Rule Du Jour: Rule #50 - Zero Sum Game (Patreon)

Trading Rule: Protect Yourself in a Zero-Sum Game - We've reached a significant milestone—Trading Insight #50! It's hard to believe we're halfway through our journey, with another 50 of my life's insights still to come. While every piece of wisdom I've shared is valuable, this particular insight holds special significance.

What I mean by this ZERO SUM GAME it is the nature of trading: Your profits come at the expense of other market participants' losses. For every winner, there is a loser. This mindset is key - you not only battle with your own mind but also battle with who you are trading against.

I repeat, always consider who is on the opposite side of your trade and their potential motivations. Some investors believe it is just them and some mysterious black box money machine. It is not.

SOME RULES

• OPTIONS: If you're buying an option, someone else is selling it, and vice versa. Understanding this relationship is fundamental. Consider why your counterparty might be taking the opposite position. Are they hedging, speculating, or employing a complex strategy? If you're selling options, ask yourself why someone would want to buy them. Conversely, if you're buying, question why someone is willing to sell. Beware of Information Asymmetry - your counterparty may know more than you.

• When using margin, always maintain a substantial margin buffer at all times. This "margin mattress" acts as a safety net for your positions.

• Be wary of market makers in cryptocurrency markets when using leverage. They are hunting you. They will exploit and and all overleveraged positions. Set your liquidation levels far from current market prices to avoid being "hunted" by other market participants looking to trigger stop losses or liquidations.

  

Stay vigilant and remember that in volatile markets, market makers actively seek to profit from your losses. Investing is a blood sport.