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Trading Lessons

3 Lessons From the Latest Crypto Crash

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Written by Timothy Sykes
Updated 12/7/2021 10 min read

3 Lessons from the Latest Crypto Crash: Key Takeaways

  • History shows that speculative assets crash when they get overextended and demand drops.
  • There are many similarities between crypto promoters and penny stock promoters.
  • You do NOT have to hold and hope. Learn to take profits off the table when risk increases.

How to Prepare for an Even Bigger Crypto Dip

I’m getting a ton of questions about Saturday’s crypto crash. Bitcoin dropped $9,836 in one hour of trading. It bounced back a little, but it’s still trading below $50,000 as I write.

This isn’t the first crash I’ve been through. And I’m sure it’s not the last. Speculative assets do this all the time.

Trading Lessons from Previous Crashes

Traders lose money — 90% of traders lose. Part of the reason I got into teaching is because I see so much BS. Again, this isn’t my first crash.

It’s also not my first warning. In 2014 I took on the Wolf of Weed Street. I battle fake gurus and their Twitter pumps all the time.

Now Bitcoin people say “This is revolutionizing the world, it’s only the beginning.” Maybe that’s true. At the same time you don’t have to hold through a 30% drawdown off the highs.

Even though I warned about a potential crash, one of the questions I’m getting is…

Why Did Crypto Crash?

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Anything that goes parabolic, especially in times of excessive liquidity, eventually comes down. So much of the buying was stimulus check or dumb money buying.

When Omicron scared the market on Black Friday, smart money went to safety. Top traders trimmed positions just in case. On Saturday, spot selling triggered a tsunami of Bitcoin futures liquidation.

Could Bitcoin Crash 90%?

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Bitcoin and a lot of other speculative assets have gone up further than I ever anticipated. I totally underestimated it. But that’s true of penny stock pumps, too. Understand that they all eventually crash. Most penny stocks crash 90% or more.

So people are asking if I think Bitcoin will crash 90%. I don’t know. I doubt it will go that far down. One smart thing crypto promoters have done is to control the supply. But it could go down more.

Buying the Bitcoin Dip

If the crash is big enough it creates the perfect dip buy opportunity. But is this it? On Saturday, El Salvador President Nayib Bukele tweeted “El Salvador just bought the dip!”

For me, I wouldn’t buy the dip here. But I do think you should learn the dip buy strategy. Preparation is key. With that in mind…

3 Lessons from the Latest Crypto Crash

Here are three lessons from the latest crypto crash. Add them to your knowledge account. Again, this isn’t the first and it won’t be the last. The best you can do is prepare now for the future.

Trading Lesson #1: Hold & Hope Is Not a Strategy

I get DMs and emails from people saying “This time it’s different.” Those are the four most expensive words in the English language.

There’s always risk. With speculative assets there’s greater risk.

By all means, learn about speculative assets like crypto and Pokémon cards. I think you should learn about them.

But hold & hope makes no sense. It’s not a winning strategy..

Instead, follow…

Trading Lesson #2: Take Profits Into Strength

You don’t have to hold through big drops. The Bitcoin fail on Saturday was 13% in less than an hour. And I get it, most people were asleep and woke up to their Bitcoin wallet being a lot less.

At the end of October I warned people. Please read “Is This the Beginning of a Crash.” It explains how Robinhood Markets, Inc. (NASDAQ: HOOD) is almost a barometer for this bubble.

Here’s an up-to-date HOOD chart…

HOOD chart showing poor stock performance prior to the crypto crash
HOOD chart: IPO to 12-06-21, daily candle (source: StocksToTrade.com)

The stock is falling off a cliff because its business is falling off a cliff. Even before crypto dropped 30%, Robinhood reported average revenue per user is down 36%. Why? because all the idiots are trading less. They have less money. And they’re losing instead of winning like they did early on in this stimulus check funded bubble. That’s bad for Robinhood’s business.

When Bitcoin hit new highs in November, promoters said “Sykes doesn’t know what he’s talking about. Bitcoin is going to $100,000 by the end of the year.” 

How wrong they were. Taking some off the table then would have put them in a better place today. And that brings up the third trading lesson from this crypto crash…

Trading Lesson #3: You Do NOT Have to Listen to Others

Look, I’m not knocking crypto or the blockchain. I think blockchain technology has promise. But at the same time it’s stupid to not lock in profits.

You don’t have to have diamond hands. “You only live once” is not a way to lasting wealth. Listening to unethical promoters when you’re losing more and more is ridiculous. You don’t have to listen to anyone else.

The ProShares Bitcoin Strategy ETF is a good example. It started trading in October. Here’s the chart…

BITO chart demonstrating weakness leading to the crypto crash
BITO chart: daily candles to 12-06-21 (source: StocksToTrade.com)

When BITO started trading, there was a chorus of “Oh my god, all this institutional money is coming to Bitcoin.” But BITO doesn’t deal with actual Bitcoin so it didn’t increase demand. As it turns out, so far it’s a bad investment.

I know crypto has been a fantastic performer over the years. So I’m not saying everything is a scam that’s going to zero. But you need to understand…

The Truth About Unrealized vs Realized Profits

top penny stocks list September 07, 2021 trading mentor Q&A Tim Sykes infinity pool Dubai 2021 trip
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There are a lot of people who became paper millionaires the past year and then lost most of it. It’s absolutely crazy. If you’re really good — so good that you can do it again — why not take something off the table and then build back up?

Gamblers never make money in the long run. Gunslingers might make money during a bubble. But when things change and they don’t adapt… decimation.

This bubble is getting very frothy and very risky. We’ve had a huge run up in so many different assets. All my millionaire students and I lock in profits. We’re not unrealized millionaires. We’re realized gains millionaires. There’s a difference. Have discipline — don’t fall for the BS.

Trading Education Resources

All I can do is try to teach rules that I’ve learned the hard way over twenty-plus years. I hate seeing good money and solid profits go to waste due to poor discipline and misinformation. It’s your choice.

To learn more about how I trade panics, watch this special presentation. (Hint: I’ve been using this pattern for over two decades.)

If you’re ready to take a deep dive and learn all my strategies, apply for the Trading Challenge today.

What do you think of the 3 lessons from the latest crypto crash? Comment below, I love to hear from all my readers!

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”