How To Trade Cryptocurrency In Volatile Markets
Lessons for trading cryptocurrency found in a 2500-year-old book about war
Recently the price volatility of cryptocurrencies and bitcoin, in particular, has drastically increased. If you’re new to cryptocurrency, what should you do? Buy and hold, buy and trade, or wait?
History repeats over and over. Volatility and uncertainty are nothing new.
Born in 545 BC, Sun Tsu was a Chinese General, Military Strategist, Writer, and Philosopher
Sun Tsu’s, The Art of War is so old, it was written on strips of bamboo because the paper wasn’t invented. It is such a powerful piece of writing, it has stood the test of over 2500 years of time. Military leaders, business leaders, and politicians have studied The Art of War for millennia. Sun Tsu’s writings continue to be studied and applied to many different disciplines today.
In this article, I will share with you how to apply Sun Tsu’s time-tested philosophy of waging war to the world of cryptocurrency trading.
- Create a trading strategy and have the discipline to stick to it
- Dollar-cost-average on the way up and on the way down
- Study the markets and your investments constantly
I highly suggest you read the book yourself, but to save you time, I’ve summarized a few of Sun Tsu’s most powerful suggestions.
“Strategy without tactics is the slowest route to victory. Tactics without strategy are the noise before defeat. “ – Sun Tsu
Sun Tsu was already of some notoriety when King Helü, the king of the state of Wu, summoned Sun Tsu to the palace of Wu. Wu was a very minor state in China at the time and so other stronger states in the area considered Wu a tempting target for conquest. The King of Wu needed a general who could leverage his much smaller number of soldiers to defend the state of Wu from its much larger rivals.
According to the legend, King Helü asked Sun Tsu for an explanation of how the Wu army could be trained to defeat a much larger force. Sun Tsu told the King of Wu that he could do better than simply explain his strategy. He could show the King a real-time example of how to organize a smaller army to defeat a larger force.
Intrigued, the King of Wu asked Sun Tsu to proceed with his demonstration, but with one condition. The King of Wu asked Sun Tsu if he could make a disciplined fighting force out of his concubines. Sun Tsu insisted he could, but with one condition. The King of Wu could not interfere in the demonstration. The King agreed.
Sun Tsu organized the beautiful ladies into two units. Each unit was lead by one of the most senior concubines. Sun Tsu ordered the ladies to assemble. The ladies thought Sun Tsu’s order was a joke and they began to laugh. Undisturbed by the setback, Sun Tsu explained to King Helü that,
If the instructions were not clear, it was the fault of the general.
Sun Tsu turned back to the ladies, explained in detail how he wanted them to perform, and then again issued an order to assemble. Again, the ladies looked around at each other giggling even louder.
Sun Tsu drew his sword and without a word, struck down the two senior concubines. Sun Tsu turned back to a horrified King Helü and explained,
If an order is clear but not executed correctly, it is the fault of the commanding officers.
Sun Tsu calmly returned his sword to its scabbard and chose two new concubine leaders to lead the two concubine units.
Sun Tsu issued an order to assemble. Without hesitation, the two concubine units assembled and stood silently at attention. Sun Tsu’s demonstration showed King Helü that strategy and tactics, executed without hesitation, created a tactical advantage.
Like Sun Tsu, you need a strategy when trading cryptocurrency. Prices are very volatile and price swings will play with your mind. A sudden swing up in price and you may suddenly become overly confident. A sudden swing down in price and you may become overly fearful.
It doesn’t matter if you are a hodler or a trader. By planning and imposing a very strict policy on yourself, you will avoid stupid mistakes like buying at too high a price or getting whipsawed or selling out in a panic.
“Tactics without strategy is the noise before taking a financial beating!”
“Appear weak when you are strong, and strong when you are weak.” – Sun Tsu
Genghis Khan United the Mongol tribes after many years of struggle, suffering, and even slavery.
