Time flies quickly – we are already halfway through our Trading Experiment, where we show the real thoughts and emotions behind the trading process. Our Trader for a Month, Alex, goes through the rollercoaster of doubts and ultra-confidence making his daily trades on broker.cex.io and telling all about it, no filters.
Designed to be a month-long, the Experiment in the second week is somewhat of a messy middle. The initial thrill and the extreme pressure of being publicly accountable have subsided. And the need to continue trading for the next few weeks – has remained.
Being deep in the process poses unique challenges for a trader. He no longer runs on the adrenaline of new activity and already has, however small, the experience of the market.
In these conditions, on one hand, there is a desire to continue what worked before in order to maintain or improve the performance. On the other hand, there is a temptation to try something new to not get bored, or not miss out on even better opportunities.
These challenges are typical for any trader who moves from the initial tries to a disciplined day-after-day trading process. What kind of trading this results in? Read below!
Style and Tools Used
In the midst of Week 2, Alex admits to himself that he might be “a bear at heart.” Indeed, the majority of his trades up to date are shorts.
It is quite typical for a trader to have one side of trading to dominate over another. What is unusual with Alex, being a novice trader, is that he clings to shorts rather than longs.
More often than not, when people start out with margin trading, they prefer to long. Perhaps, because this is a continuation of what they already experienced in the spot market. You buy, wait for the price to go up, and then sell.
Not many new traders have a good understanding of shorts – a trade you make expecting that the price will go down. Yet, the market offers plenty of opportunities to make profitable short trades. And the good thing about CFDs is that, by their nature, they allow a trader to make gains both as the price moves up and down.
Another interesting thing that draws Alex’s attention is CEX.IO Broker Order Book. As we work with liquidity providers, large exchanges, the order book at CEX.IO Broker represents combined liquidity offered by those liquidity providers.
Since, in the most general terms, the order book shows the limit orders of both buyers and sellers, Alex is intrigued by the idea of getting some insight about the state of the market from the order book.
The logic goes as follows:
If you can see both buy and sell limit orders, the tilt on either side can provide a hint about the upcoming direction of the market.
It is compelling in theory. In practice, we also notice a lot of traders referencing the tools that allow analyzing the price levels where buy and sell limit orders are concentrated.
But here’s a limitation of this logic:
Take any spot exchange, and a big portion of the liquidity on that exchange is supplied by a market maker. You can review what liquidity is HERE, but in essence it is the volume of limit orders at every price level in some narrow range around the market price.
And who is the market maker? It is simply someone charged to make sure that every Buy or Sell order in the market is met with sufficient liquidity. In other words, the market maker literally “makes the market”.
It is with limit orders placed on BOTH sides of the market, the market maker ensures that the market continues working properly. In that sense, a market maker is a maker of liquidity. Whereas most of the people who trade, placing the market orders, are takers.
What’s more is that the market maker can place a limit order and then, for various reasons, remove it from the market a few minutes later. Such “disappearing” orders, of especially large sizes, have been quite pronounced on the big exchanges at the times of great volatility.
Oftentimes, people read into those orders too much without realizing that a limit order can be removed by a market player who placed it at any moment. There is no obligation to keep a limit order until it’s fulfilled. So the Order Book can transform quite significantly moment by moment.
The Order Book can be an interesting thing to observe and analyze. Furthermore, at CEX.IO Broker, the order book being a combination of liquidity on the largest exchanges, – it is even more interesting to inform the general state of the market. Yet, over-relying on it, given the “floating nature” of limit orders, can lead to wrong conclusions for some traders.
In the last week’s synopsis we touched on the idea of “recouping the losses” and how much it affects the trader’s behavior.
When we move away from what is actually lost and needs to be earned back to a more abstract concept of what can be potentially lost, we get to FOMO, fear of missing out.
FOMO is distress caused by possibly being absent from potentially rewarding experiences. In trading, it shows as a regret of missing significant market movements.
Sometimes, you regret post factum: “It was such an obvious trade and I missed it!”
Other times, you are afraid to miss out on what’s coming and keep watching the price chart, unable to focus on anything else.
