😴 When Trading Dreams Turn to Nightmares

What’s on the Menu 🍴

We all love a good success story - when someone turns a little bit of money into life-changing wealth.

But there’s a dark corner of the internet that just loves to laugh at account-crushing losses from rookie traders.

Today, we’re looking at WHY so many people are blowing up their finances, and how they can move from losing traders to the small percentage of people who are profitable over the long-haul.

Let’s go!

• What to Watch This Week 👀

• Is DeFi coming to Bitcoin? ₿

• When Trading Dreams Turn to Nightmares 😴

Today’s newsletter is a 5 minute read.

What to Watch This Week 👀 

Tech and semiconductor stocks posted strong gains yet again last week, while crypto also joined the party on the back of a 12% rise in Bitcoin.

Nvidia crossed the $700 per share level and is already up 46% year-to-date, while the Nasdaq-100 index is up almost 8% so far this year! 🤯

Investor sentiment has moved into “extreme greed” territory:

We saw more gainers than losers after earnings reports last week, with notable big upward moves from Arm Holdings, Palantir, Cloudflare, Enphase, and Microstrategy.

Can risk assets keep rising at this pace despite rising bond yields?

This week could be an interesting test as the CPI and PPI inflation reports get released in the US.

We’ll also get more earnings reports, with many mid-cap stocks set to report their Q4 numbers, including Shopify, Airbnb, Robinhood, Lyft, Coinbase, Draftkings, Roku, and more:

Large hedge funds will release their 13F reports this week, which will show their US based stock holdings as of the end of Q4.

That can be interesting positioning data and also spark some new stock ideas.

On the macro data front we’ll get:

• US January CPI (Tues)

• UK unemployment (Tues)

• UK inflation (Wed)

• UK Q4 GDP (Thurs)

• US January Retail Sales (Thurs)

• UK January retail sales (Fri)

• US January PPI (Fri)

• US Consumer Sentiment (Fri)

We’ll be keeping a close watch on the following assets & sectors:

📈 Rising Recently:

• NVDA, ARM, & SMCI

• Tech, Software & Internet (QQQ / IGV)

• Crypto & Crypto Miners (BTC / ETH / WGMI)

• Airlines (JETS)

• Retail (XRT)

• Chinese stocks (FXI / KWEB)

📉 Falling Recently:

• Regional Banks (KRE) & NYCB

• US Government Bonds (TLT)

• Precious Metals & Miners (GDX)

• Utilities (XLU)

Is DeFi coming to Bitcoin? ₿

Ethereum's transformation through DeFi and smart contracts was nothing short of revolutionary.

It attracted billions in venture capital, boosting token values during the last bubble.

But we saw a lot of DeFi projects implode during the 2022 bear market, causing investors and entrepreneurs to look for more sustainable paths forward.

And the big question now is: Will Bitcoin experience a similar renaissance?

Last year, the introduction of Ordinals to Bitcoin sparked a wave of innovation, giving rise to fungible tokens, digital inscriptions, and a fresh wave of market speculation.

While Bitcoin's inherent limitations might prevent a DeFi ecosystem as extensive as Ethereum's from taking root, the mere concept of "DeFi on Bitcoin" holds enough allure to potentially drive this narrative forward.

Venture capital is already starting to flow into Bitcoin-centric projects, with investments reaching into the high six and low seven figures.

This might seem modest compared to the broader crypto landscape, but the trend is unmistakable.

Moreover, a surge of launchpads dedicated to Bitcoin projects has emerged, with some of the early ventures reaching valuations in the tens of millions immediately post-launch.

While the future of DeFi on Bitcoin remains uncertain, it's an area worth watching.

Projects like Trac Network, Orange Crypto, and bitSmiley have already secured funding, and launchpads such as Alex Labs, ApeTerminal, and Toshipad are paving the way for new Bitcoin-based innovations.

When Trading Dreams Turn to Nightmares 😴

There is a new culture that has emerged over the past few years…

People posting major trading losses on WallStreetBets (a popular Reddit forum).

A lot of these posts circulate on Twitter (X), followed by everyone having a laugh about it.

But as a financial planner who spends a lot of time studying investor psychology and working with traders on their mental game, it disturbs me deeply to see so many people throwing away their life savings on hail Mary bets.

Recently, a popular X account posted this find:

The poster continued to express how Robinhood has “ruined their life”, after losing over $87,000.

They said their retirement has been “postponed” from losing money on options…

And they end the paragraph by asking what the next earnings stock play is that they can YOLO their money into.

Oh my 🙈 … so many issues to unpack here.

First of all, I believe this behavior stems from new traders not spending enough time trying to fully understand markets before putting their hard money to work.

A few videos on options and opening a new trading account aren’t enough. You need screen time (practice), and a strong mental game.

Not only that, options contracts in particular can get very complex quick, and you can lose the shirt off of your back in a jiffy by not knowing what you’re doing.

Trading is not a game…

It’s a skill.

Newbies get destroyed financially because:

1. They don’t understand the level of competition in financial markets. They think that it’s as simple as hitting buttons and getting paid the big bucks because social media told them it’s possible. While they may have beginner’s luck at first, they eventually learn the market is a high stakes competitive arena.

2. They don’t have a financial plan. If the person in this post would have prioritized their investing goals, and had a plan of action with their money, they would have known that retirement money is off limits. You trade once you have capital that you can afford to lose…after other financial priorities get taken care of. This person obviously didn’t plan for this.

3. They think the market owes them winning trades. The poster said, “why can’t I be right once?”, and it’s simply the wrong mentality to have. You should instead be asking yourself, “What is my strategy? What rules do I have for entering trades? And what is my provable edge?” People often don’t take time to consider these things.

4. They think the market is rigged and harbor a victim mentality. Do the algorithms run the financial markets? Mostly, yes.

   But, that doesn’t mean there aren’t profitable trades to be made around this. There absolutely are profit opportunities to run WITH the algorithms. This takes knowing how to read charts well, not setting stop losses too close to major technical zones that algos will run to, and timing trends and momentum to align with other price moving catalysts.

5. They don’t have risk management skills. Without risk management skills, you’re dead in the water. You must properly size positions to lose only the amount of money you’re comfortable with if the trade goes against you. You also have to prepare BEFORE entering a trade a plan for if it works, and if it fails.

6. They revenge trade when they should quit and work on refining their trading skill. As the poster clearly said “my future is dark and [i’m] contemplating filing bankruptcy. I deposited another $5k yesterday and casually lost 2.5k today”.

   You know what this is equivalent to? It’s equivalent to being beat up by a bully with two black eyes and a broken nose, then, WILLINGLY asking the bully to keep beating you up so you can try to redeem yourself.

   You have to take a breather, evaluate why you’re getting beat up in the first place, and figure out how to get stronger! Don’t go back in the ring when you’re not emotionally ready or even know why you’re losing money in the first place.

So, I know we’ve got a point and laugh culture around people losing money trading, but, it’s a serious problem that’s ruining lives.

The last thing I want to see is people become scarred from the markets and not return out of fear.

This kind of reckless trading and terrible money management will lead people to that.

We want people to have healthy relationships with the market and see it as a place for prosperity and building wealth when done right!

Want to learn how to become a better trader? We have all of the resources you need in our Wealth Building Community. Premium courses and classes made to build better traders plus, a 24/7 chat room for getting help from our expert mentors.

Food For Thought 🧠

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- Warren Buffett

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.