Getting paid for emotionally hard things

Grow up, nobody pays you lots of money for doing nothing

June 07, 2022

If you’ve tried investing or trading you know that it works roughly like one of those games at the carnival.

How hard could it be, right?

Everybody else is doing well, right?

You see, the type of trading where you decide “I like this coin” because <reasons> and “I’m going to buy it here”because <more reasons> and “I’ve got a price target of XYZ” because of more reasons you pulled out of your ass…

It looks easy, but it’s damn hard.

When I try and do it that way every now and again I get it right but mostly it's an exercise in frustration.

Don’t worry it’s not your fault.

You are 100,000 year old beta 1.0 monkey software OS running on a meat computer with hardware unchanged from the Serengeti.

Basically an Ape wearing shoes who doesn’t know they are an ape.

So half way through the process the market goes down, your subconscious thinks you are about to be eaten by a tiger, and then you start acting stupid with big money.

The number and variety of ways I’ve found to lose money doing this are quite incredible.

The ONLY way to not fuck it up is to have a system.

Professionals have a system.

Hobby traders try and wing it.

But that's the thing about hobbies… all my hobbies cost me money. 

But I need my job to pay me money.

So let’s talk about building a system that we can just execute like a guy at McDonalds.

McDonalds isn’t trying to make the world's best tasting food. They want a “good enough” burger

We want a “good enough” trading edge, not a curve-fitted super-system.

When beginners try and and build trading systems what they do is look at a bunch of times the market went up in the past… and think “A, B, C, D, and E happened every time the market went up”

There’s a problem with that.

You see, every extra rule and condition you bring in you bring in a lot more luck.

You need a hell of a lot of data (decades) to know if the rules you have are legit or just capturing random noise.

The solution that professionals use is to use fairly unoptimized vanilla versions of things they are certain are an edge.

And stack those weak edges together until they get something serviceable.

Now let’s talk theoryFinance is a pretty cunt-eat-cunt game, right?

Nobody’s going to just pay you a pile of money for nothing, despite what the people on youtube might tell you.

Here’s the deal.

You get paid in finance for either doing things that are TECHNICALLY HARD or EMOTIONALLY HARD

That’s important to understand.

Technically hard things are things like..

  • High Frequency Trading

  • Market Making

  • AMM’s and liquidity pools

  • Pricing options

Those games naturally are played by smart people and are thus very competitive.

Smart people continually fuck themselves by gravitating to the most difficult games in finance. That’s a mistake… you don’t get style points.

You shouldn’t play games like this unless you have some reason for thinking you are better than the other players. Sucker at the table and all that…

Emotionally hard things are things like

  • Buying breakouts (extremely low win rate)

  • Buying crypto in bear markets (when everyone hates it)

  • Buying shitcoins at ICO when they are a huge risk of failing

  • Buying when everyone else is selling (today's subject)

So you might not be the smartest guy in the world, but you CAN make money from doing hard stuff.

It just might be stuff that the other guy doesn’t have the balls to do.

Mean Reversion is a solid edge, and we are going to build out our mean reversion edge using the “stacking weak edges” principle.

Here’s how we do it with crypto perp futures.

Mean reversion is a weak but real edge. Give me something weak but real over something complicated that stops working any day..

We know that when things go down enough they become cheap enough that people think they are a bargain and buy them.

One of the simplest ways to look for mean reversion is to draw a band around a chart at various standard deviations.

This is the bitcoin 15 minute chart right now 

You can see that, not always, but mostly, that lower band is a fair spot to start looking for a bargain.

A “Bollinger band” (invented by my IRL buddy John Bollinger) is a standard indicator on every charting/broker package I’ve ever seen.

It’s maybe not the “best” but it’s statistically valid, and in theory, if price is Gaussian normal distributed (it’s not but whatever) 95% of the price will be within those bands.

Note how we don’t want to run some kind of complicated analysis about whether 2.1 standard deviations might work “better”.... We are going to take the simplest dumbest version of what we know has some validity and then build on it.

Here’s what we do to juice it up.

Multiple timeframe confirmation is a powerful edge.

We know that if something is at a price extreme on the 15 minute chart if that extreme also exists on the 30m chart and the 60m chart the edge is increased.

Think about it.

Here we have a 15 minute, 30 minute and 60 minute chart open.

If we only buy at the extreme that’s an extreme on ALL THE CHARTS, we have elegantly avoided many losing trades and zeroed in on the very best opportunity.

My brain is getting tired so I’ll continue on tomorrow.

I hope you appreciate I want you to have a really deep and not superficial understanding of this.

So to recap.

We downloaded the futures perpetual funding rate data, which told us which coin to buy and which direction to bet.

We stacked that edge with mean reversion, and stacked mean reversion with a multiple timeframe edge.

Tomorrow I’ll show you how we add a very simple and legit price action setup to juice it all again.

The more I can teach you about the actual rules of the system the more advanced I can go on the webinar.

That’s all I got for today. I feel like I turned a corner, recovery wise.

I got the docs to drop my pain meds down until I was actually functional again (but in pain) and crushed it in the physio today.

My goal is to be out of hospital in 4 days. Ambitious but that’s the goal.

Scott