FUD

FUD is an acronym for Fear, Uncertainty and Doubt. I’m not sure if it was born in the cryptoverse but that’s where I hear it the most.

Typically FUD is around an immediate news event. China bans BTC mining. Regulators are cracking down. 9 year old wallets are moving a billion dollars in coins. FUD is the side effect of an event — it makes us question every part of our analysis and our conviction.

side note: If you haven’t already, go read the previous post on Conviction Points. I think it will supplement the ideas in this post.

The thing about FUD is that we think it results in volatility shocks, those high intensity sell offs that have capitulations and liquidations. FUD is often thought about as an “everyone else” problem. Everyone else is experiencing FUD but luckily I am not, because you know, I am a god among men. Or so my favorite trader tells me.

When you ask someone in crypto to describe FUD they will point to certain headline driving events. They will tell you about the time when everything was in total chaos and they bought anyway. They will paint a picture of a world against crypto, only to watch the $2 Trillion market cap ecosystem triumph and rise to new heights.

Once the FUD is over, it’s back to the bull. Up Only. Full send. Max leverage.

But what’s happening now, in February 2022 is different. It is not one or two isolated events. There is a cold blanket slowly enveloping the technology, the exchanges, the laws and the future. We all wanted institutional money and deep liquidity. Now we have it — and with it comes institutional correlations. Never before has the crypto world cared about macro as it does now.

With this new environment comes new obstacles. How does one build conviction in this Brave New World? How can you possibly make a big trade when the undercurrent of potential pain pulses in your veins each morning?

I would argue that this high FUD world has created an environment that can be capitalized on through liquidity and tactical movements. Adopting a quant mindset can remove the Fear from your trading and give you the clarity you feel like you have lost in this bear market.

Let me touch on what I just mentioned — we often think FUD applies to everyone else but not to ourselves. This is obviously wrong. We are all the market. Winners in the market understand how to operate separately from their emotions. The first step is to accept that you, me and everyone else is feeling the same low vibration energy of FUD.

The second step is to own the fact that this is not a reason to stop charging. Let the other guy worry about what might happen, you can focus on your own trading. Focus on what is, not what might be. There’s a lesson in there.

When we realize how many people out there are experiencing this FUD, things start to make sense. ETH gas prices at 20 vs 200 two months ago. On chain activity at a stand still. Twitter posts lacking creativity. Everything has the volume turned down and the sensitivity turned up.

The thing about bear markets are that they remove the most important factor of killing pain — prices going up. When these market conditions present themselves, all of a sudden you start to realize that you have other holes in your life. Maybe you aren’t as happy or fulfilled as you thought. Maybe this crypto thing isn’t actually that great.

Compound this with potential rate hikes, inflation, war, energy prices and supply chain shocks and the markets start to become a shitty place to be. How can you be happy here? How can you put on a meaningful trade?

But what I am telling you is that EVERY SINGLE PERSON is feeling this. Some more than others. More and more people are trading less. More people are looking to park their stablecoins or blue chip cryptos into a yield farm somewhere and come back when the bull is back. Everyone wants this to be over.

With any investment, you make money on the buy side. You make deals when no one else will make them at prices they wouldn’t touch. Opportunities come when the greatest number of people do the same thing…and you do the opposite.

While I don’t think there is any specific action in the markets right now, I do think it’s important to remember this. If most people are experiencing FUD and stepping back from trading, doesn’t that mean opportunity must be popping up somewhere?

When I first started trading the futures market, I backtested strategies for 6–7 hours a day. This process was boring and mundane. I didn’t know what the point was. Only after I did 1500+ backtests did I realize the value in this data process — it showed me the power of trusting a system.

More importantly, it showed me the environments in which you must lean on a system more than others. In the depths of 2010’s European debt crisis, you needed to rely on your system to buy the retest of the SPX lows. As the bull market began to rage, you just needed to go levered long on the risk parity trade (Long SPX, Long bonds) and call it a day. Liquidity took care of the volatility, the same way Coinbase retail onboarding takes care of the volatility in crypto bull markets.

Over the last few weeks I have made some monster trades and missed many as well as I’ve written about. But 6/7 of the trades I setup played out perfectly. I just didn’t trust them.

On Sunday night I laid out a plan to go heavy ETH at 2835 bc that’s where my algorithm told me to. This time I did. I realized that with so much FUD in the crypto space, the system MUST be relied upon more heavily. FUD makes supports stronger and resistances stronger. There is less liquidity — everything is an algo. Wouldn’t that mean they’re going to buy support too?

My targets were hit and I exited yesterday. I added 10% to my entire trading stack going long ETH and AVAX. At no point did it feel comfortable or did I believe we were back in a bull market. I just followed a machine’s instructions because I knew most people can’t stomach that right now.

Which brings me to where we are today. This is a bear market. Anyone who tells you otherwise is just being indecisive. It may not last as long as 2018 but every signal piece of the puzzle is in place.

This doesn’t mean you have to do anything differently but it does mean that you need to stop relying on hope, weak convictions and un-provable trading systems. Just stop it. You are going to die from a thousand paper cuts.

Your options are either wait for a bull market to come back and trade on easy mode or you must build a system that will give you instructions without emotion.

Period. End of story. Anything else is not trading, it’s investing or arbitrage or building.

For some who have deep experience in markets, their intuition is a system, but for most, you need something objective. And you must trust it.

The final piece is why FUD and Macro is largely a waste of your time. All alpha in markets comes from insider information. Every fucking piece. There is nothing about rates, war or the economy that will shock the markets other than black swans that no one can predict. Everything else has been leaked and traded actively.

You can resist this idea all you want but the truth remains — someone always knows whats about to happen…and they position themselves for it. If you want to know if we’re going to war just look at the charts. If you want to know if we’re raising rates just look at Eurdollar futures or bond yields.

The chances of a black swan are tiny yet occupy a majority of people’s thinking. Psychologically, the pain of losing is 2–3x worse than the pleasure of winning the same amount. Looking back, most will realize if they had just traded their plan in the face of all this FUD, they’d be better off.

This is not an excuse to get lazy. Of course shit could get wild in the next few weeks and we see some huge dislocations of price. But that’s not a reason to stop trusting your system. In fact, that’s the best time to trust your system.

If you don’t have a system, go get one. There are dozens of high quality traders on Twitter who offer training. If you find yourself saying “but I don’t know where to start or who to talk to” then you should wait for an easy mode bull market.

We are sitting at a crucial time where range trading is king. There is money to be made. Turn off Twitter, turn off Discord, turn off Slack, turn off everything and you will begin to see the opportunities again.

In the face of FUD, lean on your systems.