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The Wolf Den #166 - Trading Mistakes That Will Leave You Broke

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This newsletter is sponsored by Blockpit, the tax platform that makes my life as a crypto trader so m
 
January 28 · Issue #166 · View online
The Wolf Den Crypto Newsletter
This newsletter is sponsored by Blockpit, the tax platform that makes my life as a crypto trader so much easier.
My trades were automatically imported after setup and displayed nicely. The tax report was quick and easy to create in the app. I can also track the performance of my assets in the app. With Blockpit, I no longer have to worry about realizing profits or losses in time.
SIGN UP HERE and get a 10% discount.
Trading Mistakes That Will Leave You Broke
The crypto and stock markets have extremely low barriers to entry, meaning anyone with an internet connection, a smartphone, or a computer, a bit of starting capital and insight from Reddit can theoretically become a trader. Sadly, most of these beginners learn hard lessons and go broke. Here are 10 common mistakes made by beginning traders that you should avoid at all costs. 
 Starting with real money rather than paper trading 
There is no reason for a beginning trader to use real money when there are endless resources and platforms for paper trading, including TradingView. Anyone interested in becoming a professional trader should first develop a system based on a simple set of guidelines for their entries, exits, and risk management. This should not be done with actual money. Paper trade until you are ready to lose your mind, then paper trade some more. 
Trading without a stop loss
Beginning traders tend to trade emotionally, which manifests in refusing to quickly accept losses. The most essential skill that a trader must possess is the ability to accept defeat and move on to the next trade. Failure to do this is the main reason traders lose money. Set a stop loss, and do not move it when the trade goes against you, as this behavior is likely to blow up your account.
Failing to maintain balance
Successful traders maintain a balanced portfolio. Within my crypto portfolio, most of the time 70% is long term holds (heavily weighted to Bitcoin), with 15% in cash and 15% for trading. I only trade with 15% of my portfolio in most scenarios.
Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it may force you to sell the asset class that is performing well and buy more of your worst-performing asset class. This contrarian action is very difficult for many novice investors.
Adding to a losing trade
Investing and trading are different! Investors average down positions in fundamentally sound assets with a long-time horizon. Traders have defined levels of risk and invalidation for their trades. When their stop loss hits, the trade has been invalidated and they should move on to another asset. Period. Never average down as a trader unless it was part of the original plan. 
Failing to keep a trading journal
Successful traders have a plan. Part of trading with a plan is holding oneself accountable for your actions. The only way to do this is by recording the details of a trade. This is the best way to learn and avoid repeating trading mistakes. Keep a journal and refer back to it. Record your thought process, emotional state, and the trade results. It will help you immensely. 
Risking more than they can afford to lose
In crypto, people are drawn to the idea of earning life-changing money by being in the right place at the right time. As a result, they go all-in on crypto, risking everything on what is effectively a lottery ticket. We are seeing this same behavior now on Reddit.
 Being undercapitalized 
 As the saying goes, it takes money to make money. Many beginning traders are blinded by the promise of making boatloads of cash without leaving the comfort of their couch. This is a false reality unless they already have significant capital to trade with.
A trader who wants to be a professional needs to be able to support their entire life with trading - that means their profit must cover their living expenses, without eating into their trading capital. In most parts of the world, this requires at least $50,000 - $100,000 to trade with, and a steady profit of 10% monthly. 
In reality, this is very difficult to achieve. As a result, many beginning traders find themselves under a great deal of stress when their expected trading returns fail to align with the actual results they produce. 
Acting on trading patterns and indicators that are not clearly understood
Beginning traders are terrible at technical analysis. They often identify patterns on a chart that are not there or are incorrect based on context and chart placement. Beginning traders should develop a very simple system for trading and avoid making decisions on patterns or indicators that they do not fully understand. Start with simple support and resistance, or indicators that are clear like exponential moving averages.
Oftentimes, a beginner trader will take a trade recommended by a veteran technical analyst, but soon won’t be able to manage the trade when they don’t have an update. This happens when the chart prints a new pattern, after the beginner has bought in. Unless they have continuous guidance from the technician, they are left stuck in the mud, unsure how to analyze the trade.  
