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How not to Lose Money Trading Crypto, What Charts Can Tell You, and Why Bitcoin is Still Better Than Alts: Interview with Scott Melker

Mon, 02/17/2020 - 13:04
How not to Lose Money Trading Crypto, What Charts Can Tell You, and Why Bitcoin is Still Better Than Alts: Interview with Scott Melker
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Who among us here, in the crypto space, hasn’t at least once thought about becoming a crypto trader? The word “trading” alone, thanks to the efforts of Forex marketers and Bitcoin's astronomical surge in 2017, conjures up beautiful images of life on a lonely island surrounded by azure waters. A striped deck chair by the sea, a colorful cocktail in my left hand and a small shiny laptop under my right. But how realistic is this picture? Is it really that easy to make money trading? What about trading crypto? I tried to figure it all out with Scott Melker, also known on Twitter as The Wolf Of All Streets. Let's see what I managed to find out!


U.Today: Hello Scott, it’s very nice to see you! Thank you for joining the interview. Can you tell us why you became a crypto trader?

Scott Melker: I think that I became a crypto trader for the same reason that most people did. It was kind of a gold rush. If you were trading anything in 2015 - 2017, everybody started talking about crypto, crypto, crypto, and Bitcoin, of course. That meant we were kind of late because the people who really made their money were the ones who were in it much earlier. But I came in purely as a trader, not because of a belief in the technology or anything like that, which has developed over time. I became a crypto trader because I looked at charts and saw these crazy gains being made by people and I heard the chatter and I wanted in on it. So I think that's probably the reason that most people, at least in that era, 2016, 2017 got into it. 

U.Today: Are you experienced in stock trading as well?

Scott Melker: That's where I came from. More as a casual trader, starting in college and even before and then throughout the 2000s and through the whole recession and everything. But I always traded stocks, although I viewed myself and still do, even in crypto, as more of an investor than a trader. So, it's more like I buy something that I'm interested in, that I think looks good and look at it again in a few years, then consider whether I'm going to sell it or not. So, I really think I approached the market much more as an investor than as a trader.

I never really got too heavily into the day trading or anything like that. It's a little too hectic and crazy for my taste. I like to be able to step away and not worry about losing money when I go to eat lunch or something like that. So for me, something with a longer sort of time horizon worked better in the stock market. 

U.Today: What cryptocurrencies do you invest in and why?

Scott Melker: Honestly, I don't. Only Bitcoin. Everything else I've used somewhat as an opportunity to get more Bitcoin. The way that this market sort of behaves, is that, when Bitcoin makes a big move, it sort of destroys everything in its path. So for me, investing in an altcoin when I know that whatever Bitcoin does is going to dramatically affect its price, I don't really see the reason to be invested long-term in altcoins. I think that I've had very long positions in altcoins because the chart has remained good or because you know, alts, in general, have looked good. Fundamentally they have their differences, but unfortunately, they don't trade based on the price of their fundamentals. They basically trade based on the price of Bitcoin. So for me, I just don't want to be holding something longterm when I know it's just going to get wrecked every time Bitcoin decides to sneeze or go, you know, 5% in either direction. So I'm not really an investor in any altcoins. 

U.Today: So, you don’t have any?

Scott Melker: I have some, but I view them as trades. I have most of the large gaps. I mean, I started a position in Ethereum - I luckily caught the bottom, with $82. I mean, I’ve ridden Ethereum from $30 to $1400 and then started buying again when it came all the way back down to $80. So, those positions I still hold, I guess you could view them as investments, but I view them as something that I'm looking to get out of the minute they go crazy and take advantage of it. So it's not something that I want to be holding necessarily in 10 years.

When I think about trading versus investing, I'm thinking about years and years, not months. So maybe some people in crypto would view my positions as investments because I might hold them six months or a year. But for me, in my mind, an investment is something that I don't even need to look at the price for the next five years and I'll worry about it then. I don't think people view crypto that way generally. 

U.Today: Right. Do you have your own investment principles apart from what you just told us? Can you please share them with us and our community?

Scott Melker: Yeah, I think that I'm very boring and really risk-averse. I've learned over time that the best way to make money is to get as much money you can into the stock market, crypto aside, but into the stock market and just don't touch it and let it grow. That's been something that's been very difficult for me because, especially in my twenties, I was kind of broke and I needed the money and I would try to invest and then I would run out of money and I'd have to take it all out at a loss.  But, I mean statistically, historically the stock market always goes up, even if you have a great depression or a big recession or anything, it just trends continually up. So the best way to be investing has been somewhat proven over time - in dollar-cost averaging. 

