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Traders Lose, Stackers Win

Instead of trying to become a trader where you are up against highly capitalized professionals, for most people it is more productive to set up a savings plan to acquire pristine assets with a good risk/reward ratio.

Stephan Livera
Stephan Livera
Aug 24, 2022August 24, 20226 min read6 minutes read
Swan Private Insight Update #14

Swan Private Insight Update #14

This report was originally sent to Swan Private clients on August 12th, 2022. Swan Private guides corporations and high net worth individuals globally toward building generational wealth with Bitcoin.

Most traders lose — especially in crypto. It’s a simple statistic that many people seem to ignore or underplay. It can be so tempting when viewing media online, particularly visual media showing the lavish lifestyles of supposedly successful traders. Perhaps these create a perception that financial freedom is easy or can come without risk.

Why do most traders lose? Because they simply are up against very difficult odds, trading against highly skilled and capitalised opponents, and the house (aka the exchange) gets to take a cut too. And let’s not forget taxes. On top of it all, “crypto” is filled with grifts and scams designed to fleece traders and everyday people who don’t know any better.

Who Exactly Are We Talking About Here?

Of course, buying bitcoin itself is a kind of trade. So to be clear, this discussion about traders is more about ‘day trading’ and those who regularly trade, rather than any trading at all.

There are bona fide professional investors who may well be taking advantage of legitimate arbitrage opportunities, or some in the ‘crypto’ world may be taking advantage of insider knowledge or insider ‘family and friends’ deals. Genuine professional traders should be distinguished from those who are watching on social media and ‘click trading’.

In my December 2021 interview with Cory Klippsten, CEO of Swan Bitcoin, we discussed his familiarity with actual professional traders and the tools they employ to outperform ordinary traders. Cory said:

I’m friends with a lot of these guys that are good at trading, because it was my professional and social circle in Chicago. The last time there was getting this good, it was options trading. Boom — when options went online and were open to retail, the people that really knew what they were doing were just doing it with black boxes, and they would make fun of click traders. A click trader is someone that actually, uses their hands to click a mouse. A good trader would never actually, be a click trader. They make fun of those people. [...] And they know what they’re doing because they’ve been doing it for 20 years. And they have incredible machines and AI scientists and ML people, and they’re setting up algorithms, and they’re ripping your face off. And if you don’t know any of what I’m talking about right now, and you aren’t friends with those people, you’re the mark.

A damning analysis to be sure. To be clear, it’s not that “no trader can win.” It’s that people should be clear-eyed and honest about their probability of success. You shouldn’t believe that watching some twitter TA (“Technical Analysis”) crayon drawer can make you a good trader. As I’ve said before, TA is horoscopes for men. Some of the TA and hopium posters on social media have massive followings, and these are likely people who are thinking of getting rich quick.

Why Do People Get Sucked Into This?

Perhaps it comes down to greed or some level of overconfidence and bias. Just like how if you ask people, most will answer that they are an “above average driver”. However, only half can be above the median average!

Thinking You’re Late to Bitcoin

Many people feel late to Bitcoin, but the reality is that we are all still relatively early. Everyone feels late to Bitcoin. But don’t kid yourself into thinking that by levering up or trying to trade in and out of the market, that this will somehow create a time machine to becoming a Bitcoin OG who stacked Bitcoin in 2011, 2012 or similar. It won’t. It is the equivalent of playing with fire and can lead to massive and even total losses.

I remember seeing multiple stories on some of the bitcoin forums and r/bitcoin subreddit where individuals were trading and gambled, ‘running it up’ to hundreds or even thousands of bitcoins, only to then lose it all with a few bad trades.

What Do the Statistics and Studies on This Say?

Some studies on day-trading yielded highlights below:

This study on Taiwan stock day traders from 1992 to 2006 showed that “Less than 1% of the day trader population is able to predictably and reliably earn positive abnormal returns net of fees”. This study analysed 450,000 Taiwanese individuals who were day trading. And to abstract away from the luck factor, it was documented that less than 1% of the traders in the study were able to earn reliably positive returns net of trading costs in consecuitve years.

