Justin W. 9:40 AM
Binance Launchpads From Startup
Good morning everybody.
You know, if we look at the Binance Launchpad phenomenon, it's really indicative of where we are in the market cycle, and it's also a cautionary tale of human psychology.
Binance has masterfully tapped into the human psyche and the fear/greed index. By allowing a limited number of highly valuable coins to be available for public purchase (not to mention requiring their own token to purchase them...) they've created an interesting funnel on the Internet for a brief window of five seconds where savvy investors (most likely having a bot do their purchasing for them) and fearful investors are thrust into an epic "get it while you can!" scenario. It's almost as if there were an island filled with starving shipwrecks, and one small box of fried chicken floated down from the heavens. How violently would they fight amongst themselves for supremacy over said chicken, rather then being satisfied with enough to be satiated?
That's human drive however, and in an unhealthy state can be greed. The desire to have more than is necessary, to do more than the bare minimum, to achieve greater results, that is ambition and drive and is (can) be a wonderful thing. Without drive, humans would not strive to run faster, push harder, or build taller. It is necessary for us to continue to grow and improve as a species, and it's the very ambition of Cryptocurrency developers that are pushing us forward with more positive news everyday.
"Justin, it's natural for us to want to catch a big pump, because that would mean more money! Right?!"
Well, no, not necessarily.
Here is the problem with attempting to chase moon shots. Let's assume that you are position sizing appropriately, meaning that you are assuming a position size for each trade, that should the trade go against you and hit your stop, will not SERIOUSLY impact your account balance. A loss is a loss, however proper risk management is there to reduce your losses and maximize your gains.
The danger from chasing moons however, is that when you do have a proper position size and it does an incredible X amount of profit, the easiest trap to fall into is thinking,
"Well if I had just had twice the position size, I would have much more profit now! I'll start doubling down!"
You quickly fall into the Reverse Monte Carlo trap. The first time you fail now, you will fail hard. This will increase your propensity to assume unnecessary risk, to adopt an even larger position size than the already inflated position size you just got burned on, and within a few short traders not only have you given all the profit you received from your moon shot trade back to the market, you've also lost a ton.
This is often how novice traders blow out their account, a big win that pushes their natural psyche into unnatural greed, followed by a succession of big losers.
We here at Cracking Cryptocurrency know that the important game is the long game. It doesn't matter if one catches a spectacular pump one day, only to cast their trading discipline and risk management to the wind the next day and end up negating all their work.
Remember, 99% of traders do not end up making money. The reason is because they ignore risk management, view trading as a get rich quick scheme, and become their own worst enemy. Play the long game, and let the magic of compounding interest and patience work it's magic in your life.
Specifically I want to focus on the Binance issue, because it's telling of an aspect of psychology that any successful trader needs to overcome if they want to be profitable. I've talked to many over the last handful of weeks or months that say they're "missing out on all the good pumps!" They feel a lack of something, not satisfied with the often quite good results they were getting beforehand but when they see things shoot up and they aren't in the trade they feel as if they've missed out in some fashion.
As I talked about during my show yesterday, greed can be the mind-killer just as much as fear can. Greed can shut your brain down and cause you to make very irrational decisions and enter into poor positions. To a trader, greed is another aspect of our own psyche that we must learn to overcome with discipline.
Having an "if this, then that" strategy is one of the biggest steps in overcoming this self-defeating aspect of ourselves. However I'd like to look at a practical example, because you might be saying to yourself,