Anytime you have some money that you don't need, you put it into the market and then you don't look at it, you don't touch it, you don't check it, you don't do anything. And then that way you take advantage of buying every single dip as it comes. If you believe that the market's gonna go up, you dollar-cost average. And that's how I've made, by far, the most money. Way more than trading. And that's how people have acquired wealth since the beginning of time - the earlier you get money into the market, the more you're going to have when you need it when you're older. 

I mean if you look at it mathematically, if you start investing when you're 20 instead of 40 or 60 - you'll have like 10 times as much money if you start at 20 instead of 40. Even if it's the same amount every month, it's really the power of compounding games and having interests on your interests and letting that grow. It's phenomenal. And there's no way you're going to really beat that unless you just get very lucky or you're an incredible trader. So, I mean for me, my investment principle at the very bottom line is when I have money that I can put away and not touch for a long time, I just get it into the market and leave it and don't think about it. And I do Bitcoin the same way. So, not altcoins necessarily, but I dollar-cost average into Bitcoin. I use services that buy it for me in small amounts every single day because I personally believe that the price eventually will be much higher. So I wouldn't dollar-cost average into some random altcoin. But I believe that Bitcoin is like the stock market. It sort of is the main thing to track for all of crypto and I believe it will continue to rise. 


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U.Today: I know nothing about price analysis. How do you analyze the charts? Can you please explain it as simply as possible?

Scott Melker: Sure. Well, you know, I think every trader goes through this evolution of how they trade and look at charts. When you start, you like over analyze everything to death, you try every single indicator you can find. I've been a mobile cloud trader at supply and demand, support and resistance, RSI and OB, and volume and price action. I've literally tried everything and everyone does. If you looked at my old chart, there'd be a thousand lines on there and it was so confusing. And then I think as you get better you realize that actually being simple is by far the best way.

So, at this point, I think, tens of thousands of hours I've stared at charts. I think I can generally look at any chart and see what I want within a few seconds. If not, no longer than a minute. 

I kind of find the areas of support and resistance that I think are clear - any clear patterns. Then I set alarms on the chart and I leave it. I don't stare at it because I don't think there's anything to watch until it hits those critical levels or behaves in a certain manner that I want every once in a while. I like to use RSI for divergences like defined times when it's rising or when it's doing the opposite of the price basically, which can give a good signal for a top or bottom and that something is likely to continue. I think it should be very very basic how you chart and look at something because, price action or entries and exits, I think are like the least important thing about trading. 

I think that when you get into it, all you care about is finding that perfect entry or that exit, or you can buy the bottom, or sell the top, and then you come to realize that none of that really matters. It just matters how well you manage your trades and your risks. You're going to be wrong most of the time, probably. I mean you're looking at a chart, yet, you might as well throw a dart at it. Nobody knows what's going to happen.

We have our ideas, but a chart is just a way to look at where you should take your stop loss and where you should expect to take profit and to make sure that you don't lose too much when you lose. I mean the real goal of looking at a chart is to figure out the closest place that you can lose the least amount of money from where you enter your trade. 

So, wait for it to come down to resistance instead of buying it at some arbitrary point. Cause then if you lose, you're only going to lose a tiny amount when you're proven wrong. But if it goes the other way, you have to have basically the strong hands to hold it and let it mature and reach its target. So, I mean you can lose on seven out of ten trades if you let the three that do well go and really make you a lot - if you cut the seven that lose very quickly. The ability to lose is much more important than anything you see on a chart. Like the ability to accept losses and say, “I'm just going to lose, I'm going to lose, I'm going to lose.” Your technical analysis is almost irrelevant.

I've never done a study, but I believe that I could probably throw darts literally at charts to find places to enter and exit and just by managing risks properly and taking small losses, enough would go my way, but I would probably still be profitable. 

U.Today: Okay, thanks for the explanation. What exchanges do you use for trading?

Scott Melker: I primarily trade Bitcoin on Voyager which is a new app. They have no fees. It has its downsides because it doesn't have stop losses, but I trust them. They're insured, they're traded on the Canadian stock exchange. So if I'm taking shorter-term positions, I still trade on Coinbase pro because they have all the robust orders that I like and all the kind of risk management tools. But for investing in longer-term, I use Voyager. That's where I average in and make my long term buys. For trading alts it's become a lot more difficult as an American. I hate to say it, I still trade on Binance. They never kicked us off. Nothing ever really happened. I don't know what's going to happen there, but I don't keep that much money on the exchange. I trade on Bittrex because that's totally legal for Americans. Even is not available in Florida where I live. So it's not even an option. Generally, that's about it. I mean, I trade equities using TD Ameritrade and E-Trade just like every other average American person. I trade Forex on, but not that often. That's pretty much all of the ones that I use. 

