Key to Successful Investing

I read a Korean book titled “Gazua! Magic formula for cryptocurrency trading” during bearish market caused by the intervention of Korean government in January. It emphasizes the importance of psychology and risk management when trading cryptocurrencies. I found the book really helpful and thought it would be worth sharing. So here is the brief sumamry of the book.

10 Commandments

1. Don’t give up even after multiple losses
2. Fix the selling price before making any order. Execute the plan.
3. Find suitable investment strategy
4. Strategy needs to be concrete and should lead to profit
5. Reduce the size of investment after big losses
6. Loss is inevitable
7. Size of investment is essential
8. Profit is inversely proportional to comfort level of investment
   (high risk → high return)
9. Learn from previous mistakes
10. Keep an open mind

Key Point

Successful investment = 50% psychology + 40% risk management + 10% strategy

Psychology of investment

• Consistency is difficult to achieve
• “Cut short your losses and let your profits run on” not vice-versa
• Refrain from biases: overconfidence bias, anchoring bias, confirmation bias, representative bias
• Refrain from harmful behaviors: trading based on rumors, trading addiction

Risk management

• Keep maximum drawdown (MDD) under 20%
• Profit comes naturally when MDD and volatility is under control
• Professional traders never risks more than 2% per trade
• Invest in assets with small correlation — diversification