won’t find people who got rich quickly by buying Gold.
The point is that you need to understand how markets are tied together, and this relationship will be more likely to grow in the future, especially if Bitcoin and crypto will bring even more institutional investors and more money, the crazy volatility will more likely slow down due to more liquidity in the markets.
You need to be smart with allocating your money; I know that when things go up, it feels great, but it is more likely than not that we will experience a pro-longed correction/bear market across all markets.
Unfortunately, most people nowadays consider missing a 10x trade a “max pain” scenario.
Once you see your whole portfolio down 80-90%, you will truly understand what max pain is.
Always prepare for the worst.
Of course, we live in exciting times of digitalization, and crypto seems to be the next big thing for it truly, but there is nothing wrong in understanding that you are not the next Warren Buffet, and you just got lucky in a bull market.
Thanks to that, you will be prepared if the crash will come and you will hopefully not be sitting with all your money in one place.
Practising proper risk management
There is a lot that can be said about risk management.
Matter the fact; I wrote approximately a 15,000-word article about it.
Comprehensive guide to Risk Management: How to never lose trading account
Managing your risk properly is always the first and main step to success.
Either if you are building a long term portfolio or looking for quick in and out flips.
You need to decide what % of your capital to allocate to different trades.
Risking around 5-10% for the long term trades and 1-3% for short term ones is a good approach to risk.
Thanks to that, you will be able to survive periods of drawdown in your trading journey.
Deciding if you will trade the spot markets or pick up derivatives is also important as you will be challenged with different market dynamics.
Many people always like to blame leverage, brokers and everything but themselves when they lose money.
The truth is that it is your duty to understand every moving part of the market and approach it with a sober approach and robust risk management.
You will never make money on all trades you take, you will lose money and lose them often, but if you will manage your risk and focus on asymmetric risk to reward plays, you will manage to survive in the long run, no matter if markets go up, down or sideways.
Having a trading plan
You might not like it, but actual trading and proper investing are very far from what is being advertised online.
If you want to succeed, you are about to compete with the smartest people and algorithms in one place.
The very popular WAGMI (we will make it) phrase that goes around crypto Twiter is the furthest thing from the truth one person can say.
We are not going to make it, approximately 1-10% are going to make it, and you must do your best to be in that small circle.
What is also important is that the rest, 90%, will not only make it, but they will also most likely lose everything in the making.
Trading and investing is a single-player game, especially once you realize that there is someone else who is selling to you every time you buy something.
You want to be in a position where you buy at the solid bottom from those holding the assets in pain the whole time and can not handle it anymore.
And when you sell, those buying from you are chasing the trend with FOMO after the market already went up.
I will not go in-depth on this topic here, but from my experience, the best opportunities in the market happen when your counterparty is forced to buy/sell to you.
You need to have a solid plan; at the end of the day, trading is a business like any other.
Your plan can be in different formats; it doesn’t matter.
Here you can take a look at the trading plan template by Sting, which he shared on Twitter.
Wrapping up my trading for the year, a few things I want to get done the next few weeks heading into 2022:
-2021 Year in review
-2022 macro outlook
-2022 Q1 Thesis
-Full top down trading plan and Risk framework (spot, margin & add Defi/NFT frameworks) example below. pic.twitter.com/zQqjzFnl2B
— Sting | Tensor 📈⚡️ (@KRTrades_) December 7, 2021
Another way can be to create a file where you will track your setups and also make step by step mind map of your process.
Something that helped me a lot lately was making this simple excel sheet that tracks all important things for a day, especially if you focus on more markets at once. Will try to write a blog post about some prep work/journaling this month. pic.twitter.com/4wreu2kxao
— adam (@abetrade) December 4, 2021
The point is that you need to be on top of your game every day, and writing down all your thoughts, goals, and process helps a lot.
It doesn’t matter what your strategy is if you are investing in projects based on fundamentals or trade a 5-minute timeframe using technical analysis.
Write down your strategy and approach; it will be extremely useful, especially during losing streaks.
Journal your trades; you can read my post about different journals if you don’t know what journal to use.
Focusing on process
Trading markets is a terrible thing to do.
You will soon find out that instead of trading from your phone on the beach, you spend 12 hours a day in front of screens while losing social life and getting a step closer to burnout every day.
But there is some serious money to be made in the markets, and even if you won’t become next Jeff Bezos and won’t be worth ten figures, you might be able to make just enough to live a very comfortable life.
Which in current uncertainty and overall world situation is extremely rare.
The path won’t be narrow, markets won’t always go up, and you will make many mistakes on your journey.
Always remember that your main focus is to be able to show up the next day.
Because of that, you can never jeopardize your trading account going crazy all in on a single bet.
Once you get your trading plan together, build a solid strategy and won’t deviate from risk management, trading will still be a bumpy ride, but you will soon realize that your account is slowly but surely growing.
What if 2021 was not your year?
Some of you are very new to the markets or did not make much this year; maybe even lost money trading in 2021.
It’s fine, the only thing you cannot do is live in the past.
“If I bought this token year ago, I would be a millionaire now.”
No, you wouldn’t, you would sell it too soon for small gain or even a loss.
But that’s also fine.
Markets will be here tomorrow and even though things might get harder in the upcoming months as another 10x or 100x in different altcoins is less likely to happen, there will be still plenty of opportunities to make money.
What will be more and more important as markets might slow down or go down would be to put much more emphasis to all things I mentioned in this article as markets will be less and less forgiving to reckless decisions.