Author
Daniel Bustamante | Instructor
Crypto currencies have been great to trade and invest with the past 12-18 months. In fact, during this time it's created many crypto currency 'gurus' and 'investors' as they seemingly made a trade and now have become experts. If you detected the sarcasm, you're right.
The thing is Crypto currencies are like any other asset in the world: They're rooted in price, or supply and demand. The same principles as trading equities, options, futures, mutual funds still apply. You can't be a jackass and forget to manage risk or learn to size your position correctly. The major difference, however, is that the brokers to where you can trade them are a bit sketchy as compared to Charles Schwab or our parter TD Ameritrade.
But still, the general practices of sound trading & investing apply. A few months ago we discussed trading Bitcoin and the Bitcoin futures in depth in this post.
Now most recently I stepped back in and made about a +25% gain on a small Ethereum trade in the span of about 16 days. Not bad. So we'll cover that trade in detail below. But before we start on that let's get you familiar with what Ethereum is from this recent Coin Base article below.
Before you can understand ethereum, it helps to first understand the internet.
Today, our personal data, passwords and financial information are all largely stored on other people's computers - in clouds and servers owned by companies like Amazon, Facebook or Google.
This setup has a number of conveniences, as these companies deploy teams of specialists to help store and secure this data, and remove the costs that come with hosting and uptime.
But with this convenience, there is also vulnerability. As we've learned, a hacker or a government can gain unwelcome access to your files without your knowledge, by influencing or attacking a third-party service - meaning they can steal, leak or change important information.
Brian Behlendorf, creator of the Apache Web Server, has gone so far as to label this centralized design the "original sin" of the Internet. Some like Behlendorf argue the Internet was always meant to be decentralized, and a splintered movement has sprung up around using new tools, including blockchain technology, to help achieve this goal.
Ethereum is one of the newest technologies to join this movement.
While bitcoin aims to disrupt PayPal and online banking, ethereum has the goal of using a blockchain to replace internet third parties -- those that store data, transfer mortgages and keep track of complex financial instruments.
The 'World Computer'In short, ethereum wants to be a 'World Computer' that would decentralize - and some would argue, democratize - the existing client-server model. With ethereum, servers and clouds are replaced by thousands of so-called "nodes" run by volunteers from across the globe (thus forming a "world computer").
The vision is that ethereum would enable this same functionality to people anywhere around the world, enabling them to compete to offer services on top of this infrastructure.
Scrolling through a typical app store, for example, you'll see a variety of colorful squares representing everything from banking to fitness to messaging apps. These apps rely on the company (or another third-party service) to store your credit card information, purchasing history and other personal data - somewhere, generally in servers controlled by third-parties. Your choice of apps is of course also governed by third parties, as Apple and Google maintain and curate (or in some cases, censor) the specific apps you're able to download.
Take the example of an online document service like Evernote or Google Docs.
Ethereum, if all goes according to plan, would return control of the data in these types of services to its owner and the creative rights to its author. The idea is that one entity will no longer have control over your notes and that no one could suddenly ban the app itself, temporarily taking all of your notebooks offline. Only the user can make changes, not any other entity.
In theory, it combines the control that people had over their information in the past with the easy-to-access information that we're used to in the digital age. Each time you save edits, or add or delete notes, every node on the network makes the change.
Today, our personal data, passwords and financial information are all largely stored on other people's computers - in clouds and servers owned by companies like Amazon, Facebook or Google.
This setup has a number of conveniences, as these companies deploy teams of specialists to help store and secure this data, and remove the costs that come with hosting and uptime.
But with this convenience, there is also vulnerability. As we've learned, a hacker or a government can gain unwelcome access to your files without your knowledge, by influencing or attacking a third-party service - meaning they can steal, leak or change important information.
Brian Behlendorf, creator of the Apache Web Server, has gone so far as to label this centralized design the "original sin" of the Internet. Some like Behlendorf argue the Internet was always meant to be decentralized, and a splintered movement has sprung up around using new tools, including blockchain technology, to help achieve this goal.
Ethereum is one of the newest technologies to join this movement.
While bitcoin aims to disrupt PayPal and online banking, ethereum has the goal of using a blockchain to replace internet third parties -- those that store data, transfer mortgages and keep track of complex financial instruments.
The 'World Computer'In short, ethereum wants to be a 'World Computer' that would decentralize - and some would argue, democratize - the existing client-server model. With ethereum, servers and clouds are replaced by thousands of so-called "nodes" run by volunteers from across the globe (thus forming a "world computer").
The vision is that ethereum would enable this same functionality to people anywhere around the world, enabling them to compete to offer services on top of this infrastructure.
Scrolling through a typical app store, for example, you'll see a variety of colorful squares representing everything from banking to fitness to messaging apps. These apps rely on the company (or another third-party service) to store your credit card information, purchasing history and other personal data - somewhere, generally in servers controlled by third-parties. Your choice of apps is of course also governed by third parties, as Apple and Google maintain and curate (or in some cases, censor) the specific apps you're able to download.
Take the example of an online document service like Evernote or Google Docs.
Ethereum, if all goes according to plan, would return control of the data in these types of services to its owner and the creative rights to its author. The idea is that one entity will no longer have control over your notes and that no one could suddenly ban the app itself, temporarily taking all of your notebooks offline. Only the user can make changes, not any other entity.
In theory, it combines the control that people had over their information in the past with the easy-to-access information that we're used to in the digital age. Each time you save edits, or add or delete notes, every node on the network makes the change.
The Ethereum Trade
| So let's dig into why this trade was made and the details. 1. Why was this trade made? A: The price char signaled a buy based on the same analysis that we teach on Core Foundations Class. 2. How did I position size? I position sized with $2,000 worth because I only had a smaller price target which was defined from the price chart. 3. Why did I exit? I exited because the lack of continuation of price and I was about $30 away from my first target. | |
The price charts are a big indicator in how assets move. It doesn't matter what asset class it is, the price charts provide an edge and trading without a proper understanding of the price chart produces poor results. For some people it takes years of hitting their head against the wall to realize that they need to educate themselves on how to properly read a price chart. And it for sure is not with the use of technical indicators.
The funny thing is that I was looking at the ETH price on TradingView.com and when I bought it their 'technical indicator' tool said it was a strong sell. The day I sold it (yesterday) their technical indicator tool now said it was a strong buy. Funny how that works, that now that the price has risen that it's time to buy. The last time I checked anyone in the world of trading and investing never waited for the rest of the masses to confirm that it was a 'right time' to buy when everyone else joins.
The chart above is a 1-year chart on ETH. The indicator from that site I was discussing is on the right. My purchase price was $381 a coin and we reached $360 at the low before rallying, so not a bad entry but that's not the point here. The point is that with all trades and investments you need to have a goal/plan ahead of time.
It doesn't matter if you're planning a retirement income or a trade their needs to be defined goals and targets laid out so that it takes out the emotion and defines a hard plan. So as we reached close to the first target I decided to take profits.
So 25% in 16 days is not bad. It's not going to change my financial future but it's a small win and those small wins add up.
I hope you enjoyed this article and if so please share it with friends and social media.
Daniel Bustamante
Instructor
