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My Year as a Perma-Bear or How to Deal With Trading Biases

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What is a trading bias? Kurt Vonnegut wrote it once that opinions are strange things, everyone has one, but no one gives a damn about the others’. This is similar with trading biases; every trader has a view (usually a strong one) about the direction of the market, but the market doesn’t care about it one bit. So your trading bias is something personal; a thing that you have to deal with, for better or worse.

Also, there is a neat little thing that behavioral finance calls confirmation bias. This is the tendency of people to filter the information they run into in a way that they only process the “facts” that confirm their beliefs while ignoring anything that would question the “truth”. If you combine this bias with trading, you will get a real financial weapon of mass destruction.

Wait, so I should have No Opinion??

First things first, I have to establish that having a trading bias is not a bad thing; in fact, the right bias could be the cornerstone of a very successful trading period that could last for years and years. Of course, this means being bullish in a bull market or being bearish in a declining market. Having a bullish bias towards stocks since 2009 or towards Bitcoin since 2015 has been definitely a lucrative thing.

With the right strategy, you can minimize losses, or even trade with a profit in a headwind as well, but the desirable state is to have a bias that is in line with the underlying trend, while being conscious about it, and always trying to avoid the trap of confirmation bias.

When a Trading Bias gets Dangerous

Problems arise when your trading bias isn’t aligning with the direction of the market. In practice, this is not the worst thing, though, and for an experienced trader this situation is quite easy to handle.  That said, as one of my most painful trading mistakes proves, even being right doesn’t mean that you will end up with gains.

The harder part is when you have been right for a while, but the market starts to change. Changing your bias is very hard, especially when you are already conditioned that your approach is successful. This is why major turning points are so rough on traders. The good thing is that with proper money management and a good trading routine, you will notice that something is fishy before any major damage is done to your portfolio.

Managing your Biases

Routine, in general, is a good remedy against emotional mistakes and it provides great ways of identifying and dealing with your trading biases. How? It’s simple; your trading routines should reveal that your view of the market is wrong while also automatically reducing your exposure and activity level. I will show you that in practice but now let’s look at a real life example first.

My Personal Story

As I wrote in my post on overconfidence and risk management, I was heavily bearish on stocks in 2008, and even though I managed to destroy my profits once, I ended that year in the green thanks to that. The next year marked the end of the financial crisis, at least regarding US stocks, with the major indices all bottoming out in March.

Valuation metrics showed reasonable readings at that time, several technical measures were turning constructive, and the financial leaders finally went all in— basically announcing that the banks don’t have to comply with market valuation, and they will be saved no matter what.

That said, there were only a few analysts or investors screaming buy, buy, buy and I was also skeptical. Sure enough, I entered investment positions based on valuation, but I could have imagined that another year of decline was ahead of us with 20% more downside in the indices.

Waiting for the Elusive Re-Test

The S&P 500 after the end of the bear market in 2009

One hard year of biased trading against the trend

Long story short, throughout 2009 and up to mid-2010 I was trading stocks with a bearish bias, with a vision of a final re-test of the 2009 lows in my head, which (as we know now) never came. Confirmation bias reared up its ugly head as well; I was frustrated with bullish commentaries, and searched more and more for bearish news outlets and gurus. I wasn’t losing money, but my results were much worse than I felt they should have been.

On the flip side, I started working as a proprietary day-trader from the end of 2009 (while also managing my own savings), and the risk-management and planning techniques I learned there helped me in realizing that something is not right. One of the best methods I used was to cut back on trading in a losing streak and increase activity after a winning streak. This made me take a step back after a series of losing trades and without a position, it’s much easier to see clearly.

I also started using a trading journal and analyzing my trades more thoroughly. Those revealed that my problem was rooted in confirmation bias. Reading back the journal made it clear that I was looking for excuses to short, or to exit longs early (due to the upcoming re-test of course). Basically, I became a “Perma-Bear” for a short period, which is a very sad state in a bull market.

It would be an overstatement to say that after changing my approach it was only smooth sailing for me – there are plenty of other trading blunders to share… so stay tuned- but I became much more conscious about my biases, and much more open in my trading practices after this experience.