In other cases, FOMO can be in the form of a “What else do I need to add to succeed?” So you would jump from one instrument to another instrument to be sure that every opportunity is captured.
Our trader, Alex, is very self-aware about emotions that might take over in trading. Yet he does show a bit of a FOMO when missing a significant price movement as if in the hindsight it was such an obvious money maker. He also jumps on additional new pairs to work in a trade without subjecting it to as much analysis.
For traders, FOMO takes quite a bit of a toll on focus and the ability to stay calculated and rational.
FOMO is distress caused by possibly being absent from potentially rewarding experiences. In trading, it shows as a regret of missing (already or in future) significant market movements.
At the end of the second week, Alex uses a popular saying:
“One time – a chance, two times – a coincidence, three times – statistics!”
Indeed, he’d been quite successful overall. And his analytical mind does not yet let him attribute his immediate gains to a matter of skill. Only after two weeks of trading gains, does he work up the confidence to conclude that his trading gains have to do with skill, not pure luck.
It touches upon a range of interesting psychological patterns expressed by traders.
There are traders that catch one good price move and consider themselves experts. They get burned badly when the success of a prior trade cannot be reproduced again.
There is also a common phenomenon called “Beginners Luck” when people seem to do really well when they begin some new activity. In sales, they sell more; in trading – make profitable trades.
One could argue that the origin of the Beginners Luck lies in not over-analyzing and in willingness to take more risks at the start. But it is how a person treats this streak of good fortune is all that matters.
Some, like Alex, want more confirmations before they think it’s their ability and not luck that makes them profits. Others immediately conclude they are naturals in trading and nothing short of genius.
Understanding that Beginners Luck can happen in trading and only consistent results matter, may add a sobering effect to many novice traders.
Nevertheless, even Alex, by the end of Week 2 feels like adding more funds to his deposit and trading with more capital… Will he succeed? Stay tuned to find out!
Understanding the phenomenon of Beginners Luck makes a trader more conscious of what goes into his/her successful trades: skill or pure luck.
Before we jump into the scripts of the Week 2 trading:
- Be sure to subscribe to our Telegram Channel to stay on top of our trader’s adventures. We also share helpful market analytics. Brief, useful, in simple language, delivered straight to your phone: https://t.me/CEXIOBroker
- Want to read the Week 1 recap with more observations that apply to all traders – check out HERE and learn how trading is like relationships.
And, of course, if you feel like rolling the sleeves and getting to trading – head out to the CEX.IO Broker:
And now, to Alex’s trading days without filters:
(we go from Day 4 to Day 7 as Alex does not trade on weekends)
So on the weekend I just thought about trading. I read about Price action and strategies based on this information. The price includes everything and the price chart is a kind of interpretation of the participants’ actions and expectations . It is very interesting to learn something new. Trading is very exciting and I’m happy I’ve finally found a real hobby .
I opened the chart and what did I see? I saw a figure of the technical analysis – the flag . Also the movings have crossed .
I immediately decided to sell but I wish I took a bigger amount. It fell very quickly (5 minutes) and I got profit right away. It turns out to be 0.5% to the deposit in 5 minutes . Well, where else can I receive such interest? It’s time to increase volumes !
I’ve also read that positions can be closed partially. If I opened 0.05, I can first close 0.01, then another 0.02 and then another 0.02. I am glad that broker.cex.io offers such a feature. I’ll start using it .
After all, I decided to short because I think that at night the decline may continue . I feel full of life even at the end of the working day Cool!
My last night’s short position was profitable for some time But I did not set take profit and therefore did not fix the gains .
Today I had a lot of work and little opportunity to trade. But in the middle of the day I managed to open a short position for 0.05. The price has just grown significantly – good time for a short . I put a stop order and you know what happened? The position got closed at the very maximum! I’m furious .
I could have opened the position couple dollars higher and would have made good money. I need to be more thoughtful about placing orders . If I placed it over the previous maximum, then I would have waited it out. And now I got knocked out .
Anyway, this is an experience. But I am very pleased that the price really went down, which means that my prediction was correct . Keeping a diary also helps a lot. At the weekend I looked through my notes and noticed that it’s not the first time that I am knocked out by stop order and then price turns around. I need to make things right, though I don’t know yet how .