Following the herd
 Another common mistake made by new traders is that they blindly follow the herd; as such, they may either end up paying too much or FOMOing into a hot coin. Experienced traders are accustomed to exiting trades when they get too crowded. New traders, however, may stay in a trade long after the smart money has moved out of it. Novice traders may also lack the confidence to be contrarian when required.
As previously discussed, most cryptocurrency traders are blindly following calls by strangers on Twitter. There is no surer path to financial ruin than spending your hard-earned dollars on assets being shilled by avatars who are likely manipulating you for their own profit.
The bottom line
Trading is hard. However, if you are properly capitalized and take the basic steps required to learn trading and risk management, one can succeed and become profitable. The key is to have a plan, and no matter what happens, stick to that plan.
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In This Issue:
  1. Trading Mistakes That Will Leave You Broke
  2. Bitcoin Thoughts And Analysis
  3. Altcoin Charts
  4. Legacy Markets
  5. Chart Requests
  6. Dunning-Kruger Effect 101
  7. Robinhood Locking Out Traders
  8. Chamath Schools CNBC Host 
  9. What Is Fueling Elrond Gold? 
  10. Reddit Partnership With Ethereum
  11. The GameStop Short Squeeze
  12. The Wolf Of All Streets Podcast Ft. James Putra
  13. Phemex Launches “Earn Crypto”
  14. My Recommended Platforms And Tools

Bitcoin Thoughts And Analysis
Bitcoin once again danced with the devil, hanging over the edge of the cliff before successfully stepping back from the ledge. It could obviously be temporary, but for now I remain cautiously optimistic.
12-HOUR CHART
I showed the progression of likely bullish divergences yesterday, having confirmed weak divs on the hourly and 4 hour, then a stronger div over night on the 6 hour, followed by this beautiful confirmed divergence on the 12 hour chart. Nothing is certain, but this is usually an excellent sign of a bottom, at least temporarily. The only slight concern is that RSI never reached oversold on this time frame, but that’s a problem for another day. We also need to always keep an eye out for hidden bearish divergence, but we need a few more candles closes for that to be a concern.
4-HOUR CHART
The blue trading range is the key area to watch, in my opinion. This is where price has been trading since the all time high, although it has made lower highs and lows throughout that process. The range lows were once again swept yesterday, with wicks below but candle closes above. There’s been tons of buying interest and liquidity below the range. I am not sure how many more assaults that area can sustain - each time price goes there, more buyers are cleared out. We want to see a more definitive move up sooner than later, especially with the bull divs confirming. Even if we continue back down, we should theoretically still see a move to the EQ (equilibrium) of the range, the dashed center line. That’s what you expect after a successful test of the range bottom as support. If that EQ flips, we target the range highs.
This descending wedge remains the prevailing pattern and statistically is likely to break to the upside. But that does not mean price cannot drop to test support first, so this pattern is irrelevant unless the top resistance is broken.
Altcoin Charts
Note: If you are new here, I do NOT tell you what to buy and I am never telling you when to do it. I prefer to present “if, then” scenarios, where I show a setup and tell you the areas I would be interested in if certain criteria are met.
I have not posted as many altcoin charts of late because I am trying to be very selective and offer the best ideas. Yesterday’s NORD trade went up almost 60% from the entry and is currently still sitting above support, so paid members can feel free to revisit that chart from yesterday. EGLD has surpassed $60! Incredible. I started sharing around $10, and have given multiple entries since. I believe in this company and am still holding my full position, which is now one of my largest. I also traded ERD before the EGLD rebrand for nearly a 20X. What a year.
I also continually mentioned buying DOGE between 15 and 20 sats as a longer term play, stating that it would eventually have another cycle. It is up a few hundred % TODAY. Patience pays.
ATOM/BTC
I have been watching this coin struggle with that small overhead supply zone for a while, shown as the white channel. However, we have a break of the descending black resistance (after a massive head and shoulders break down) and price consolidating around that line in a bull flag. I want to see price ABOVE the flag and above that supply zone. The path shown would be if there’s a full on alt season, but I would focus on the lower targets if this does break out. Again, wait until there’s a clear break of the bull flag and the supply overhead, and ideally a retest of those areas as support.