U.Today: What could you suggest to people who want to become traders? Where should you start, if you’re a beginner?

Scott Melker: The first piece of advice I would give is don't, because you're going to lose. Probably 95% of traders are unsuccessful. They lose their money. They lose it fast. They're broke in two months. It's not very favorable if you look at it. So I would say, if you're really insistent, first of all, you should be investing first. You should have a certain amount of money to put away for emergencies and for your life no matter what. So that if you completely fail with whatever you set aside in six months you still have your bills paid. That's why the first thing you should do is have cash on the side.

Then you should take a bulk of the money and start investing and maybe trade with 15-20% of what you have set aside for investing. It sounds like such a cliche to say only invest what you can afford to lose, but it's 100% true and there's a reason they say it. 

So then, however small that amount is, that's how much you trade with and you start there. I think people should pay per trade before they really trade. You know, test a system, figure out a thing that works for them, work on their risk management and do it not with real money. Of course, the emotional part of losing is the hardest part of trading and you don't really get that with paper trading. You sort of have to have real money on the line and feel what it's like to cut something as a loss when you want to hold it because it's going to go up. But I think that beginners should study as much as they can about basic technical analysis to figure those things out. I mean, there are endless resources. My mentor, Texas West capital, has a full course and he's really amazing. 

Scott Melker

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Crypto credit has tons of free videos that are great online that I know tons of people like. So I would start there, but I would not view losing money as your education and trading.

That's how a lot of people view it. They're like, “Oh, I'll just take this five grand - if I lose it it's just like going to college or it's my course.” But the problem is, then you have no more money to trade with. And honestly, you probably didn't learn anything except for how to lose money.

So I think that having a good system of risk management and specific rules about how you're going to trade that have nothing to do with anyone else - those are the things you need to develop to eventually become a successful trader. And it takes a really, really long time. I mean, I don't really know anyone who's been trading for 10-20 years, who hasn’t lost everything a couple of times. 

U.Today: How long did it take, for you? 

Scott Melker: A long time. Decades to be good at trading and to be profitable. Now, I've been profitable trading in the past, but then when I look at it in a vacuum, if I had just invested the money, it would've made more. People joke about that all the time, “I was so successful, my trades were amazing.” And then they look, and they could've bought like an index fund on any index fund tracking the stock market and made twice as much money as trading. I think a lot of people in crypto found that in 2017 that they were trying to trade and make more Bitcoin. But even Bitcoin was very hard. So most people made tons of money in 2017 but then they look back and realize if they had just left that money in one or two of those things that went crazy - you're going to trade your whole life away in 2017, but if you had just bought TRX at 20 cents and sold it at 2000 then you're living on a private Island, you know?

So it's really the ability, like I said, to find those few things and have the strength to hold it, that makes you your money. So I still only trade with a very small percentage of the money that I have in markets. I'm smart enough to know that I'm probably going to do better as an investor, no matter how good I am at trading in the long term. So I can take the money I make trading and invest it. I grow my investment side and I keep kind of the same money for trading. 

U.Today: Okay. What will the price of Bitcoin be at the end of 2020?

Scott Melker: I hope, for John McAfee, that it's at least a million dollars or 2 million or whatever he said, but I don't see that. Honestly, I hate making price predictions because it's like there's no upside, there's only the downside. It's just gonna make me look bad because I'm going to be wrong and I don't like people to get the impression that anyone can tell or predict the future. None of us have a crystal ball to possibly tell you what will happen. I can tell you that looking at a chart, it looks bullish. I think that this year in a vacuum, again like with no external issues or anything that it could certainly reach the all-time high again, I'm hoping for that.

But you know, you can hope for the best, but you have to plan for the worst. I would be equally unsurprised at it being 30K at the end of the year as it being 3K at the end of the year, because I'm prepared for anything and I have no idea what's going to happen. 

I mean, it would take a law by the American government, or something, that made it more difficult to get money in and out, to destroy the price at least in the short term. So it's very hard for me to predict. If I had to make a prediction, I would say that we will be approaching the previous all-time high at some point this year. But, we could be at the high for the entire year right now and I would not be surprised. So, like I said, I have no idea what's going to happen in the future. 

U.Today: Yeah, of course. Okay. Thank you so much for this interview. 

Scott Melker: Well, thank you. I really appreciate you taking the time.