I’m keeping my yesterday’s short, without a stop so far. Tomorrow I will make decisions with a clear head. So far I didn’t have a chance to try to close the position partially. By the way, I noticed that Parabolic on m15 is often redrawn. I read that it should be used on large time frames so I removed it from the chart. I want to try out all the indicators and choose the one that works the best for me .
Although the day ended with losses, my prediction appeared to be correct and I learned something new again
I’m now in a strange period – nothing happens on the market. Bitcoin has just frozen. It doesn’t move at all. And how can I make money on it?
All day I was looking at the price cardiogram . I want to try opening a position again, closing it partially! I want action on the market! I already know that this action is called volatility .
Well, there’s finally some movement in the market. And I still have that short position open – I didn’t miss the move (took a screenshot then and the price seems even better right now) . But I missed a great moment to place sell order . It was just perfect: the movings crossed, and the oscillator left the oversold zone. The feeling of lost profit bothers me a little .
I bought one litecoin for bitcoin. It has fallen much, hope it’ll bounce .
Today I started to read about the importance of volumes that are traded in the market. Also about supply and demand. Nothing is clear so far and it’s a little confusing. But everything new is complicated ! Just need to keep gong . There’re still a lot of things for me to figure out but it is really more easy when I practice, even with a small deposit. Lessons hard to learn are sweet to know ))
I also noticed that I enjoy when bitcoin falls, I don’t know why . Maybe I’m a bear in my heart) I will make my name on the shorts… )))
There was a storm in the market last night and I took full advantage of it. I made profit on a short that I was keeping for several days – 5,8% to the deposit! .
Also, when the price has fallen yesterday, I bought a litecoin for bitcoin. And today in the morning I closed this position with a little profit. Although I do not understand how I can make money on such pairs, as if bitcoin grows, then both litecoin and ethereum grow. If bitcoin falls, then everything falls. I should go through this .
Also yesterday, when price has fallen, I bought bitcoin. I took 0.05 volume. And the price went up very quickly . I fixed the profit – 3.7% to the initial deposit in 31 minutes. Super cool!
There were several good points to make purchase, but I missed them because of work . And this is very good, because they would be unprofitable . And even work can do good))) I’m totally out ahead! Whoo, best of moods . After all, I was right when I was selling bitcoin for a whole week .
So far I will not pay attention to purchases as these abrupt drops look bad . And oscillators do not enter oversold zone too.
Market is vibrant but I am loaded with work so I miss everything . Well, it’s fine, tomorrow I will compensate for the missed opportunities
Yesterday I actually did get upset. Felt like I missed out on all these market movements… The only consolation I have is that trading is not my main income (yet) and I need to get my work done too.
There are (of course!) tons of recommendations about emotions and how to control them. But how is that possible – we are not robots . Humans feel and worry. Take me for example – last couple days I was beaming! Why not? I seem to have found a cool hobby that also makes money! Kinda feel like telling it to everyone.
I decided to dive deeper into broker.cex.io settings and features. Order book is a good place to start. That’s where your limit orders go. If you want to buy at price lower than now (like $8,000) or sell at price higher than now (like $9,900) – you send the orders to broker. All of these orders form the order book. BUT if, from the order book, you see that a lot of people want to buy – the price should be going up… That’s logical. I think I’m onto something…
Oh, and one more thing! So I am reading all these comments in forums about broker’s commissions and that they are ripping people off with commissions. I counted the commissions I spent on trading for the last two weeks: less than one percent! This is tiny – given the broker lets me trade with capital 10 times higher than what I have! Always double-check your info!
While price bounced off of local minimums, I am shorting (again!). Opened a short at $9,167.6 with 0.05 BTC. Will check on the position during the day.
And what’s the best thing ever? Calculating profits! So, last week I’ve added 1.2% to the initial deposit. This week – plus 4.1% to initial deposit! 5.4% up in total! I like the dynamic!
As they say, one time – a chance, two times – a coincidence, three times – statistics! If I will continue the positive dynamics next week – I am upping my deposit! My paystub is coming through around that time. Gotta start somewhere!
That’s all for Week 2! Stay tuned! The fun only begins!