This is “if, then” and may never happen. Price is CURRENTLY AT RESISTANCE and it’s generally a bad idea to buy resistance.
INJ/BTC
Being bullish on Injective since day 1 has been extremely profitable. We have had at least 3 trades since the bottom that have offered massive gains. Now I am watching INJ form a descending channel, with two possible ideas, assuming it goes up. I would rethink this if it breaks support. But for now, I would be looking to trade either another drop to support at the old all time high (22499) or a break of the channel and retest as support. Either of those scenarios should send this, once again, into discovery for new all time highs. This asset has been bullish from day 1, so no need to overthink it for me. I will ride it until there’s a reason not to.
MATIC/BTC
A few ideas that I am watching on MATIC. I would not buy it at the current price. After such a large move on nice volume, you would expect it to potentially retrace. I have shown two areas that are worth watching if that happens, in pink and green. The “safest” entry would be the blue path, if price can break that key level and retest it as support. The large upper wick on the last candle shows me that a retrace is slightly more likely, although we want to watch and see what happens today.
You always have to be careful with MATIC, because it does have a history of fully retracing it’s large moves. But the upside on this coin is immense when it gets going.
Legacy Markets
XAG (SILVER)
I have shared this chart a number of times and we have traded it successfully just as many. I wanted to revisit the last setup, because price is roughly around the entry and the bull flag is still absolutely valid. Further, WallStreetBets has openly said that they intend to push silver. Whether they will actually do it, nobody knows. Whether they even can is an even bigger question. Regardless, the chart looks good.
When it comes to trading metals (and everything else) it is also important to keep an eye on the DXY, the dollar index. If the dollar goes up, this generally goes down. If the dollar goes down, metals generally do well.
They’re printing money by the trillions… so the dollar “should” continue to go down with time.
Here is a closer look, with an added ascending local support that you can use for a stop, if it breaks down.
Chart Requests
Here is yesterday’s livestream, looking at all of your chart requests. I charted:
$ALGO $AST $BTC $BZRX $CHZ $DATA $HARD $LUMN $MATIC $MMEDF $PLUG $RSR $RUNE $THETA $VALUE $YFL
And a few bonus tracks!
Diggin' In The Charts - Live Charting Session With Scott Melker
Dunning-Kruger Effect 101
In a year when the markets have minted many new self-proclaimed geniuses, it is worth remembering the Dunning-Kruger Effect. But what is the Dunning-Kruger Effect and how does it work? Here’s Dunning-Kruger Effect 101!
First, a few definitions. The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task. Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
The cognitive bias was first identified by psychologists David Dunning and Justin Kruger in a 1999 study. Their paper, entitled Unskilled and Unaware of It, summarized, “People tend to hold overly favorable views of their abilities in many social and intellectual domains.”
The two men had studied the bizarre case of McArthur Wheeler, a 5'6" 270lb bank robber who was swiftly caught after robbing two banks in broad daylight. He hadn’t worn a mask. Instead, he had put lemon juice on his face, believing it would make him invisible to cameras.
Wheeler was aware that lemon juice was used as invisible ink, so (incorrectly) inferred that it could be used to make himself invisible to security cameras. Even after he was caught, he was legitimately incredulous that his plan with the lemon juice hadn’t worked.
Dunning and Kruger studied whether the least skilled are the most overconfident. Their finding: the worst performers consistently overestimated their abilities relative to others. Let’s look at a few examples of this bias in action and how you can avoid its pitfalls.
In investing? As the saying goes, “everyone is a genius in a bull market.” When markets are ripping and your portfolio seems to grow by the day, many fall victim to the Dunning-Kruger Effect. We may wrongly attribute this performance to our innate talent as investors.
In politics? With politics, intellectual humility is an aberration, not the norm. Politicians espouse policy ideas with great confidence even if they have a weak handle of the details. It’s not shocking that we see Cobra Effects in the policy realm.
