I have a rule. Only take trades you understand. I know this seems obvious, but what it means in practice is a lot more nuanced than how obvious it seems at surface level. How often do we see other people’s trade ideas, their theories, their methods, and maybe we understand them, and maybe we don’t. Maybe we see their account on a winning streak, or selection bias has us thinking they can do no wrong. But every trader has losing trades. Even some of the best traders lose 40-50% of the time. It’s not our jobs as traders not to lose, it's our job to mitigate our losses via risk management.
But how do you manage risk on a trade you don’t understand? How do you stop out and wait for re-entry if you don’t know where you’re wrong? How do you hold a losing position because you keep reading all the reasons why your position should be winning? The more you read about it the more you convince yourself that you can just wait a little longer. The more confident other people get, the more you think you just need some of that confidence yourself. How many times has the algorithm seen me read a bullish thread only to give me ten more threads about how bullish people are. Feeding the natural bias and leading you further away from what price is telling you.
Do you really understand? Do you know the risk profile of the person you’ve taken the trade idea from? Do you know how that reflects your risk profile? Do you know if they’re flipping around their position, buying hedges against their position? Adding to it and scaling out. All of these things make trades different. A person holding Bitcoin (BTC) through a downturn from $100k is not the same as a person holding BTC through a downturn when their average is $3000.
Curating your social media to reflect your own trading process is essential. Understanding how you will interact with it. Do you read it to sedate yourself, do you ask questions of it? Do you use it to find setups that you can flesh out yourself, or to give you arguments against your own position. How do you file and track that extra information? Does it tighten up your stop, and give you clues if you’re wrong earlier?
Most importantly, how do you react if a trade works out to be right or wrong. At the end of the day, only you are responsible for pressing the buttons, managing the risk. You are the only one who gets to own both the win and the loss. Both of which happen in trading.
Social media is a fantastic tool to find trades, share ideas and learn just about anything you want to. You can gauge sentiment, identify trends in fear and euphoria. But you have to guard yourself with your intention. Intention in reading, intention in your goals and determination in your desire to get better, not to succumb to extreme doubt or fear. Because without this intention, social media will prey on your worst fears. It will make you think everyone is better than you, make you doubt yourself, make you think everything is easy when it takes effort.
