Manage your 4 crypto trading budgets like a negotiator
There are many ways to think about your approach to markets as a trader.
In previous articles, we explored using Lean Startup principles to develop a trading plan.
This time we are going to borrow some wisdom about budgets from The World’s Most Feared Negotiator.
Negotiation is something we all do every day. And the basis of all negotiations is decisions.
Decisions involve an emotional component and a rational component, just like trading.
This is why negotiation has some elements we can use for trading purposes.
You may not realize it, but like a negotiator, you manage several different budgets as you trade.
In addition to your financial budget, you have time, energy and emotional budgets.
Now let’s meet The World’s Most Feared Negotiator, the late great Jim Camp.
The World’s Most Feared Negotiator
Jim Camp was an American fighter pilot that went into sales and transformed into a negotiator.
His book Start With No is one that I recommend frequently. This book is a treasure trove for those that read it repeatedly. And not just for trading, but for many other aspects of your life.
The process of negotiation, like trading, involves a lot of similar principles. The words are just a bit different.
In trading and negotiation, you have to have a mission and purpose.
You have to ask good open-ended questions. These help you formulate your trading plan or provide key insights about your adversary as a negotiator.
You have to execute the plan and navigate the market and other participants and all the highs and lows that come with it. Negotiators navigate the movements of the opposing team.
And you have to allow yourself the opportunity to close out trades and start over. This would be the right to say no in Jim’s thinking. Saying no is a decision, and it moves the person from emotional to rational thought.
You will be managing risks associated with your trading. These will include managing your trading budgets.
Like a seasoned negotiator, these budgets are financial, emotional, energy and time.
In negotiation, the objective is to keep your four budgets low while raising the budgets of your opposition. Lower budgets mean more control and an advantage in a negotiation.
Jim describes how a company in a negotiation will have you flying all over the place using lots of money. The objective is to use up your resources and lower your resistance to their terms. Here they are raising both your financial and energy budgets.
They can also drag out negotiations as long as possible, raising your time budget. The objective is to take advantage of your need to get something done by a deadline, like your quarterly quota. Then they exploit this weakness for lower prices or better terms.
Expert negotiators will talk big numbers at the beginning and secure your best price upfront. This creates a vision of your mind of all your future riches. The vision creates neediness, which they will exploit mercilessly by cutting the volume and expecting the same discount right before the deal is signed.
Here they drive up your emotional budget.
And they call last-minute meetings in unusual places. While exploiting your other budgets, they will deplete your energy, making you more compliant to their demands.
The negotiator has to anticipate these tactics and counter them by keeping their budgets low. And if they do this, they can stay in control and move toward a successful outcome.
As a trader, you have the same budgets, but they manifest a little differently.
The emotional budget of crypto trading
As Jim points out in his book, all decisions are emotional. Every single one. And as a trader, all of your activities are a series of decisions.
But you are told to control or ignore your emotions while trading.
However, if you recognize those emotions and use them as a tool, they can become an asset to your trading.
You do this by managing your emotional budget.
And one of the most important ways to manage your emotional budget is to avoid neediness.
The curse of neediness when trading crypto
One of the great challenges of a trader, like a negotiator, is neediness. Neediness is an emotional response to a belief or idea that may not be valid.
Like the need to be consistent with some statement you made.
For example, when you declare BTC is going higher (or lower), you might think you NEED to be long (or short) to be consistent.
Or if you believe in the technology, you may feel you NEED to hodl because you might get called out.
You may feel like you NEED to hold onto a position as it falls. Why? Because you believe that it will be successful one day. Even though one day is some unknown point in an uncertain future.
You might have a plan to sell at a certain stop-loss point, but, because you NEED to be right, you ignore your risk management and hodl as it falls.
You might feel like you NEED to buy it because it’s getting away, and you don’t want to be left behind.
All of these are false beliefs. They are emotional responses to a situation, and they manifest as neediness.
Neediness means you are no longer in control.
And neediness will raise your emotional budget and will hurt your trading results.
So NOT NEEDING an outcome helps you keep your emotional budget low. Remember, and I can’t repeat this often enough, it’s just another trade. Nothing more, nothing less.
The time budget
Your time budget as a trader can be artificially increased with imaginary or created deadlines for an outcome.
This one is often tied to neediness for the trader. You need a certain amount by this date for this purpose.
The other way to increase the time budget is when you abandon your trading plan during a downturn. Instead of honouring your stops, you convert your trade into an investment.
This often happens when you abandon your trading plan when BTC blows out your stop.
Waiting for a return to “even” can be a long and tiring expansion of your time budget.
Time premiums and decay apply to trading instruments with a contract-mandated expiry date like options or futures. They don’t apply to trading BTC, ETH or any other non-contract instrument.
So lean heavily on a solid trading plan and respond to the market instead of trying to will an outcome. That outcome may not happen the way you want it to, if at all.
Keep your time budget low by relying on the parameters of your trading plan. Avoid creating an artificial time constraint or dragging out a negative result.
Crypto trading and the financial budget
The management of this budget as a trader is a function of your plan and risk management.
Your crypto trading budget is something we’ve talked about here. You want to avoid using critical funds for speculative trading. If the rent has to be paid, you don’t trade with that money.
It means clearly defining how much of your capital is for trading and each trading idea.
Avoid putting yourself in a difficult position by concentrating too many assets on one hypothesis. This is the fastest way to inflate your financial budget.
It means using stops and honouring them. And using limit orders instead of market orders in volatile assets like crypto.
And risk management also means keeping more of your winnings when you are feeling most exuberant.
Now, your financial budget also includes trading tuition. These are the small losses that you take testing trading ideas. Tuition provides valuable information on the market and the players in it.
Keeping your financial budget low means using stop losses. Don’t make your tuition bigger than it needs to be.
And don’t trade to “make money” to pay for something. Or even worse, to “make it back.”
These are two lethal forms of neediness that will raise your financial budget and add pressure.
Next up, your energy budget.
A trader’s energy budget
Trading at the best of times is demanding, especially if one or all of your other budgets are being run-up. Your energy budget is a vital part of your decision-making process.
Your mission here is to find ways to manage this budget so you can think clearly during important moments.
There are several ways to keep your energy budget low, including:
- * Doing your research and laying out a trading plan in advance
- * Defining your mission and purpose in advance
- * Being clear on what decisions you will make and when before you trade
- * Avoid doing things that unnecessarily raise your emotional, time and financial budgets
Then by getting adequate sleep, proper sustenance and keeping active, you can even enhance your energy budget.
Sustaining yourself through challenging market conditions requires sustainable energy. Any steps you can take to enhance this while keeping the expenditure low is an advantage.
We all know what happens to decision-making when you are tired, stressed and unhealthy.
Trade crypto like a negotiator
There are many ways that trading resembles the process of negotiation.
You define a mission and purpose.
You ask questions to discover a vision or trading hypothesis.
Then you define a plan and execute it.
Throughout this process, you are managing your internal balance sheet. Your internal balance sheet is the time, energy, emotional and financial budgets that affect your trading decisions.
The better you manage these, the better your decision-making will be.
The better you will feel.
And the more open you will be to changing crypto market conditions.
All of which can add up to better performance over time.
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