How To Trade Crypto For A Living

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How To Trade Crypto For A Living

By Tom Whitbread
September 4th, 2018

You want to trade crypto for a living, forget about your boss, office and co-workers. It can be done, has been done and will be done for years to come, learn how to go deep on crypto in this guide.

First of all, as a base note before we begin, we all can agree we need financial security. So let's start here to agree that you will never risk that in a trade. ‘Don’t bet the farm’ must be key to your trading strategy, otherwise you could loose it betting on some moon shot that goes south. Like penny stocks a real risk in the alt-coin market is being left holding a bag in a illiquid market, no one wants to buy and there's no news coming.

Beware of Tilt

Besides never betting the farm, remember to operate from a impartial mental space. Meaning you do not care either way how the outcome of your trade goes, you still are the same. You are rich, you are healthy, you are great. It doesn’t own you, or owe you anything - never over trade, use a trading plan and stick to it.

Don't favour a specific coin just because of past performance, stay agile and constructively critique the current situations, as these are changing horizons often due to many factors. There may be times when your favorite coins are flat, for whatever reason, or trading in a very tight range offering little gains. Be prepared to move around 

Raising Risk

To get started you will need your risk capital you can afford to trade with speculatively to start you investments. This is a ongoing cycle, money in, money out. Ideally, within not too long you will make back your initial risk so that you can withdraw it and still have a balance to trade with.

In a nutshell - You will take the risk capital, trade it, withdraw your initial and subsequent profit and then invest in real estate or a long term dividend paying securities such as ETFs, blue chips or CDs and bonds. 

Every quarter (or month or even week if you are generating enough income) you can rebalance your risk capital and your investments. It’s a simple cycle that many are aware too. By continually rebalancing and compounding your interests you will, in theory see your money grow exponentially. Obviously there are other factors such as market corrections, and drawdown. So you must continually monitor and rebalance as time progresses.

Setting up means you need cash flow first to fund your daily burn rate (living expenses) and cover initial risk capital, and also an emergency risk incase you have drawdown.

So first look to build base income to offset expenses, this can be for example between $2500~4000 per month all inclusive of food, bills, mortgage or rent payments, wife and children, and everything in between.

If you quit can you feasibly earn what you need a month trading alone? Depends on size of risk capital, and amount of leverage you will use. Essentially what it grounds down to is if you have enough capital to trade with, without needing to overtrade your margin and risk liquidation (margin call).

Over trading on margin is when you are risking more than your allowed risk of your equity, defined in your trading plan - it's a bit like betting the farm as we mentioned at the start.

Practically it means if you are risking 1 or 2% per trade on a $10k account, resulting in $100~200 risk per trade, a low risk strategy means you may get stopped out due to a tight stop, but you will be able to trade again and again, and is favorable amongst many forex, cfd and crypto margin traders.

A high risk strategy would maybe use up to 7% or even 14% risk per trade. Depending on appetite, you must ask yourself can you afford to loose $700 or $1400 if your trade stops out? Walking into a trade without accepting your potential drawdown (loss) could result in an emotional turmoil that prevents you from seeing clearly.

If the $10,000 is your life savings, and loosing 14% of it is a very big deal for you, you may find it physically impossible to close out. While losses increase to maybe 20% or higher, as crypto markets are extremely volatile and have a tendency to trend for a long duration, trading margin without setting a stop limit in your plan could cause you to blow up the entire account. 

Of course in trading non-leveraged exchange trades, and actually buying the underlying coins - you are not subjected to these risks inherent to margin trading. Although not without cons, your gains are un-leveraged, meaning you just get the raw dollar by dollar move, there's no multiplier and you cannot go short the market, it's long only.

Different Strokes For Different Folks

Margin trading is trading on credit, with the chance to use high leverage. It means you can profit on intraday price swings with a high amount of reward potential, trading with a much larger amount then your initial deposit. 

You can trade with $10,000 worth of BTC for example, with only $1000 deposit. Although there is a catch, the liquidation level. 

For those unfamiliar with margin trading, the amount you can borrow is dictated by your deposit amount and leverage applied. Further more the available loss your position can accure is limited also by these factors. 

If this sounds too risky, and you would rather just trade on exchange. Buying and selling coins directly all you need to do is make your deposit to an exchange such as Poloniex or use a service like a Bitcoin ATM, or Changelly and you will then own the coins and can keep them safe in your hardware wallet or stake them on an exchange.

Staking is providing liquidity for the margin trading we discussed prior, essentially you will be the creditor of the margin that trades will use for their leverage. The returns are variable based on demand, and can return around 8-10% Per year before compounding. Comparative to a small farms mining income, it can be a great passive income. 

Staking is available as 'lending' on Poloniex and 'Funding' on bitfinex. Bitmex does not offer this option, only trading.

Some alt-coins offer specific in wallet staking functionality, such as NEM (delegated harvesting) and other PoS (proof-of-stake) projects such as NEO, DCR, NAV, LSK, ARK, RDD, PIVX, BEAN and LINDA

Beating The Market

Trading to produce over 30% ROI consistently year on year, means you are performing better then some of the best funds / ETFs in the financial markets. In crypto the best funds can be found on iconomi's digital asset arrays list and the all time return peak was over 3000%, although now down a recovery is not impossible.

Although It's not impossible, just improbable in traditional markets - in which crypto certainly is far from traditional, for example in last years bull run we got blessed with a very fast income. Although this year have seen mainly shorts being the profitable trade.

Remaining agile and pro-active in your trading plan is the only way to consistently return gains, so ultimately having a strong cash flow to ensure your risk capital is topped up and ready to be invested is probably the safest route of entry.