How did I make four million in a bear market in 7 months?

Author: Nakamoto Huixiang

(This article is a reader submission and does not constitute any investment advice.)

This year, I did four very right things.

The first thing was to go long on Bitcoin the day after Silicon Valley Bank announced its bankruptcy, and then automatically take profits a month later;

The second thing was to observe that the pullback was almost over in late June, so I started to go long on Bitcoin. After realizing that the price was unable to reach my expected profit-taking point, I exited before a panic sell-off;

The third thing was that I began my research on macro liquidity in late June, confirming that the widely circulated "monetary tightening" is a fallacy, and then I comfortably started my vacation because I wanted to wait for the short-term frenzy to pass and fully engage in the market.

The fourth thing was that I returned to the market in late August, comparing the relationship between the Bitcoin bull cycle of 2021 and the ETF application process, while also creating my cryptocurrency tracking list and investment plan, and then waiting for the entry signal to appear. At the beginning of September, I ramped up my efforts and went long on Bitcoin.

Of course, my investment plan also includes many other cryptocurrencies, some of which are duds, some are yesterday's news, and some still have potential for the future, but I don't intend to mention them because I don't want to sound like a signal teacher.

Now, while I wait for the exit signal to appear, I plan to do some other things. I am still flipping through those trading bibles that I never tire of, and I really enjoy the narrative styles of my favorite investment masters. So I thought, why not write something in a similar vein to let everyone get to know me? I should be someone worth knowing.

I also want to record how I cultivate myself in trading. Although I believe these experiences will never disappear from my world, I currently have a strong impulse to express and share. I hope that my discoveries along the way will someday help others, just as I received invaluable help from the trading masters who wrote books.

Of course, I will be very vigilant to prevent sharing from turning into preaching.

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I usually don't reveal what I'm doing to others, and I tend to be quite reticent in social situations. Most of the time, I listen to what people say first, and then based on their viewpoints, I judge whether I should be honest with them. From past experiences, whenever I am honest, I am often seen as a charlatan spouting nonsense, a self-serving egotist, a self-promoting MLM leader, or a religious fanatic betraying the philosophy of Marxism with pseudoscience.

I spent some time figuring out why my sincerity could become an offense.

This leads me to the first thing I want to say: about how people often treat the viewpoints they receive as sacred and inviolable dogmas. These viewpoints are often picked up from the roadside, yet people defend their current understanding as if it were a matter of life and death.

I once went through such a phase, during which I often reflected on why I would subconsciously fall into an unwarranted debate and uncontrollably want to refute the other party.

From this, I unearthed the deep-rooted desire within me to "prove myself right," believing that proving myself right would demonstrate my superiority and brilliance over others.

The clash of viewpoints seems to be a pursuit of truth, but in reality, it is a pursuit of the cheapest self-satisfaction and superiority. This behavior is also a significant drain on people; the pursuit of truth never makes one irritable, grumpy, or aggressive; it is the challenge to one's beliefs and the damage to one's self-perception that does. (The nature of the expansion of ideas is even greater than that of capital.)

And I realized that self-perception is the last thing I need, especially when I participate in the market; doing things right is more important than "proving myself right." The pursuit of self-perception makes one stubborn, causing them to view things and treat others entirely through their own wishes and beliefs, and to view the market solely through their own perspectives and desires.

But the market will never move according to personal wishes.

I began to learn to clearly distinguish between what is my or others' cognitive inertia and what is fact. I especially scrutinize the sources of each of my beliefs, understandings, and conclusions; and I learned to act based on factual truths rather than on people's firmly held beliefs, my cognitive inertia, and subjective desires.

I gradually dismantled the walls in my thinking, and the market began to present itself to me in very simple images. This expression might be a bit exaggerated, but I often feel that I can resonate with its breath and heartbeat.

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Now, I need to reflect on why I bet on the rise when almost everyone else is bearish and waiting for "the final crash."

It's actually very simple; I only looked at three indicators: macro liquidity, the relationship between the 2021 ETF application process and Bitcoin's rise and fall cycles, and the Bitcoin price chart.

In July, I published an article that detailed how much liquidity was reduced due to the interest rate hikes and balance sheet reductions by global central banks, especially the Federal Reserve.

The conclusion is that after more than a year of frequent and large interest rate hikes, the total money supply in the U.S. remains near its peak, and the eurozone's money supply even returned to its highest level in a decade. The scale of the Fed's balance sheet reduction compared to its massive $8 trillion asset size, along with the new issuance of over $1 trillion in U.S. Treasury bonds, is simply not enough.

Moreover, the current total liquidity in the crypto market is far higher than it was during the same price period of Bitcoin in 2020.

I disproved the proposition of liquidity tightening and found a relatively reasonable explanation for the rise of both the European and American stock markets and the crypto market in the first half of the year.

Later, I studied whether ETFs would really have an impact on the crypto market. Although it was just a rough comparison, I discovered some interesting things --- --- the three vertical stretches of Bitcoin in 2021 corresponded to the collective applications for Bitcoin futures ETFs by institutions, the news of ETFs about to be approved, and the launch of ProShares' ETF on the New York Stock Exchange (during which Bitcoin's price surged to a new high).

