Alright i’d like to bring up a dirty topic. Margin Trading. For those that don’t know what this means, it’s when you leverage some of your currency to borrow currency that you can use to open a buy or sell (long or short) position. I’ve always been told to stay away from margin trading, and up until recently i have.
I noticed a post from @RuckBogers which covers a lot of his expreiences and the technicals, so check it out here A few thoughts on margin trading (UPDATE: SEE EDIT AT START)
For this topic though i’d like to talk about some of my experiences, theories, and rewards lately though.
I’ve heard that margin trading is extraordinarily risky, and seeing the kind of 2.5x to 10x leverages that are out there, it’s no wonder it is. At some point though i decided to test this myself, and i have a few basic rules that i follow that have been working out for me in some pretty awesome ways and have given me a chance to protect my most prized asset. BITCOIN.
My number 1 rule is i only leverage a very small amount of my holdings, and never ever more than i’d be ok to lose (which should go without saying when trading anyways.) 2. I NEVER borrow more than my collateral. I only take a loan for less than the amount i’ve put at risk. 3rd rule is I only use use margin for short term trades. I would not feel safe holding anything for longer than a day and a half or so if i REALLY saw something big playing out. Which leads me to 4. I only make what i feel are very strong trades. Trades that i WISH i could buy but don’t want to sacrifice my precious other coin to get into. 5th rule is never trade more coins at once than i can keep up with. For me that is two at a time. Finally a bonus really… trade like the boldest bear chicken ever with an in and out plan. I have a flexible range of what i will allow to go against what i thought would happen and what i won’t. The moment it breaks outside of my prediction range. I’m out… end of story. I’ll take a small loss knowing that i’ve learned enough technical analysis and market psychology to make the right call next time, AND often times when i was wrong with my prediction it leads right into another trade that followed an alternative path. If i’m wrong twice i’m done trading anything until things reset and i get some perspective
So using those rules, I’ve figured out how to actually keep more money protected than just buying and selling coins. Bitcoin is king for me. it’s not a tradable asset, it’s a long term investment, and i don’t want to sell it, i don’t care if it’s 20k or 4k or $10. The rocketship ticket is the most important thing and i don’t want to be spending any money i can muster up on anything else. It has caused more headache for me than not because i’ve watched the bitcoin value of my portfolio fluctuate way more than i like. BTC is king, and will sit atop the throne… so margin trading has given me the ability to protect my btc value and increase it because i never have to sell any bitcoin to buy anything. If i’m wrong on my trade, sure, i lose a tiny amount. No guts no glory. But when i’m right… i’m right bigly, and gain more bitcoin without having to buy it with fiat or sell my bitcoin into an alt coin and wait for a return that hopefully outpaces bitcoins growth, and i don’t know if you’ve checked the altcoin vs bitcoin charts or not… but they are all downward facing doges compared to btc in the long hodl.
I’m not saying i’m a bitcoin only holder, but i’m a 60%+ holder, and i use the other big alts for the rest, and i would sell them in a heartbeat to protect btc. WHICH, also brings up the point, that bitcoin is not the only token that can be leveraged. I used 1 ethereum that i mined or bought at $250 or something. If i lose that ETH i’ll be just fine… my btc is safe. But, that 1 eth let me buy a bunch of stellar lumens… and ripple… and dogecoin… and… well. I was rewarded profits paid… in bitcoin! How much better can it get? I risk an alt coin i’m ok losing, with the opportunity of getting more bitcoin. Meanwhile if that alt takes off… i’m still holding it too!
One of the absolute best parts about margin trading is the ability to trade when i’ve “missed the boat”. You know that feeling when you were holding some ridiculous amount of altcoin x, and eventually you decided you’d go ahead and ditch it so you could get a better coin? Then… when you least expect it it goes moon, and you’re like… damn… i used to have like 50 of those when it was 10 bucks now it’s 200 in the last week!? That feeling sucks, but with borrowed money, you can can short the damn thing, because one thing is for sure. They ALL come down, especially when they get straight parabolic and the volume falls off. With a short, you didn’t miss the boat, you’re just in time! And what about those times when you bought bitcoin and then the price starts falling? You know you don’t want to sell your bitcoin… but you spent your cash already. This is a chance to keep that bitcoin, and go long on an alt that’s going up counter to bitcoin. You’re losing usd value of bitcoin and gaining more bitcoin at the same time.
I know this isn’t for everyone, and in fact i don’t recommend it for ANYONE that hasn’t done some serious time learning technical analysis, and understands their own emotions when trading. But, if you’ve got some coin you’re willing to risk, but don’t want to give up to buy some coin you’re not married to, and you’ve got a knack for reading charts. It sure seems like a great way to protect your money, manage your risk, give you opportunity when there is none, and do the thing we all want to do… make more money.
I’m not pro so i’d be curious what you guys think about my strategy, and how to make it better, and perhaps any pitfalls i could be not taking into consideration. I do believe in the long hodl, and cost averaging and dollar value averaging. I know investing is profitable… that’s why i’d rather invest in bitcoin.