In business? Everyone has had that one boss - the know-it-all who actually knows very little. These bosses (who typically get stuck in middle management) hold back organizations from high performance. They are easy to spot - we all know who they are. Beware this boss!
But while we can all rail against the politicians, bosses, or public figures who seem to epitomize the Dunning-Kruger Effect, it is important to recognize that, as humans, we are all prone to this cognitive bias! So how do we avoid it? Here are a few strategies.
Identify your Circle of Competence. The Circle of Competence is the set of topic areas that align with a person’s expertise. Be ruthless in identifying and protecting the boundaries of your Circle of Competence. Hint: it’s usually smaller than you think.
Get comfortable with, “I don’t know.” Most people have an inherent discomfort with saying, “I don’t know.” Change that. Embrace what you don’t know. The world would be a much better, more efficient place if we stripped out the fluff and cut to the “I don’t know” chase.
Be a first principles thinker. Think you know something? Challenge yourself, your reasoning, and your assumptions as a matter of practice. It’s uncomfortable, but it is also essential to creating non-linear outcomes.
As Charlie Munger said, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” Know your competencies, focus on them. Know your incompetencies, avoid (or outsource) them.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” So the next time you catch yourself marveling at your skill at a task, remember the Dunning-Kruger Effect and the strategies for avoiding it.
That was Dunning-Kruger Effect 101. I hope you found it useful.
Robinhood Locking Out Traders
Robinhood delisted stock? GameStop, AMC, Nokia reportedly locked out | Seeking Alpha
If ever you needed a clear signal that the market is rigged in favor of the wealthy and against the average man, look no further. Succumbing to pressure from the powers that be, Robinhood is locking out traders from trading the most volatile stocks that are being promoted by WallStreetBets and others.
The free market is a myth, and here is your final piece of evidence.
I wonder how many traders will go broke when they can’t enter or exit positions at the ideal moment?
Added note - they have also blocked DOGE trading.
Chamath Schools CNBC Host
russ
It’s @chamath with the 🔥🔥🔥

“What are they supposed to do.. income gap will grow and grow..
entrench poverty..”

Every human needs the right to be economically free without policy makers displaying the facade of protecting individual human interest.

https://t.co/hieg2DBSU5
Chamath was quick to jump on the Reddit hype train and threw $100,000 at GameStop stock a couple of days ago. As one of the world’s greatest investors, his involvement in the spectacle landed him a CNBC interview that didn’t go over well… for CNBC. Chamath was confronted with the idea that Reddit and retail need to be shut down from buying into these stocks and prevented from coalescing together onto a trade. Chamath’s response was brilliant, he said that “by shutting down retail, the inequality gap will grow and grow and grow. Because then what is retail allowed to do? Buy an ETF or into a hedge fund they are already not allowed to buy? Systematically what you’ve done is entrench poverty.
The wealth divide in America is rarely a topic of conversation on Wall Street and amongst the wealthy. It is now being pushed into the forefront, as the small fish has a chance to get ahead - and it’s deemed “manipulation and fraud.” I get that the unfolding of these events can be an uncertain time for legacy investors, myself included, but preventing people access to a free market is just another way to hold the average citizen down - that’s exactly Chamath’s point.
What Is Fueling Elrond Gold?
Beniamin Mincu ⚡
Hyper exposure via Coinbase Custody, the largest and most reputable US institutional custodian.

It's time for the US to explore the @ElrondNetwork ecosystem. 🇺🇸 https://t.co/DNrEhMUpfe
The recent run-up in Elrond’s price is almost certainly related to Coinbase now offering $EGLD to its institutional clients. If Coinbase Custody supports the token, it’s probably a matter of time until the token receives full support across all platforms. This is purely speculation, but reasonable to believe if one Coinbase platform supported the token, that the rest would follow. EGLD remains one of my long-term holds this bull cycle. They also hit a 1 billion dollar market cap today.
Reddit Partnership With Ethereum
Reddit Joins With Ethereum Foundation to Build Scaling Tools - CoinDesk
A majority of the compelling work being done in the crypto space is still on Ethereum. From the article:
“Reddit is growing its role in the Ethereum ecosystem, with the goal of building out scaling tools for the blockchain network.
