Emotional intelligence outperforms trading sophistication: lessons from a friend

The more you warn someone not to do something, the more tempting it becomes

A buddy of mine is nearly 100k down this week. He’s been involved with crypto for far less time yet has made far better returns than me. By all accounts, he is a markedly better trader.

Bitcoin took a 32% hit, cascading from $70,000 to as low as $48,000. I’d warned him about days like this. The horror still haunts me from 3 years ago when Elon Musk tweeted Tesla will no longer accept bitcoin as payment. It was at the very peak of the 2021 bull run where I was levered to the gills only to watch my positions get liquidated in the space of days. Months and years of slow, steadily accumulated profits wiped out in a fraction of the time.

My friend works in a niche sector of finance and consults with me from time to time on potential plays. Our lives took very different turns as he landed a middle office job in banking. The work culture and diverging friendship groups/lifestyles pulled us apart socially but we always had great mutual respect and maintained friendship. It was only until earlier this year where we took similar positions on a coin that he revealed to me he’d been acting upon all the info he was sending my way.

He was keeping tabs on several obscure chat rooms, buying up low cap coins, taking advantage of air drops and staking eth (will discuss in future posts). Up until recently he’d turned 20k into nearly 200k over the course of 2 years. Naturally I was excited and keen to know what and how he managed to 10x his capital and the more I understood what he did, the less inclined I was to follow suite. Out of dozens of trades, it took only 2 big moves to nudge his capital up to 6 figures which is impressive. But since he hasn’t managed to find any plays as of late, he started trading on margin. It turns out it was no longer about the profits. It was about chasing the same buzz as those 5-10x plays he made in alt coins.

There are others out there who’ve experienced similar success in alt coins, some even making multiple millions off individual plays. But there are even less people that managed to keep their money and walk away. Most get trapped in the casino. And the longer you play, the likelier you are to give it all back. This kamikaze style trading is almost impossible to walk away from. Profitable trading is the most unsatisfactory way of making a living: nearly every closed trade feels like you’ve left money on the table. Every closed trade for a loss feels like it could bounce back. Every entry that moves into profit, you feel like you should’ve stake bigger. And doing nothing feels like a waste of time.

It’s fair to say my friend found the last part out the hard way. When the lines become blurred and you cannot distinguish whether you are trading to make money or to get a fix, that’s when dangerous things happen. He hasn’t found an alt coin play for a couple months and he needed to scratch that itch. Staring at charts with dewy eyed optimism, he convinced himself that these new all time highs were a sure fire sign that Bitcoin was heading to 100k this time. He bet with leverage on Bitcoin somewhere near its recent top and had many positions liquidated in the last week. He’s nearly 100k down.

What’s interesting is that for someone who has such a sophisticated methodology for forecasting price movements in lesser known coins, it’s amazing how badly he missed the mark on Bitcoin. When emotion takes over, you cannot trust yourself to think and execute rationally.

Whether or not he can refrain from going gung ho gambling away the rest of his profits, only time will tell.

I don’t want to ever say you have to take such hits to learn an important lesson but the sad reality is that most will have to. Because the more you warn someone against doing something, the more tempting it becomes. And once you’ve tasted the forbidden fruit and dodged the consequences, the more tempted you are to up the ante. Until it all comes falling down.

It doesn’t matter how much of a trading wiz you may be, as soon as you treat the markets as a drug for your next high, the comedown will outweigh any win. When you’ve been battered enough times and if you’re fortunate enough to still be standing, you realise that the markets were never there to serve your emotions.

When profits stop making you happy and losses stop making you sad, that’s when you know you’re on your way to the 1%. When you understand the trading is supposed to be boring and your focus is on execution, you understand that losses are just a necessary business expense. Profit inevitably follows.

I only trade what I understand and bet what I can afford. I always anticipate the worst scenario and prepare myself mentally to be comfortable with it should it materialise. My methodology will almost guarantee me consistent profits long into the future. All I have to do is execute and not be swayed by the day to day whims of profits and inevitable losses.

Emotional intelligence outperforms trading sophistication. Every single time.

In this weeks premium post, I will detail my exact risk management methodology (in-play) and how I manage to protect my downside on a consistent basis.

Speak soon.

AT