How to Change Biases?

For me the best way to remain flexible proved to be to try to trade in both directions all the time. Of course, I put emphasis (and commit more capital) on longs when I think that the asset is going up and vice versa, but I always try to place trades in the other direction as well.

This way there will be a clear indication that the trend is changing, as my counter-trend positions will start working while my primary trades will start failing. This method can be done without actually trading, by using a second, demo account to place the counter-trend trades if you are not comfortable with this somewhat scyzoprhenic mindset. You might say that a good trader will know when the trend changes, and you will be right in some cases, but believe me, this simple method will save you from a lot of headaches in your trading career.

Also, it is imperative to keep an open mind about your view on the assets that you trade and invest in. Always try to question your belief, and always make yourself read different opinions than your own. Confirmation bias is a nasty thing— it’s part of the self-defense mechanism of your unconscious, meaning that you have to fight it consciously.

The Takeaway and Some Timely Notes

About the current markets, if you have been reading my posts you might have already noticed, at least, some of my biases. I have a bullish view about gold, cryptocurrencies, and the Yen, while having a bearish bias towards US stocks and China and a less pronounced negative bias towards Europe, Japan, and other risk-assets.

These views are always subject to change, especially in the short-run, and I am placing trades against these biases, at least hypothetical ones, all the time. Also, my view changed on gold and not long ago, as they started behaving differently. I am also a bit suspicious about the coins following the latest incredible surge, although I wouldn’t short them with real money in this phase.

My point is that yes I have biases, but I treat them objectively not emotionally, and I won’t get offended if someone says that stocks will double in the next two years, or that gold will fall to 500. First, stranger things happened before in financial markets and, most importantly, I know that I won’t be stuck in my views if Mr. Market proves me otherwise.

So let’s sum this up:

  • Having a strong opinion about a market is good, but not knowing about the fact is bad
  • Always question the “obvious” truth and be aware of confirmation bias
  • Keep a trading journal and take the time to read it back regularly
  • Take a step back and reduce exposure after a losing streak
  • Be flexible in trading (especially short-term trading) and always try to think both as a bull and a bear

What do you think? What’s your experience with biases? Do you feel offended if someone says bad things about your favorite investment? Please share your opinion in the comments!

Great, and conscious, investing for all!

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 351 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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4 Comments

4 Comments

  1. maleshkov

    June 2, 2017 at 2:10 pm

    Great article. After my last huge mistake I am now in a long position again and fortunately the market most probably will compensate me very soon, but this is the last time I get biased and emotional about certain coins. I still haven’t learned to be a bear, but this has to happen next week. Last week I saw how easy is to lose a profit in two days, which has been accumulated for 2 months. Thanks

  2. embersburnbrightly

    June 2, 2017 at 3:59 pm

    Thank you for this article. The suggestions you have provided as a result of your own experiences will be quite helpful for those of us who are new to investing and trading. I have one question that has really started to become prominent for me as a new investor (with a current preference for long-term investing) that may tie into this, if you have any insights on this, please: For someone who is interested in long-term investing across a number of cryptocurrency types, what is a significance sign to watch for which would indicate that a particular coin or other investment is beginning a permanent downward trend, which would then indicate it is time to get out of that Investment? In other words, is there a classic sort of warning sign/pattern which indicates that a permanent downward trend is forming rather than just a temporary correction? It appears that corrections or temporary downturns can sometimes last quite some time, prior to an investment suddenly taking off again in value. How does one reasonably differentiate between a potential prolonged correction or downturn, versus a sign of a permanent decrease in value for an investment? That may not be a simple question to answer, but any recommendations/insights are appreciated; thank you in advance!

    • Mate Cser

      June 2, 2017 at 4:45 pm

      Great question, thanks! I will have a full post on this, but volume patterns, the depth of the correction, and the way the coin trades near support are great tells. For now, I think that the fundamental story is intact, and if you choose the winners well, the trend will be with you for a prolonged period. I will let you know when the detailed post is ready!

