When I was 31, I experienced a massive loss in crypto.
Crypto was in a full-on bull market. Everything pumped. Everybody was making massive amounts of money.
I wanted to grab a piece of the pie.
I wanted to get some amazing gains.
I tried to force the gains by placing a high-leverage trade.
(Leverage trading is trading with borrowed money from a crypto exchange.)
It went wrong.
The price went in the opposite direction and liquidated my position.
I lost my whole position, and that felt terrible
The liquidation of my position made me realize that crypto isn’t easy.
That trading isn’t a get-rich-quick scheme.
Gladly, I haven’t put all my money into the trade. But it was a huge loss.
It wasn’t just money but also the feeling of failure.
How can I get into such a risky investment?
Why can’t I gain massive amounts of money like others on YouTube and Twitter?
I was comparing myself to other people who are further in their crypto journey. These people know stuff I didn’t.
One of my mottos in life is, “If someone else can do it, I can do it too.”
The path that I took wasn’t the right one.
It wasn’t a path that would make more money.
It wasn’t a path that was focused on the long term.
To positively impact my crypto journey, I need to take another path.
I need to learn and fully understand the market.
I need to know how to make money and not lose it.
Eventually, money makes money.
The more you have, the faster you can create more wealth.
The opposite is also true. Losing money compounds the process of making less and less money.
Eventually, you stop making money with your money because it’s all gone.
Winners know how Risk Management works
After studying many people in crypto (and stocks), I saw one key aspect that winners use.
That is Risk Management.
With risk management, you make sure you lose a fixed amount of money when you enter a trade.
A trade can be very short-term, like day trading. But also in the long term, like holding an Altcoin in the bull market.
Risk management comes down to calculating a Risk-Reward Ratio (RRR).
This ratio says: how much risk am I willing to take before I exit the trade?
Buying a coin at the beginning of a bull market that dumped a lot during the bear market can be an amazing RRR.
For example, Solana in September 2023. The coin had dropped 93% in the bear market.
These are amazing opportunities to make money.
It’s amazing because the upward potential is way bigger than the downward potential. $18.5 compared to the ATH of $260.
This has more upside potential than downside potential.
A bad investment would be buying Solana in October 2021.
The coin had been pumping for months, and we were heading towards a bear market. $200 vs. $20 (July 2020), 10x from that low.
The risk of a massive dump is bigger than the potential upside.
You can lose a lot of money to gain a small amount of money, which is a bad RRR.
The above examples are based on the four-year Bitcoin market cycles.
So, every four years, we have a bull, bear and sideways market.
You can also use RRR based on technical analysis.
Defining major levels on the chart can help you decide if the risk outweighs the reward.
How can you learn to use the Risk-Reward Ratio?
You never want to invest in projects blindly. Always use a risk-reward ratio.
The risk-reward ratio is crucial to be a profitable trader/investor.
Calculating the right RRR in your investment strategy is a skill you can learn.
The skill needs multiple underlying knowledge:
- Learning Bitcoin market cycles
- Learning (basic) technical analysis
- Learning to read market caps and token vesting
- Applying an investment strategy
The more you know these skills, the better you can say if an investment has more upside and downside potential.
How far are you in your crypto journey?
Do you know how this stuff works? Do you have knowledge gaps?
Start with learning the Bitcoin market cycles. That’s one of the key topics in crypto investing.
The market cycle will tell you when to invest in coins slowly and when you need to do nothing.
We are all here to grow our net worth.
RRR is one of the best tools for growing your net worth.
Don’t underestimate it.
Be the hero of your own crypto journey, and stay safe.
Daniel Donselaar
