A question we are frequently asked is: what is the difference between losing money and being in a losing position? You might remember back in May when our CEO Marco de Maria lost $2,000,000 in 24 hours because of the crypto market pull back – but did he lose money or was he just in a losing position?
The first thing to say is that trading and investing is not a ‘get-rich-quick-scheme’. If you look at it, investing as anything other than long-term you will lose money. For example, Warren Buffet is arguably one of the wealthiest people on the planet and has been famously trading and investing for the last 70 years. In this time, Warren has seen many different highs and lows of the market, but even he has said to himself, he doesn’t care if the market doesn’t move for a whole year because he has long term strategies in place.
At Padronanza degli investimenti one of the most important lessons, we teach is – always have a strategy. We teach people daily, weekly, or monthly strategies that suit their lifestyle. There is a strategy for everyone so do your research (another important lesson) and pick the one that works for you. One of our investment strategies even shows you how to make money when the market is trending down.
It is also imperative to learn how to never let your emotions get in the way of trading and investing. Whether it’s being happy, scared or having F.O.M.O (Fear Of Missing Out) all of these emotions can have a detrimental effect on your trading and investing success.
So what does this mean in terms of distinguishing between losing money or being in a losing position? If we use Bitcoin as an example, in 2017 if you had involved with Bitcoin you would have seen it reach $20,000 and then down to $3,000. This would have meant you were in a ‘losing position’ but hadn’t lost any money. If you had kept your Bitcoin and followed a strategy, you would have made 100% in profit in the last year and profited massively when Bitcoin reached $60,000 earlier this year.
The key to successful trading is having a long-term trading strategy, than picking on short term movements.
If in 2017, you had let your fear rule your head and sold your Bitcoin position, you would have lost money. The only way you can lose money is if you sell your position. This is where our lessons about strategies and emotions come in, If you are not following a strategy and letting your emotions dictate your training and investing decisions, you would most likely sell your positions and lose money.
For example, when our Head Trader Dennis Sahlström started trading and investing, he was not following a strategy and letting his emotions be a factor in his decision making. Because of this, Dennis found himself in multiple losing positions and decided to sell which means he lost 70% of his portfolio. If Dennis had implemented a strategy and held on to his losing positions, in the following years he would have found himself in profit.
Still not sure, of investing in Bitcoin? Read our blog on what to expect from bitcoin, this year.
So if you are down in your losing positions, even $2,000,000, the only way you can truly lose money is if you sell those positions. Stick to your strategies and don’t let emotions control you. Trading and investing should always be about making strategic and non-emotional decisions.
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