I would gladly play this game, but just once, one roll win or lose. Live or die.
Not through greed and lust for money but for other more personal reasons.

I'm calculating it based on closing price - the last price in a given timeframe.  It's pretty much what is on http://bitcoin.clarkmoody.com/

Hmm.

In a white room, it's good advice, but I feel like it clashes with the running theme in this thread of "make a plan, backtest it, and then stick to it regardless of your heat-of-the-moment feelings". If the backtest included the occasional long period of drawdown, isn't reducing your trades and thereby increasing your risk of missing the next big move nearly as bad as increasing your trades and doubling down on bad weather? Doesn't either one amount to second-guessing the math?

Yes, but at the same time a huge, resounding no. Technical analysis is the process of using mathematical studies to understand the psychology/history of the market in order to identify patterns in market behavior. As a trader (bitcoin, forex, futures, derivatives.. just about everything) I have the experience to say that as a whole, people are pretty predictable. At that rate, the programs that people create to trade for them are also extremely predictable.

Technical analysis worked when there was only a handful of people that really knew/understood it and there is a very good reason for that. If it never worked, nobody would have ever pursued it this thoroughly.

A note on simplicity -- This is very true. The simpler strategies that I have made have been my most rewarding and I don't expect this go change any time soon. Technical analysis can be as simple as identifying a certain condition on the chart and then calculating the probability that a certain result will happen every time that condition is met.

As the post above mentions, in the context of this thread this refers primarily to trading less size.  If you were to only risk 1% of your account equity on any given trade, you will find that you mathematically trade less during periods of drawdown.

The advice is meant to be generally taken in that it can be applied to both systems and discretionary traders.  It is a cross-method guideline.

Dear Goomboo,

Thank you for sharing your methods. They remind me of what my Dad used to tell me (he did stock exchange hardware in the 70's, including FTSE's); simplicity is key! I have a couple of questions though if you'd not mind? I must admit that I am a novice, so please be patient. Also, apologies if these have already been asked and answered, but there is no easy way to trawl through all the pages here. :/


When you say "sell short" do you mean that you're just selling the BTC at that point, or are you actually shorting BTC? I'm not sure if there are many functional sites selling BTC options, though I did see an advert for one claiming to do so called Plus500 (British too!).

Also, on your S&P 500 example you refer to "entering a short/long position". Does "entering a short position" in this context basically mean selling the securities (or BTC), and "entering a long position" mean buying back in again?


To what exactly are you referring when you say "liquidity"? Is is the size of the orderbook in whichever direction you're going (buy/sell)? As an aside, it is a great shame that CryptoCoin Charts is not yet doing Mt. Gox; they are one of the few sites that provide a visualisation of the orderbook. Assuming I have understood correctly what you mean by liquidity, any tips for those of us not used to looking at a page full of numbers as to how to make that determination quickly?


Having tried manually trading, and failed miserably (I've too many other things todo being a CEO of more than one company, and anyway am definitely prone to "emotional trading" ) I have decided to buy BTCbot and plug in your rules. Once setup I intend to leave it to it for a while; fiddling will undoubtedly cause me to mess things up! If it works I shall gladly share a portion of my profits with you.

Finally, I am currently trying BTC/EUR trading on Gox. This is actually because I've a large USD balance I don't wish to risk right by letting BTCbot get at it, but I was also thinking in the longer term it might be a good plan as there will likely be less 10/21 traders on that pair. However, the volume is only about 15% that of USD/BTC (36k vs 6k last time I checked). Do you think the BTC/EUR volumes are adequate for your methods to work is my idea of switching away from a main pair good?

Thanks in advance,

Kate.

Hi Kate,

Thank you for the questions and compliments.


At the time of writing, I was shorting through Bitcoinica.  These days, I will just exit my entire BTC position and hold cash.

I have always been very skeptical of companies that allow "shorting" in the BTC markets.  In the stock market, when you short, someone is lending you a share which you sell and buy back later, while paying interest to the lender.  In the Bitcoin market, I have seen no such offering which means that you are engaging in a synthetic short position.  A synthetic short means that you are trading against the broker which can be a recipe for unscrupulous behavior.



You are right - in the context of BTC, I consider a short position to be selling coins and holding cash and a long position to be holding coins.  In the context of the S&P 500, I call a short position actually shorting the shares rather than just sitting on the sidelines.




You're right about this one as well - liquidity is one of those five-dollar finance words that answers the question "can I trade without moving the market?"  The best way to gauge liquidity is through the order book.  In my opinion, the best one out there is http://bitcoin.clarkmoody.com/

To answer your second question about how to make sense of the numbers: you should already know how much liquidity you need prior to even looking at the book...here's why:

Liquidity protects you from "slippage".  Slippage occurs when you place an order at one price and inadequate liquidity causes you to have an average price different from the market price.  For example, the current price is $95/BTC.  If I were to buy 100,000 BTC, I would "slip" up the book as I ate away the liquidity, resulting in an average price of around $125 per BTC.  If I expected to make 10% on the trade but moved the price by 25% when entering, then I have made a mistake by not looking at the order book.

The best way to use the order book is to start with two questions: 1)  How many coins will I be trading and 2) What is my expected return on investment.  For example, if you are trading the moving average crossover system on an hourly timeframe and expect to earn 3% on each average trade, but you are trading in such a size that you will cause the market price to move 5%, you have inadequate liquidity and need to change your approach.


I have few things to say about this, but I'll cut straight to your question first.  This question feeds back into the previous point about liquidity.  If you are trading in such a size that liquidity could be a problem in BTC/USD, then you are magnifying your problems by going to BTC/EUR.  As liquidity diminishes, your expected return will diminish in that your entry price will be worsened.

Now about BTC/EUR.  I don't think I've ever looked at a chart of any other currency vs. BTC, but I'm pretty sure that I know what it shows.  Due to triangular arbitrage, all BTC pairs will essentially show the same price movements.  For example, if BTC/USD starts rising, but BTC/EUR isn't moving, traders can sell their BTC for USD, convert USD into Euro, buy BTC and lock in a "risk-free" profit.  This relationship virtually ensures that as long as money is allowed to freely be exchanged, price movements across currency pairs will be similar.  Since the moving average crossover system is a trend-following strategy and the trends will be similar, it doesn't make too much sense to me to change to a less liquid pair.


Best of luck with your trading!

And I've gone back and changed my initial post due to a few PMs, etc. trying to send donations.  Please no donations, if you earn a profit from this thread, please give a portion to some charitable cause and not to me.  The reason for this is that I am a trader, not a system seller.  When I wrote that last year, I envisioned this thread turning out differently than it did.  The only payment I take as a trader is a percentage of profits I actually earn on accounts under management.

Thanks all!

Goomboo

I won't try to sell you on something, but unlike Bitcoinica, Bitfinex is not a bucket shop. It offers P2P lending where someone offers their USD/BTC/LTC as loans, and the trader takes out this credit to margin trade, just like you referred to in the stock market. The trader pays interest on the loan once the loan is returned.
They are not regulated by the SEC however, so some risk is involved, but it is not the same.