The social media platform announced Wednesday it was expanding its work with the Ethereum Foundation to provide development resources to scaling tools. In the announcement, posted to the Ethereum subreddit, Reddit employee u/jarins said the move increases its commitment to the technology, and echoes its long-held “decentralized ethos.”
“In this new stage of our partnership, immediate efforts will be focused on bringing Ethereum to Reddit-scale production,” the announcement said. “Our intention is to help accelerate the progress being made on scaling and develop the technology needed to launch large-scale applications like Community Points on Ethereum.””
The GameStop Short Squeeze
Sahil Bloom
THREAD: The story of the week in finance is how a group of retail traders at @wallstreetbets, with assists from @ElonMusk and @Chamath, took down the establishment short sellers at GameStop.

A thread on the underlying mechanics of the $GME saga... https://t.co/0TP9rst17A
I shared this yesterday. I am sharing it again today, in case you did not read it and want to understand what is happening with GameStop. This is really the only news that matters in markets at the moment. How this is handled will go a long way to determining what regulation looks like in the future, and to how far regulators are willing to go to maintain the status quo and fixed market.
The Wolf Of All Streets Podcast Ft. James Putra
Podcast - The Wolf of All Streets
Building The Tools For A Bitcoin Bull Run with James Putra from TradeStation Crypto
To make money in crypto, you have to have some skin in the game. But for the masses to enter, someone has to build the infrastructure and tools for traders to utilize. James Putra, head of product strategy at TradeStation, is more than just a designer and builder, he is a trader at heart and knows exactly what features people need to gain exposure to digital assets. It doesn’t hurt that James is also a mega bull.
James and I discuss the ultimate Swiss Franc Forex trade, the jargon of trading, the psychology of trading, the costs of short term capital gains, the root of FUD headlines, miners taking profit, 30% dips, the systemic risk of Tether, awakening bears, retiring off Home Depot stock, the crypto supply crisis, negative interest rates, endless money printing, Miami as the crypto hub, the 2021 crypto outlook and more.
Phemex Launches "Earn Crypto"
Bitcoin Futures Exchange|Phemex
Phemex, the anchor sponsor of the Wolf Den Newsletter, has launched “Earn Crypto.” You can earn up to 10% APY through Fixed and Flexible Saving options. Flexible accounts allow for instant withdrawals and deposits at any time. This is great opportunity to earn yield on your crypto holdings. Sign up for Phemex above or HERE, read more about the program below.
Earn Crypto | Up to 10% APY | How to Earn Crypto | Phemex
My Recommended Platforms And Tools
This is where I trade with leverage and can also trade spot with no fees.
This is where I spend my days teaching and learning! Our Discord group is a one stop shop for everything you need to learn to trade and control your emotions. Feel free to DM me on Twitter or respond to this email for questions.
This is where I invest, commission-free. They now let you earn interest on your Bitcoin held in Voyager, so you can compound while trading. Not only that, you’ll get $25 in free BTC when you download & fund.
Rewards Code: Scott25
I use RoundlyX to buy small amounts of Bitcoin every single day. They automatically round up my credit card purchases (with 10x multiplier) and invest them in crypto. Absolutely brilliant. Passively invest money you don’t need without a thought. Further, they have integrated with Voyager (see above) to offer commission-free purchases.
Rewards Code: WOLF
The platform I am using for my taxes. My trades were automatically imported after setup and displayed nicely. The tax report was quick and easy to create in the app. I can also track the performance of my assets in the app. With Blockpit, I no longer have to worry about realizing profits or losses in time. 10% discount using the link above!
Binance is finally available in Florida!
Concierge Phone Service for Americans that protects your from SIM Swaps and other phone related hacks. I cannot stress enough how amazing this service is.
Follow me on Twitter at @scottmelker. This is where I am constantly updating my trades and sharing ideas.
On-chain and fundamental analysis, research, predictions and indicators, all in one place. Highly recommend.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor.
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