Conviction Points

(quick note — I’m also publishing on Substack which allows for easier signups. You can follow along by clicking here.)

Every great investment requires conviction.

Strong conviction allow you to hold through drawdowns as well as through enormous price appreciation. Without strong conviction, you will never see big wins.

This isn’t new. Anyone reading this knows you need believe in something to make real money. I suppose the alternative is to forget you own it or lock it for years but that’s not really a strategy.

What is not discussed is the anatomy of conviction, something that I have learned to parse out after years of volatility. It is nuanced and subtle. It is constantly changing. Understanding the breakdown of your beliefs takes a long time to grasp but doing so will change your life forever.

The Points of Conviction are the different pieces of information that you internalize to build your investment thesis. Every day you and I both look at the markets and subconsciously reinforce inputs we’ve received over the previous weeks.

When we look at our current trades and feel a certain level of confidence. That confidence is built on a variety of factors. Some of those factors include:

• Long term support levels
• Chart structure
• Time inputs
• Your favorite paid group leader told you to go long
• Your favorite Twitter account told you they are going long
• On chain analysis
• Quant signals
• Your trader friend told you they are going long
• Futures funding rates
• News
• Sentiment
• Deep research + long term thesis

And many others. Each of us values different factors in different ways. When you ask anyone why they are long, they will give you some combination of the above Conviction Points.

When I first started trading, I thought the way to build conviction was to find the ultimate edge + lean on it heavily. As a beginner, this usually meant find an experienced trader and copy everything they do.

What I had learned, however, is that it is much more important to have multiple conviction points, weighted equally, when building a trade thesis.

Here’s an example that most people in crypto can relate to:

You’re relatively new to the space, the market is probably going up and you are starting to have some wins. As you continue on your journey, you start to notice a few accounts on Twitter that seems to always be right. They sound so confident, they tell you a compelling story about what’s going happen next. More often than not, they’re right.

After a period of skepticism, you start to listen closely. You turn on notifications for their Tweets. You look through their replies. You have seen them call a 50% move in a trade and you start to believe they can do it on command.

Every day you wake up and check Twitter, hoping that this person has a new trade for you to follow. If it’s not Twitter, maybe it’s someone in Discord or on Telegram. Maybe it’s someone who writes a newsletter. Maybe it’s someone you met at a party. The fact is the emotional amplitude attached to this person is enormous — their confidence is your conviction.

Now let’s say this person tells you that they are going long ZHP (not a real token). They, in their infinite wisdom, are saying that this is the greatest trade of all time and they are betting a fortune on it. While it may seem risky, if it works, you will experience 100x, maybe even 500x gains.

You rush to the exchange and buy some, sending it straight to your hardware wallet. You know it’s a long term play and you’re OK with buying it, but bc it has so much potential, you oversize your bet. You only get a few chances like this, right? You are buckled in, comfy, ready to wait as long as it take for the demigod of Twitter to realize the prophecy.

Fast forward a few months. You’ve continued to add to this position and the idea has become burned into your brain. You keep thinking about that first moment when you believed it was possible. You keep thinking about the big idea that this is built on, the monumental upside that awaits.

Meanwhile, the chart is falling apart and the dev team has slowed their shipping cadence. On chain analysis says long term holders are selling. Yet you continue to believe in it, continue to hold.

The emotion you had when you first entered the trade has anchored you to a false conviction. Your conviction cannot be measured in an objective way. It is fully dependent on someone else who is operating in an unknowable arena.

In other words, if you found out that person dumped all their coins, every shred of your thesis is gone.

This example and flavors of this example happen to every single person in crypto. Everyone has or has had someone that they blindly listen to on Twitter, YouTube, Discord or in person. It is the most powerful form of false conviction because nothing creates emotion like another human.

This conviction is built around one Conviction Point that is unmeasurable and out of your control. This how many people in crypto wake up down horrendous, wondering what the fuck they are doing with their current bags.

Instead, the way to build real convictions is to never give one Conviction Point a lions share of the decision. No matter how good the chart looks, it’s only one Conviction Point. On chain metrics are screaming bullish — that’s only one Conviction Point. Someone who’s made ten figures trading crypto gives you a clear setup — that’s only one Conviction Point.

The reason you need to think this way is so that you avoid major drawdowns. There will always be examples where you copy trade someone and make 300% gains. The problem is eventually the copy trading will no longer work, and your account value will fall dramatically.

We are entering a phase of the market where you need more Conviction Points than you did in 2021. If you are going to buy something, you need to have multiple reasons to do so. Gone are the days of listening to your buddy in Telegram — you need to have three or four Conviction Points to make consistent money in this market.

Take the current setup — we have created some semblance of a bottom and are seeing a nice bounce. You want to catch the relief bounce to make a quick 40%. What are your Conviction Points?

Are you going to wait for someone to tell you what to do on Twitter? Are you going to use technical analysis? Are you going to watch futures funding rates? Are you going to try and front run the FOMC news?

What is your Conviction being built on?

If it requires someone else giving you confidence, that is a losing game. The ONLY way to make money consistently in markets is to be the one creating the confidence.

In fact, go look at your positions right now. What is the conviction built on? Is it because Tetranode is going to backstop you no matter what? Or because GCR told you to go short? Or because Hsaka said we are going to run it back? Or because HighStakesCapital told you he’s fully long in a leveraged account? Or because Pentoshi told you he’s going to sell everything on the relief bounce?

Or is it because you know price moves off lows with high volume? And because you see the futures market continuing to short the bounce? And because you are in Discord every day talking to devs, knowing they are shipping every 48 hours to build something awesome?

If you can’t trade in a vacuum, your conviction is built on a house of cards.

This is the time to establish your own Conviction Points and to reinforce their creditability. The less you listen to others, the less you watch the news, the less you’re on Crypto Twitter, the greater your convictions will be.

2022 will separate the wheat from the chaff. Strong convictions, strongly held.