      • embersburnbrightly

        June 2, 2017 at 5:27 pm

        Beautiful! Thank you for the very prompt reply, and I look forward to the full post on this subject!

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Trans-Fee Mining: Investigating FCOIN and The Future

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Trans-fee mining’ is a concept utilised by a growing number of projects and exchanges which has not received much in the way of critical attention recently from either mainstream financial or specialist cryptocurrency publications.

The Fall of F-Coin?

Thanks to a company called FCOIN, most of the news which has appeared has been negative. Statistical information regarding the exchange can be found at popular aggregate ranking website CoinMarketCap.

Despite positive coverage earlier this year from the likes of Forbes’ Andrew Rossow, David Hundeyin of our sister site CCN.com wrote more recently that the exchange had been “Accused of Crippling Ethereum Network for Cheap Publicity” with a supposed aim of gaining publicity.

These pundits are joined by community members such as Reddit poster u/ltcisking (along with a large amount of other concurring, Google-topping results), who recently wrote a post aimed at proving such allegations, entitled ‘One of the biggest scams to ever hit Crypto’.

Twitter has also seen its fair share of investor complaints as well, including the following…

As well as the replies to this post,

What is Trans-Fee Mining?

Due to the unusual circumstances in which the ‘trans-fee mining’ sits (being supported by a number of independent projects despite the reputation of FCOIN): it is a difficult methodology to describe.

It builds upon the concept of the ‘exchange token’: which is most often associated with coins such as BNB (Binance Coin), which can be used for staking towards a particular crypto in the exchanges ‘community coin of the month’ program.

The original FCOIN implementation appeared to build upon this vision at first. The token’s value is derived from the fact that it has a stable value, and that it can be used on-platform (like BNB) as a means of purchasing other tokens whilst offering regular returns on investment for long-term holders of the token.

What is FCOIN Doing Now?

FCOIN has issued various statements which appear to support the sentiment behind the claims which they have faced. These include a recent August 14th post, with the telling title ‘FCoin community referendum end and recent plan publicity’.

Highlights of the piece include new objectives such as

“1.Complete and publicize the destruction of the remaining unissued FT.
“2. Complete the delivery of all FT warrants and withdraw the FT warrants from the market…
“4. As of the end of the referendum, the previous trans-fee refund will remain unchanged (based on the price of the FT related trading pairs before the suspension), and then, all the trans-fee refund will be stopped (including all return plans based on FT issuance).
“5. We plan to establish an FCoin mechanism and an announcement cleanup team. The team untied and improved the current FCoin mechanisms and standardized the release of various mechanisms in the future, and made a unified interpretation.”

At best, this may be an admission of fault, and at worst: an ambiguous and uninformative piece of messaging which fails to outline the situation with a strong brand or executive voice.

This comes in addition to a couple of announcements regarding ‘compensation planning’ with regards to investors who had “participated” in the fundraising of the ‘GU’ and ‘QOS’ tokens through their service.

The latter included the assurance that this process “compensation plan is an initiative taken by the platform to protect the interests of community user” concluded with the damning statement that:

“The FCoin platform has informed the QOS project parties and urged them to conduct self-examination of market price fluctuations and recent media reports as soon as possible. It is not excluded to take delisting and other related measures. The specific plan will be subject to the subsequent announcement. During this period, QOS will be temporarily suspended.”

Torch-bearers of Trans-Fee Mining?

Various claims of discrepancy against FCOIN’s actions as a company however, have not discouraged many projects which are attempting to build their own version of trans-fee mining. Whether or not they have been inspired by the short-lived success of FCOIN’s implementation is yet to be confirmed!

One of the most recent organisations which has decided to foray into this difficult and all-but-controversial territory is BitMart, an exchange founded by current CEO Sheldon Xia. Their approach is branded ‘Mission X’, and utilises their proprietary ‘BMX’ token.

“All transaction fees from the BMX market will go directly to the users who supported the project. In addition, successful projects will enter BitMart’s main trading markets.

