Loss is like broccoli or brussels sprout. No one likes to eat them, but you've got to eat them and learn to digest them.
Let us learn to eat broccoli from John today. Yeah the (almost) same John from Dada's post. Completely fictional character. In no way or form this should be related to any real life events.
Alright, now that we have the important bit sorted, let's begin.
So Jhon has been scalping some magic internet money for some time, and he will brag from time to time about how easy it is to profit off of it. But as someone had once said, scalping could turn into a scalpel and make you bleed if you get it wrong. And John got it horribly wrong this one time.
His favorite token HIVE was doing exactly what he wanted it to do. Spike up a few cents and come back down. Rinse and repeat. Hive was smoothly hitting John's sell and buy targets.
One time, after it hit the buy at 78 cents of 1500 HIVE, John placed his sell at 80 cents. A small margin for a quick profit of $30. But what happened was, when John woke up in the morning, Hive "crashed" down to 65 cents overnight.
John had gotten quite cocky over his scalping success and could accept the fact that HE would be taking a loss. He was confident this was some market anomaly and the market will surely recover.
He watched the charts as HIVE went further down. 60 cents, 55 cents, 50 cents, 45 cents, 40 cents.
While he could have cut his losses earlier, he is now at nearly 50% loss. Half his capital is wiped out, when in fact a little less cockiness could have seen him get out of that trade with barely scratches.
Lesson 1 : Learn to take losses early.
Now, we all know John is a moron. Unable to digest the loss, he takes the next moronic step. He dips into his eggs nest...something you should never touch unless you are ready to retire.
He takes his entire "collection" of hive and starts targeting big profits, round about $100 on every scalp.
Mistake 101 : John strayed away from his usual routine.
He broke discipline. John's regular scalping routine is to target small profit margins, relatively risk free.
Desperate times call for desperate measures and all that!
He does start making those targeted profits, but with greater margin, comes bigger risks. As usual, John gets cocky and gets "stuck" in a scalp selling off his entire portfolio too early on a scalp. He does however recover eventually, but misses quite a few opportunities in between.
Lesson 2 : ......
We have learned lesson 2 already. If you know, you know!
John had taken that lesson to heart and started to follow his own routine. A few more scalps later, John has almost recovered.
With HIVE at around 54 cents, he is still at a net loss of $360 on that 1500 HIVE. But his scalping profits sum up to just nearly $350.
And that ladies and gentleman, is how John eats and digests losses broccoli and brussels sprout!
Lesson 3 : Don't be a moron.
Posted Using LeoFinance Beta
The trouble with scalping (and I have said the many time earlier, so apologize the repitition ahead of time!) is that the gains are small, so a single big move against you can wipe out months of gain.
This is called lopsided strategy (if there is any), and this requires constant attention which is impossible for a human. Therefore, scalping is almost exclusively done by bots with stringent risk management in place. Funny, even then those bots fail quite frequently during high volatility.
Ha dada, I myself have found myself chasing to cover loss after a few "good" trades. I can tend to get a bit overconfident and that is always, always the downfall.