Also, this study on Brazilian equity futures traders from 2013-2015 showed similar findings:

We show that it is virtually impossible for individuals to day trade for a living, contrary to what course providers claim. We observed all individuals who began to day trade between 2013 and 2015 in the Brazilian equity futures market, the third in terms of volume in the world. We found that 97% of all individuals who persisted for more than 300 days lost money. Only 1.1% earned more than the Brazilian minimum wage and only 0.5% earned more than the initial salary of a bank teller — all with great risk.

Given the number of people selling courses on trading, or on ‘which coins to buy’, we can clearly see parallels in other markets historically.

The findings in this study indicate that day trading prevails in the KOSPI 200 index futures market and that most of the day trading activity can be explained by domestic individual investors' trades. However, **domestic individuals generally incur losses, and their losses tend to increase with their day trading activity (in terms of both trading frequency and trading volume)**. On the other hand, domestic money managers and foreign institutional investors make substantial profits through day trading, although their day trades account for only a small fraction of total day trading volume in the KOSPI 200 index futures market.

So as above, amateur ‘click traders’ tend to get rinsed and lose money, while perhaps the top 1%, the professionals, money managers and institutional investors profit.

Lump Sum & Auto-DCA Stacking Exercise

Most of us want to stack more sats, and there is a way to stack with humility. Instead of day trading, one can start with an initial lump sum purchase of Bitcoin, and then continue to regularly accumulate with an Auto-DCA. Importantly, holding Bitcoin in one’s own wallet where they alone hold the private keys greatly increases security. Now let’s compare this humble approach of stacking sats, avoiding day-trading, and HODLing Bitcoin on private keys you alone control with that of day-trading.

You can run the numbers yourself with a calculator such as this one at stacksats.info. But here are some numbers based on the last 5 years. As an example, imagine if you started 5 years ago on 2017-07-31 with an initial lump sum of $5,000, and you did a weekly DCA of $100 up until 2022-07-31. You would have put in $31,100 and as of 31st July 2022, you would have ~4.44602 BTC. In fiat terms, this is $105,591, for an overall return of 240%.

Dollar Cost Averaging Bitcoin

Wanting to Feel Like You’re “Doing Something” to Earn

Another phenomenon I’ve noticed is that people believe that they need to be “doing something with their coins” to earn or increase their purchasing power. When actually the harder thing to do is have the right broad thesis, take a position with an automated bitcoin savings plan, and stay the course.

Perhaps it is more productive to reframe things and really think of having your Auto- DCA as “doing something”. By regularly saving with Bitcoin, you are helping the ecosystem grow and not being a bagholder for the fiat system.

What’s More Productive and Should Be Done Instead?

Instead of trying to become a trader, for most people it is more productive to figure out ways of improving your skills in the marketplace, or selling a product or service. By earning more, you are then able to save more.

Those who want to contribute to Bitcoin in some way are able to do a range of things:

  • Contribute to open source bitcoin software or hardware projects;

  • Help organize or contribute at your local bitcoin meetup;

  • Invest in bitcoin companies or fund bitcoin developers;

  • Mine Bitcoin; or

  • Help family and friends understand what Bitcoin is and how they too can use it non-custodially

Please share this article with a friend who is new to Bitcoin so that they too can learn that most traders lose, but long term stackers can win.

Stephan Livera

Stephan Livera

Stephan Livera is a Bitcoin podcaster, Managing Director of Swan Bitcoin International, Co-Founder of Ministry of Nodes, and Partner with Bitcoiner Ventures.

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© 2022 Swan Bitcoin

Electric Solidus, Inc.
26565 Agoura Rd Ste 200
Calabasas, CA USA
hello@swanbitcoin.com
+1.218.379.7926

Swan Bitcoin does not provide any investment, financial, tax, legal or other professional advice. We recommend that you consult with financial and tax advisors to understand the risks and consequences of buying, selling and holding Bitcoin.