“This program gives users the ability to decide which projects they want to be listed on the exchange, creating a self-regulated market.”

The platform piqued this writer’s attention upon noticing a disparity between public consensus and professional news coverage. Whilst the latter has published next to nothing with regards to the platform, a quick search of social media and communities such as forums seem to illustrate a positive and transparent image.

CoinEx was recently reported to have achieved unprecedented growth following the release of their token – however, like FCOIN have been called out for discrepancies. This time regarding the faking of volume metrics.

Final Thoughts

It appears that trans-fee mining as a concept is a long-way from earning this writer’s confidence, however it must be noted that there are many promising aspects. Time will tell whether talent will shine through or if trans-fee mining will fade out at the hands of opportunists.

What is important to note is that it is not the technology or idea, but the hands that are operating the machine incorporating it.

This writer cannot directly recommend the concept in its current state, but believes that the original idea is solid and if implemented in a viable way: would thoroughly warrant the full attention of any potential investor.

Until then, watch the community and keep an eye on the media – as well as word-of-mouth as this flawed-yet-promising idea is if nothing else, highly interesting!

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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My CFD Journey: 72,000 USD Up Today

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Wow the indexes are falling globally now. Dax is down with 1% today – same as Dow Jones. I would love to do a short call on these indexes, but that have seriously hurt my financial standings previously since we still are in a “bull” market with earnings reports beating forecasts and macroeconomic numbers excelling analysts viewpoints. I only want to trade by using trend following, so even if the markets are down, I love to do short buy calls as they most likely will rebound to new ATH (all time highs). The reason for just doing short buy calls is that we might be on the tipping point to a bearish market, but that’s something I would like confirmation on from e.g. macro numbers, earning reports and such. Until then, I’m quick in and out.

Here is my results

Order Entry Price Take Profit Stop Loss USD Bank Roll USD % Change
Start 258 064,52
Day 1 25.01.2018 Dax Buy 13268 13274 13262 6 472,52 264 537,03 2,51
Day 2 26.01.2018 Dax Sell 13342 13318 13392 7 642,84 272 179,87 5,47
Day 3 29.01.2018 Dax Buy 13331 13336 13313 12 508,39 284 688,26 10,32
Day 4 30.01.2018 Dax Buy 13226 13233 13176 6 625,94 291 314,19 12,88
Day 5 31.01.2018 Dax Buy 13217 13230 13187 26 474,06 317 788,26 23,14
Day 5 01.02.2018 Dax Sell 13291 13265 13327 10 834,58 328 622,84 27,34
Day 6 02.02.2018 Dax Buy 12797 12825 12772 72 314,97 400 937,81 55,36

Using ProRealTime

As I wrote yesterday, I’m using IG.com to trade CFDs. They got a tool called ProRealTime that I started to use yesterday. It’s a great tool with many more indicators and tools, and best of all, you get a good look at your stats. Here is my stats so far on ProRealTime in NOK (1 USD = 7.65 NOK – click on the images to get a larger view):

As you can see from the image above, I got 8 winning trades and 1 losing trade. I tried to buy the dip on Dax but managed to enter a bit too early. The Dax index fell quite rapidly after I initiated this trade and I wanted to keep it open as long as possible as I knew a rebound would happen. But I was not comfortable enough to sit it through so I closed it. Still feeling certain that the price would rebound I entered a buy position yet again at what I thought would be the lowest low. And thankfully, that worked and it rebounded above my initial entry point for the first trade. To ensure that I got the profits I wanted, I did a third trade buying Dax when RSI showed a trend reversal (rose above 50). I closed the trades once I was happy with the profits and because I became nervous that the price would turn back down. Then I initiated the last trade of the day going long on Dax yet again.

Here is the total overview of my trades today:

I would again like to highlight that trading CFD is very risky, and I’m still significantly down in total these last 3 years.