In March 1211, (nearly 1700 years after Sun Tsu’s Art of War) Genghis summoned all the Mongol chieftains and explained to his people that the Jin Dynasty (China) had demanded complete Mongol submission. Outraged by the demand, the Mongol chieftains threw their support behind their Khan and marched their armies against the Jin dynasty, even though the Mongols were hopelessly outnumbered.
The Mongol hordes rode around the Great Wall of China and into the heart of Jin territory. The Jin army was spread across the Great Wall, so the entire Jin army was not able to engage the Mongols at full strength.
The Mongol hordes made their way deep into Chinese territory at high speed on horseback. The bulk of the Jin army assembled to meet the horde in the countryside, south of the Great Wall. After a long standoff, Gengis sent a smaller force through the mountains to attack the mighty Jin army from the rear.
The small force attacked the Jin army tentatively, but after a short skirmish, they started to retreat. The Mongols dropped weapons and treasure as they retreated in what looked like a panicked route. The Jin army pursued.
The Jin army had fallen for what would become a trademark of the Mongol army. As they pursued the Mongols, the Jin army fell out of order. This is exactly what the Mongols were waiting for.
Suddenly, the Mongols wheeled their horses and renewed their attack on Jin. Realizing their mistake, the Jin soldiers tried to make an organized retreat back to the safety of their main force. Unfortunately for the Jin soldiers, more Mongol cavalry came out of hiding and encircled the Jin soldiers. The soldiers fell under a merciless hail of Mongol arrows.
With a weakened and demoralized Jin army, Ghengis raided the countryside until the winter. This was only the first of many times the Mongols invaded China.
Eventually, using the same feint, retreat, and encirclement technique, the Mongols were able to conquer and rule the Middle East and Eastern Europe.
If you are thinking of profiting by trading cryptocurrency, this Mongol technique of appearing weak when you were strong and strong when your weak may be very effective for you. The strength of this technique comes from its contrarian nature.
- Timing the top or bottom of a cycle is extremely difficult and relies on a lot of experience and/or luck. A safer strategy involves strictly dollar-cost-averaging into a cryptocurrency position on a regular basis, as the price of the cryptocurrency falls.
- It takes absolute discipline to make purchases when an investment is falling in price. However, making regular purchases increases the chances of creating an excellent average entry price, allowing you to profit sooner, on average.
- As the price of cryptocurrency starts sharply rising in price, you may want to consider dollar-cost-averaging out of your position. Again, it takes a lot of discipline to sell when prices are rapidly rising, but doing so will give you a reserve of cash you can use to purchase again at a lower price.
“Dollar-cost-average out when markets are strong and dollar-cost-average in when markets are weak.”
If you know the enemy and know yourself you need not fear the results of a hundred battles. – Sun Tsu
In modern times, we seem to have forgotten these rules of war. America never understood their enemy in Vietnam. This lead to many lives lost in what historians widely considered a war that was unwinnable from the start.
In Afghanistan and Iraq, military leadership understood the enemy and warned of a long and bloody war. According to the history books, Cheney and Rumsfeld chose not to listen to their advisors and urged George Bush to war – leading to over a decade of war.
Know yourself. Create a strategy, write it down and stick to it. Your enemy is the cryptocurrency markets. Know your enemy.
- Study cryptocurrency markets constantly. Understand what moves cryptocurrency markets.
- Learn how quickly prices can move so you’re not caught by surprise.
- Read everything you can get your hands on to better understand the differences between investing in cryptocurrencies versus investing in more traditional stocks or bonds.
- Set up Google alerts to send you new articles about cryptocurrency, every day.
“If you know cryptocurrency markets and know yourself you need not fear the results of a hundred market cycles.”
If you found this article useful, let people know about it in the comments below or reach out anytime at blockchainin.asia.
If you found this article useful, let people know about it in the comments below or reach out anytime at blockchainin.asia.
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