Finally, I observed the long-term price chart of Bitcoin, and the volume-price data told me that we are actually in a rising cycle; then, I found in the short-term price chart that although Bitcoin frequently tested downward, the small support levels kept rising, and the real supply was continuously shrinking. Based on experience, this is usually the behavior of the main force shaking out positions. So I began to build a small long position in Bitcoin, and when I noticed that my position started to make small but stable profits, and that it was easier to go up than to go down, I increased my position and leverage to go all in long.

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If there is anything to add, it is that I firmly believe that wealth will stay where most people least expect it, more precisely, failure lies on the side of what most people consider common sense (the original quote comes from the Wall Street Ghost).

In the past two months, the quieter the market has been, and the less people have discussed and paid attention to it, the more certain I became that an opportunity was coming.

It's not that I enjoy going against the crowd; it's just that after a long period of introspection, I can easily identify those viewpoints and common sense that do not benefit people's pursuit of a better life or the secular standards that everyone loves. People often treat some viewpoints as unchangeable realities.

For example, people love to describe the market in terms of bull and bear markets, but in reality, bull and bear are definitions, viewpoints, and opinions, not facts. Such definitions lead people to believe that the market will operate in a "bull" or "bear" manner for a very long time, but in fact, I often find many good investment opportunities even in so-called "bear markets."

This is the wonderful part: noticing the beliefs you hold as true, examining your viewpoints, and once your beliefs change, your options will increase.

My growth process has not been smooth or happy. But I am glad to have found my current self.

In the process of exploring how to face the hardships of life and learning to interpret the market, I have understood many truths.

One is to always maintain a sense of order in life (let goals serve as motivation when necessary).

From October 2021 to all of 2022, I was in a daze, and that was when the worst investments and market operations of my life occurred. After suffering consecutive blows, I thought my life would never get better, but suddenly one day, at five in the morning, I inexplicably got out of bed and did 60 minutes of HIIT training.

When I was drenched in sweat and my heart rate peaked, I turned on the music, stretched, and relaxed leisurely, then took a hot shower and applied a thick layer of body lotion. I made myself a cup of coffee, and then sat down at my desk to tackle the work I had been procrastinating on for two weeks.

At that moment, all the gloom disappeared, and my good mood told me that I was ready to face all difficulties and hardships.

Since then, I have understood that what traps people are emotions and feelings, never the events themselves. Now I have maintained this sense of order in my life for a whole year, and my life has never been as easy, pleasant, and joyful as it is now.

Another is to never stop learning with a thirst for knowledge in the pursuit of goals.

Once I mastered basic economic knowledge, learned technical analysis, and various trading ideas, theories, strategies, and risk management methods, I realized that the market is filled with many people occupying professional positions and playing professional roles who are not professional at all. They generally lack the common sense needed when participating in the market, but this knowledge is extremely important; without it, we cannot understand every signal in the market or think like the main force.

At the same time, I realized that achieving most goals can start with asking the right questions, and most problems can be solved through learning, practical testing, and adjusting goals based on feedback. Of course, this closed loop is very useful in trading and learning English; I don't know if it works in other areas, but I am also prepared to experiment with things I am not good at.

Finally, learn to understand your brain, understand the roots of cognitive inertia and desires, and never be trapped by them.

Anyone who has studied trading deeply understands that a trader's greatest enemy is not the market or the big players, but themselves. More accurately, it is the trader's personal cognitive activities, emotions, and feelings.

Inspired by delusions, disturbed by fear, driven by impulse, and weighed down by inertia. Incorrect operations arise from this.

But it seems that I only occasionally experienced this when I was a beginner in trading.

Trading is my training ground. It helped me find my greed, my fear, my complacency, all my deeply rooted beliefs and desires, and then I removed them one by one. Interestingly, after calming my cognitive activities, I became a very emotionally stable person. This has greatly enhanced my participation in the secondary market; I do not understand how it happened, but I have learned to do the right thing at the right time.

Being able to turn four hundred thousand in a bearish market when everyone is pessimistic is thanks to my understanding of my brain.

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Of course, four hundred thousand is a small number for many people, and compared to the money I made in 2020 and 2021 when I entered the market blindly, it is insignificant in terms of performance. But compared to then, I prefer the money I made this time; it helped me validate some things. The market is a laboratory; it proved that my hypotheses can rise to become rules, and I now have a completely workable set of principles.

In that frenzied bull market of 2020, I made a lot of money without knowing how, and I often worried that if I left certain environments or information sources, I would never be able to profit again.

But this time, I am incredibly clear about the methodology I used to leverage a small capital to move the earth.

I understand the reasons behind every decision I make, and I also know how I found those reasons. More importantly, if I need to make any decisions in the future, I know exactly where to look for the reasons.

This means I can use them to learn anything I want, achieve every goal I set, and get through every low point in the future.

It is entirely possible that I could completely lose this four hundred thousand in a future investment, or even all my savings, but I have already gained something more important than profit.