My trading rules

  1. Only risk max 2% of my bank roll per trade.
  2. Have 0 active positions during the night (first of all, I lose sleep, second; you are charged an interest fee for leaving a leveraged product overnight.)
  3. Always trade on last month’s trend including the previous day(s). If they do not correlate, I will not trade.
  4. If one position is lost, I’ll double the amount (martingale) and do a second trade. I’ll only stop doubling after 3 consecutive losses.
  5. Do not think about lost trade opportunities.
  6. Markets to trade: Dax & Dow (minimum spread).
  7. Stay updated on economic releases prior to entering a trade.
  8. Do not have emotional ties to the money. I like to call them “points”.
  9. Only enter a position when an asset is overbought or oversold shown by both RSI & Stoch at the same time.
  10. Always write down your trades and elaborate what went right or wrong.

What is the meaning of this?

Why I’m I writing all these posts? My main goal is to find a working strategy trading CFDs and be able to mentor Hacked.com members and do live sessions together. However, I would like to keep going for at least one month until I feel comfortable that the strategy I have, actually works. I would rather lose my own money, than lose any of yours.

I wish you all a great weekend. We are going to visit our family this weekend and have a nice time.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Who Moved My Cheese?

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It’s been a while since I wrote a post. I’ve been busy with creating CCN.com and migrate CryptoCoinsNews.com over to the new domain with a fresh design. And It’s been Christmas with daily family dinners. I decided to quit my job at Wilhelmsen.com as a Digital Trainee. I’ve worked there for a year now, and with the growth of CCN and Hacked.com I had to take a choice. I want to make CCN and Hacked to one of the strongest crypto sources and our team is rapidly expanding. We are now more than eight full time employees and more than 20+ as part timers.

I also bought hvy.com in December, and I want to develop MoneyMakers.com into something more during the coming year. We are building a small media empire with a very decentralized structure. I love the team, and I especially love our dedicated readers and members.

I started 2017 by posting the following:

  1. My own longterm goals, what are yours?
  2. Join me to my first goal of $1 000 000
  3. My First Investment Towards $1 000 000

What is a bit ironic, is that I reached my “longterm” goal last year. It should have taken at least ten years, but I managed it in one. I managed it because of a few things:

  1. Dedication
  2. Team work
  3. Luck

Who would have thought that the crypto scene would blow up like it did last year? It was insane, and we still keep setting records.

Then to a few “lost activities” on hacked.com. The 33% club lost some steam this fall, purely due to my priorities at that time. I’ve still been investing, and I now have approx. 1 million USD in different assets (not cryptos). I will continue the 33% club from February and onwards, and I want you all to join. I will do a new post later in January with a better setup.

Then to my “Robot” affair. First weeks I made $5000, but then things started to go terribly wrong. I had multiple issues with using robots on MetaTrader 5 (I used Roboforex as my trading platform). One of the main issues I found was that the robots did well on certain days, but then when they made the wrong moves, I lost twice of what they originally made. And sometimes, my VPS went down and the orders were stuck until I manually exited them. Mostly with a huge loss. I do not think there’s any good robot out there where you can just leave your money and “forget them”. I’ve decided to focus more on investing my money in secure assets, stocks, indexes, and bonds. I’m still looking for the golden opportunity, and once I find it, I’ll share it with all the members on hacked.com.

Who Moved My Cheese?

I read a short book here the other day called Who Moved My Cheese? and it’s really worth reading. It’s stupid simple, but it’s so true. Basically it says that people who are stuck in the same patterns will end up depressed and “broke”. Your “cheese” or “money” will always be fluctuating, you have to chase it to new grounds. You might think that you can work for your employer until you die, but that will most likely be a terrible mistake. To believe that what you have now will be lasting forever. Successful people manage to change quickly, spot new opportunities, and move forward with their lives. I personally have experienced being stuck for a while, but now I feel free and I want to keep chasing the cheese in new arenas or mazes. Risk and failures are a part of your learning curve. Same can be applied in so many aspects of my and your lives. I recommend reading that book.

After I’m done 31st January at Wilhelmsen (my regular 9-5 job) I’ll focus more on Hacked.com and its community, and I’ll definitely write more and share my thoughts with you.

Thank you for a great 2017, now let’s make sure 2018 becomes even better for all of us.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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