3 Reasons Why I don’t Trade Crypto Markets With Leverage
I receive many questions and it’s both humbling and overwhelming at times. I would like to help each one of you, however, many times I do not have time to answer everyone who writes.
I will start answering some questions in the form of public posts.
The first question I got a few times in the past weeks is: If now that volatility of crypto is lower (this was before the drop, in the sideways) why don’t you trade with leverage?
First of all, I understand why someone would ask this questions – I used to ask these questions 10-11 years ago about some small markets too. I also had the habit of blowing up many accounts 10 years ago, trying to be smarter than people with experience.
Don’t do like I did back then in 2007 – 2008, learn instead from me in 2018 – I will share from my experience.
The short answer: I don’t trade crypto with leverage because this involves a lot more risks which I can’t control, outside of my analysis.
You have to understand – I do not suffer from FOMO, and I do not aim to make money quickly.
This is really important, because this stops me easily from taking unnecessary risks.
Trying to make money quickly will push you to take emotional decision.
You can get lucky one day, another day, and two more days again, and you need to be wrong only once and you lose everything. Then you feel like a loser, you have bad emotions, your life quality degrades – no, thanks!
Instead, you know this, as I keep telling you – I use money management and long term strategies. In short, I make many many small trades and my goals is to have good profits in the long run. I can lose some trades and win others, and that will not make me feel anything, as I know I am using a proven strategy, and in the end my strategy works and my capital keeps growing slowly.
But that is a discussion for another time.
Back to the topic – Why I don’t use leverage trading on crypto?
Because it will lead you (or me) to losing a lot more than we would win. Let me tell you I am very MAD and SAD about how many people are getting tricked into leverage trading and getting their accounts liquidated to 0.
I want to help and teach everyone how to succeed. But you need to want to learn for that.
Here are my 3 reasons not to use leverage in crypto markets:
1. It’s DANGEROUS:
Crypto are highly manipulated markets. We just had BTC crash. Money is flowing OUT of crypto, the smaller they are, the easier they are to manipulate.
A volatility spike caused by a pump and dump multipled with leverage can liquidate your account at the simplest mistake.
If you want to see how much money Bitmex is making with liquidated accounts, look at this picture from a few days ago, and draw your own conclusion. Who is really winning from leveraged trading?
2. It’s not possible to do leverage trading in crypto in optimal conditions:
The infrastructure of crypto exchanges is not ready and the exchanges often freeze when volume grows. You can’t place new orders at that time and some of your orders are executed very far from where they should be executed.
What does this mean?
If the market price goes the other way than your trade, and your stop orders a lot later at a COMPLETELY DIFFERNT PRICE far from intital price. When using leverage that can mean liquidation of your acont. No thanks, I don’t want to risk liquidation, or a considerable size of my capital. I want to CONTROL MY RISK.
There are few advanced order types on crypto exchanges and they are NOT GUARANTEED. So the steps to take here if I would like to take leveraged trades in crypto:
step 1: make analysis on the market. find good entry points – ok, nothing wrong here
step 2: place a leveraged trade, define the risk, define exit points – nothing wrong here either
step 3: hope that my exit points will be executed where I want them to be executed.
STOP. Hope?!. No, this I won’t do. I want to enter trades where I know exactly how much I will win or lose. I want my orders to be able to execute. If this condition is not satisfied. I will skip this trade. There are always trades do be made somewhere, I am not pressured to risk my money anywhere. Skip. Under no circumstances I enter a trade because the chance will never be there again. There are always chances and opportunities somewhere.
If you want to see in real time the liquidated accounts, look at this twitter account that displays them. This is the reality that keeps me away from leverage trading.
3. I don’t trust the exchanges which offer high leverage trading for crytpo.
The exchanges for crypto are still an unregulated space.
This means that it’s not only the infrastructure at fault, but they can also play tricks on you and no one will hold them responsible.
When you have nobody regulating the activity of the exchanges, there are suddenly more errors and they say – “sorry, it’s not our fault, we don’t guarantee anything!” – Cool, we give them our money to use on their application, they tell us it can go wrong, it goes wrong, we lose our money and no one is responsible. It’s the wild west of the financial market.
So the infrastructure errors of what I said earlier can actually be made on purpose by the exchanges. I am not willing to take that risk leveraged trading in that case.
Let’s remember: the purpose of my trading, like everyone else, is to make profits. I am not fixed on crypto for making profits. There are regulated markets where I can make the same returns, with less risk and using leverage. When profit comes, I like to keep them, but when trading with leverage on crypto exchanges, I increase my risk. No thank you.
This is why I don’t use leverage for crypto. It is too risky, and I know better ways of making trades with leverage on other markets which are regulated and where i feel a lot safer.
I do trade crypto markets when the possibility is there. If I trade on crypto markets, I like to do it with long trades, controlling my risk on high time frames. Small timeframes are too volatile and offer unreliable signals.
I hope you understand now why I am not at all trading with leverage on crypto markets.
When the opportunity is not there, I make trades on traditional markets and use my robot for trading too. That is part of my diversification of markets. Diversification can take many forms: diversification of markets, of financial instruments in one market, of trading systems (manual and autotrading) and so on. As cliche as it sounds, it’s really important not to hold all your eggs in one basket.
How to diversify?
If you want to see how one of my strategy works, I have modeled it into the EA First Pro trading robot.
With the help of my awesome Tradunity Team, we made it even better, and now its performance looks like this. Please verify yourself the account here, and see all the trades in the ‘History’ section.
34% in 10 weeks without pressing a button is not bad at all.
I know the drawdown I can expect, it’s 32%, measured on 10 years of simulations. I know it works on the long term because I made the strategy and I can already see the robot works all the time for me. A part of my capital grows even when I sleep!
I can explain a lot about how this system works and I plan to do that Wednesday, 21 November at 8pm CET (UTC+1). IT will be a webinar about algo trading.
In case this time is not good for you, you can still register for the webinar to see the replay. We will also be handing out Black Friday Discounts, so it’s worth registering for sure.
Registration to this event is FREE: