Day Trading Cryptocurrency: Crypto Trading Strategies 101
Day Trading Cryptocurrency: Crypto Trading Strategies 101
Day Trading Strategies in Cryptocurrency – Changelly
Cryptocurrency Day Trading - Tips, Strategy and Broker ...
Crypto Scalping Strategies - Compare all Trading Strategies
Day Trading Cryptocurrency – How To Make $500/Day with ...
There are multiple way you can day trade, this sub focuses on Pattern Day Trading. We don't trade the news. Price does 2 things... Up or Down... Patterns yield probabilities...Probabilities yield profits IF you manage your risk correctly.
Live Day Trade (Crypto) - Simple Support & Resistance strategy
Hey day traders, I've recently spun up a Youtube channel where I'm teaching about multiple different aspects of day trading, and how I've become a successful day trader. I started trading just over 3 years now, and through a countless number of mistakes, trying out every single indicator out there, studying hundreds of hours of TA, I've finally found my path. In my daily scalping, I use a VERY simple Support & Resistance strategy - I know it feels counter-intuitive, but I've found that the simpler I keep things, the smoother the ride is. My most recent video is an example of me taking a live trade. NOTE: While this trade is a crypto pair (BAND/BTC), I use this same strategy through all markets. https://youtu.be/qcYuRAbCn_4 Feel free to watch if you'd like! Please let me know if you enjoy it! And if you have any feedback (negative or positive), or suggestions, don't hesitate.
5 Days and 5 strategies to make money trading crypto (Day 2)
Day 2 is from the great book by Professor Larry Harris, “Trading & Exchanges” (1) which is an insightful read. Basically there are only two sustainable ways to make money in trading and the first is to "Provide Liquidity". What does that mean? This means that in the long run - you can make money by putting limit orders in exchanges and provide some volume to trade against in the order book. Now there are a couple of caveats we will explore tomorrow but in general one of the ways that market makers make money is by putting in orders "inside of the bid ask spread". So for example if XLM is trading against EURT at 0.065 to 0.07. That means is someone is willing to buy XLM using the EURO stable token for 0.065 cents and someone is willing to sell for 0.07 you can make some money in the long run by offering out your EURT for 0.066. Note normally in Foreign Exchange symbols are SELLING ASSET BUYING ASSET – so USDEUR means selling USD for EUR. You could even offer your lumens out at 0.069 and make money. Now each time you trade round trip you be making something like 0.003/0.066 = 4.54 %. Your order of 0.066 is so called “top of book”. Now there are really only two issues. First there needs to be trades to make the money (volume) and second you don’t want to offer too much for sale as the trade can go against you (risk management). Look at the daily volume and offer out 1-2% maximum. You can offer out trades lower in the book as well. Say for example 0.04 and 0.10. This way if a big order comes in you can get a great return for your liquidity provision. In the stock market normally traders put most trades out for the day and cancel all trades at the end of the day. I suggest a hybrid approach where you put out your aggressive orders for a shorter period and the other ones for longer period. You can also tilt your orders so if you want to say accumulate XLM in the long run you would put more orders out to buy XLM and less aggressive orders to sell. Then over the long run you will accumulate. If the market starts acting crazy – going up or down more than 4-10% in a few minutes trade only if you feel you understand why the market is moving. Otherwise cancel your orders until you know. Interesting you can not trade against yourself on the Stellar SDEX using the same public key. There is so called “Self trade protection” something modern stock exchanges just implemented in the past couple of years. Finally a nice strategy is to ignore small orders in the order book (less than a few dollars) as they are just noise. Put your liquidity providing orders inside of any big orders so you get filled before they do. Day 1 “Reduce trading fees where you can” (for example by using the stellar distributed exchange (SDEX)) Day 2 “Liquidity provision generally makes money in the long term” with proper risk management. (1) https://www.amazon.com/Trading-Exchanges-Market-Microstructure-Practitioners/dp/0195144708
There are few types of day trade strategy styles that can help you earn revenues from crypto investments. You have trend trading (going with the flow of the market), counter-trend day trading (expecting fluctuations within the trend), ranging trading (used when the market is "stable" but goes up and down constantly in value), and reactive day trading (large changes in short time). Each of these has its application, time, and place to be used. Keep in mind how the market moves and implement the corresponding style of your day trading strategy. https://www.cryptocointrade.com/
Do forex/stock day trading strategies apply to crypto? Or should this new market require new strategies?
I'm interested in day trading crypto currencies, like I assume many people in this subreddit might also be. I couldn't help but wonder if books, courses, and strategies on forex/stock market day trading should apply to crypto markets with the same confidence. Since crypto is a new market with lots of uncertainty, how well does knowledge on these other markets apply to our case?
So I spent all day writing a guide for beginners just getting into cryptocurrency trading. It outlines a ton of tools and ways to go about your crypto strategy. If you have someone wanting to get started but they don't know how, share it with them.
This week's @CoinistBot update, a day late. Thoughts + two live trades: > $BTC strategy still best performer >… https://t.co/EVyuBi2jDr - Crypto Insider Info - Whales's
Posted at: September 9, 2018 at 09:23AM By: This week's @CoinistBot update, a day late. Thoughts + two live trades: > $BTC strategy still best performer >… https://t.co/EVyuBi2jDr Automate your Trading via Crypto Bot : https://ift.tt/2EU8PEX Join Telegram Channel for FREE Crypto Bot: Crypto Signal
tldr; I'm an algorithmic cryptocurrency trader with my own cross-exchange trading platform that is performing well(ish) and I'm looking for ideas, partners, investors etc to help me push it forward. I've been trading cryptocurrencies programmatically since 2016 with some success. For about a year I made a modest living executing arbitrage trades across mostly fiat pairs using a bot hurredly hacked together in my spare time. As time went on the margins got lower and lower and eventually I turned the system off as it just wasn't profitable enough. I wasn't sure what to do, so I went back to my career in finance while I considered my options. Skip to the present day and I have rebuilt everything from scratch. I now have a cloud hosted (GCP), fully functional trading platform and have some new algos that are running unsupervised 24x7. The platform is far from finished of course, and like all non-trivial solutions to non-trivial problems: it has bugs, both scaling and performance problems and has a number of unfinished features. However, it does work, and cruically: it's stable, performant and reliable. In the past 12 months it has traded over $4m (roughly 40,000 executed orders and 100,000 fill events), and 99.9% of these orders are generated by my algos. I don't do arbitrage any more, though I may resurrect that algo as my exchange fees come down. My new algos are a little more sophisticated and they seem to reliably make a small profit (between 0.1% and 0.4%). I have a number of ideas cooking away for more algos, I'm just finding it difficult to manage my time. Both the platform and the algos need a lot of work and I only have one pair of hands. I'm actively trading on 18 exchanges and adding a new one roughly every couple of weeks. The system records and reports every order, trade, balance change, transfer, fee etc in real time using the APIs offered by each exchange. Each new exchange presents a new set of problems. Some are easy to integrate and have fairly sensible APIs, but some definitely do not. Some exchanges have helpful support, some defiantly do not. Some of the APIs change over time, some do not (although sometimes I wish they would). The more exchanges I add the more difficult it is to keep the system behaving in an rational manner. Some exchanges are so bad, though a combination of API and support, that I've had to blacklist them. With every exchange so far, and for varying reasons, I've had to implement both the streaming (websocket / fix) AND REST APIs in order to get a working solution. Exchanges don't typically do a great job with their APIs - some are astonishingly poor IMO, and have been for years. Some reputable exchanges do completely miss some really quite basic features. Some are internally inconsistent with things like error reporting. They all report fees differently and the way they charge fees varies greatly (some don't report the trade fees at all). Each exchange of course has it's own symbols for currencies and markets, and they also change over time (typically as a result of forked blockchains: BCC -> BCH -> BCHABC...). Some use different symbols between their own REST and websocket APIs. It's not uncommon for exchanges to delist markets, but surprisingly common for them it ignore the impact on users when they do so. It's also not uncommon for exchanges to delete your old orders after they close, but some exchanges will delete your trade data too after a relatively short period of time (good luck doing your tax returns). They all employ different strategies for rate limiting. Some have helpful metadata API calls, but most don't. And of course the API docs are often either missing, misleading or blatantly incorrect. Exchanges will routinely close markets, or suspend deposits and/or withdrawals of a certain currency (which has a huge impact on prices). The good ones with have API calls that reports this data, but there are very few good ones. I could go on but you get the picture. My application currently trades around 50-100k USD per day, and I'm planning/hoping to scale this up to 1m USD per day in a year from now. At any one moment it's managing about 100 to 300 concurrent open orders. The order management and trade reporting is the thing I've probably spent most time on. Having an accurate and timely order management system is vital to any trading system. My order sizes are relatively small and I have a pretty solid risk management system that prevents the algos from going crazy and building up large unwanted exposures. Having said that, the number of things that can go wrong is large, and when things do go wrong they tend to go VERY wrong VERY quickly... usually while I'm out walking the dog. I measure and record pretty much every aspect of the system so that I know when and where the time is being spent. Auditing is key. My system isn't what you'd call lightning fast right now. I don't think you would want to use it for high frequency trading. But I firmly believe that knowing where the time is being spent is over half the battle, so that's what I'm focusing on right now. Reducing latency and increasing throughput are always in the back of my mind, and although I've never intentionally designed the system to be fast, I make sure not to do anything that would needlessly slow it down. The platform itself is built on asynchronous messaging. It is backed by a cloud hosted SQL database and (apart from the database) all components have redundancy. It's running on a hand made cluster of 12 low cost servers, but much of the workload is distributed to cloud functions. It costs me a few hundred USD per month but as I scale up I expect that to scale up accordingly. I have a fairly basic front end (I'm not a UI person at all) built in react and firebase that I use to monitor and report the state of the system. It needs A LOT of work, but functionally it does what I need right now. I can see my orders, trades, portfolio, transfers etc in real time and I can browse and chart the market data that the system is collecting. One feature it has that I am very pleased with is the trade entry form for manual trading (its surprisingly nuanced). I only trade on spot markets right now, so other markets (derivates, lending etc) are not supported. Until I have an idea for a algo that trades in these markets I won't be adding them. And currently I only trade on the old fashioned, centralised exchanges. I'm writing this because I'm looking for ideas, partners, investors or even customers. I think the system has value, and it's time to move to the next level, whatever that may be. If you have an idea for an algo, adding them to the system is trivial now and if we could work out some sort of profit sharing I'd be keen to discuss it (and happy to sign an NDA of course). Feel free to reach out to me privately if you want to discuss anything.
How I applied Buffet's strategies to my own portfolio, +70% networth, beat SP500 by 40%
I believe I did pretty well in the market this year. My networth increased ~65% since its lowest point in March, ~350k to 620k. 20k from the car I bought in March. I rolled over a 401k and it messed up Mint's reporting, hence the spike from Jul -> Aug. I beat the SP500 by 40% in my YOLO account, my FAANG account went from 180->300 I did this by following some basic investing principles, buying and holding for the most part, being patient, and only investing in areas which I have expertise in. I did not buy into the TSLA hype, nor do I play options, nor do I play crypto.
Most news is noise, not news (don't read articles about investing)
The best moves are usually boring (buy and hold)
Only listen to those you know and trust
I firmly believe that anyone who follows those concepts, they will find success in investing.
Keep emotions out of the market
Don't bother timing the market. Don't get ruled by FOMO.
Understand that for some stocks, you can't really average cost down. You will have to stomach buying the stock at a higher entry point. My refusal to average up early on caused me to miss out on a lot of gains.
Understand the difference between trading, investing, and gambling.
Have an exit strategy (stop losses would have helped me a lot in March, I now learned from my expensive mistake)
Be greedy-- not TOO greedy. If a stock pops 10%, I will sell half to lock in profits. It's super common to see a lot of companies pop and the next day dip a bit due to sell off. Perfect time to grab more on the dip. This is obviously impossible to time, which is why I only sell half.
I was very specific in the types of companies I would choose to invest in within tech. I decided to follow my strengths. As a data engineer, I'm very intimate with cloud technologies, and I think I generally have pretty sharp business acumen and good strategic direction. As a result, my day to day work had me using a ton of technologies in the cloud space. I've used Splunk, NewRelic, Twilio, AWS, GCP, Hortonworks/Cloudera, Oracle, Tableau, Datadog, Sendgrid (bought by Twilio), Dropbox/box, Slack, Salesforce, Marketo, Databricks, Snowflake, HP Vertica, just to name a few. I was familiar with CDN services like Fastly and Cloudflare because sometimes, I worked with the DevOps and IT guys. Based on industry hearsay, day to day work, eventually, I got a good "feel" of what technologies were widely adopted, easy to use, and had a good reputation in the industry. Similarly, I also got a feel for what tech were being considered 'dated' or not widely used (HP, Oracle, Cloudera, Dropbox, Box). I tend to shy away from companies that I don't understand. In the past, most times I've done that-- I got burned. My biggest losers this year was betting on $NAT and $JMNA (10k total loss). After learning from those mistakes, I decided to only focus on investing in companies that either I or my peers have intimate first hand experience with using. Because of this rationale, the majority of stocks in my portfolio are products which I believe in, I thoroughly enjoy using, and I would recommend to my friends, family, and colleagues. Post COVID, due to the shift to remote work and increase in online shopping I decided to double down on tech. I already knew that eCommerce was the next big thing. I made very early investments into SHOP and Amazon in 2017 for that reason. My hypothesis was that post-COVID, the shift on increased online activity, remote work, and eCommerce would mean that companies which build tools to support increased online activity should also increase. I decided to choose three sectors within tech to narrow down-- these were three sectors that I had a good understanding of, due to the nature of my work and personal habits.
eCommerce + AdTech
IT/DevOps (increased online activity means higher need for infra)
FinTech (increased shopping activity means more transactions)
These are the points I consider before I consider jumping into a stock:
Do I feel good about using the company? Do I believe in the company's vision?
Where do I see this company in 5 years? 10 years? Do I see my potential children being around to use these companies?
What does YoY, QoQ growth look like for this company?
Is/Will this product be a core part of how businesses or people operate?
Who are their customers and target demographic?
(SaaS) Customer testimonials, white papers, case studies. If it's for a technology, I'm going to want to read a paper or use case.
In March, I took what I believe to be an "educated gamble". When the market crashed, I liquefied most of my non tech assets and reinvested them into tech. Some of the holdings I already had, some holdings were newly purchased. EDIT^ this isn't called timing the market you /wsb imbeciles. Timing the market would be trying to figure out when to PULL OUT during ATH and then buying the dip. I SOLD at the lowest point, and I with the cash I sold AT A LOSS, I reinvested that cash and doubled down into tech. If I sold in Feb, and bought back in March, that would be calling timing the market. What I am doing is called REINVESTING/REBALANCING... not timing the market. I have 50% of my networth in AMZN, MSFT, AAPL, GOOG, FB, NFLX, and the rest in individual securities/mutual funds. I have 3 shares of TSLA that I got in @1.5. Here are the non FAANGs I chose.
$SQ. I had already been invested in SQ since 2016. I made several bad trades, holding when it first blew past 90 until I sold it at 70... bought in again last year at 60s, after noticing that more and more B&M stores were getting rid of their clunky POS systems and replacing it with Square's physical readers. After COVID, I noticed a lot of pop up vendors, restaurants doing take out. A Square reader made transactions very easy to make post-COVID.
$ATVI. Call of Duty and Candy Crush print money for them. I've been a Blizzard fanboy since I was a kid, so I have to keep this just out of principle.
$SHOP. They turned a profit this year, and I think there is still a lot more room to grow. It's become somewhat of a household name. I've met quite a few people who mentioned that they have a Shopify site set up to do their side hustle. I've tried the product myself, and can definitely attest that it's pretty easy to get an online shop up and running within a day. I 5.5xed my return here.
$BIGC. I bought into this shortly after IPO. I'm very excited to see an American Shopify. BigC focuses on enterprise customers right now, and Shopify independent merchants, so I don't see them directly competing. I'm self aware this is essentially a gamble. I got in at 90, sold at 140, and added more in 120s. I def got lucky here... it's not common for IPOs to pop so suddenly. I honestly wasn't expecting it to pop so soon.
$OKTA. Best in class SSO tool. Amazing tool that keeps tracks of all of my sign-ons at work.
$DDOG. Great monitoring tool. Widely adopted and good recommendations throughout the industry. Always had a nice looking booth at GoogleNext.
$ZM. Zoom was the only video conf tool at work which I had a good time using. Adoption had blown up pre-COVID already in the tech world, and post-COVID, they somehow became a noun. "Zoom parties" and "Zoom dates" somehow became a thing interwoven into peoples' day to day lives.
$TWLO. Twilio sells APIs which allow applications to send messages like text, voice, and video chat. For example, when DoorDash sends you a text at 1 AM reminding you that your bad decision has arrived, that text is powered by Twilio. In March, New York announced that they were going to use Twilio to send SMS notifs for COVID contact tracing.
$NET/$FSTY. These two two seem like the ones best poised for growth in the CDN space. This is based off of industry exposure and chatting with people who work in DevOps.
$DOCU. people aren't going to office to sign stuff, super easy to use, I like their product.
$WMT. eComm, streaming, and a very substantial engineering investment makes me think they have room to grow. Also I really need to diversify.
$COST. When is the last time you heard someone say "Man I hate going to Costco and paying $1.50 for a hotdog and soda?" Diversification. Also cheap hotdogs.
$NVDA/AMD. GPUs are the present and the future. Not only are they used for video games, but Machine Learning now uses GPU instead of CPU to do compute (Tensorflow for example). Crypto is still a thing as well, and there will always been a constant need for GPUs.
Mutual funds/ETFs 1. $FSCSX. MF which focuses on FinTech.
$VTSAX Pretty much moves with the SP500.
$WCLD. Holdings include Salesforce, Workday, Zuora, Atlassian, Okta, New Relic, Fastly...
Titanvest: I was an early access user, and I was able to secure 0% fees for my accout. 36% gains so far. I like them, because their portfolio happens to include shares of tech giants that I either don't have individual stocks for or my stake is low (CRM, PPYL). It nicely complements my existing portfolio.
Some things I do that that are against the grain:
Not really diversified. 80% is in tech. They are in very different sectors of tech, but the truth is, when tech falls, all of these companies fall. I'm obviously long tech and I do not believe that tech will fall anytime soon. What about the dot com bubble? There wasn't a single dot com company that was integral in our lives. The internet was in its infancy then. Techonology is now such an interwoven part of our lives and I see companies like Apple, Amazon, Google to be sticking around for several generations.
I don't read investing articles. I think people who write articles about a stock all have ulterior motives-- to pump or to dump. Case in point-- Citron Research spent years writing articles telling people how SHOP was overvalued. Why did they do that? Because they were shorters at the time. I turned 5k into 27k, because I held on to most of my SHOP shares.
I don't take much value from balance sheets, other than net loss, income, YoY growth. Instead, I use my business acumen to try to pick up on info that isn't super apparent from Google. For example, one thing I always do is that I look at the career page to see how the business is growing. Increase on marketing/sales/implementation engineers is typically a solid sign that a company is preparing headcount to take new deals in the upcoming quarters. I look at the product road map, supported integrations, and customer base.
One example was how I applied the above principle was to WalMart. In 2018 I noticed that I was getting targeted by a lot of Data engineering job listing for WalMartLabs-- WarMart's tech division. The role was to build out a big data pipeline to support their eCommerce platform. WalMart's online store released in Q3 of 2019. Post COVID, I used their online store and it was a seamless experience. They even offer a 5% cash back card like Amazon. They reported strong Q4 sales last year, and they did very well post COVID. Why did I choose to invest in $WMT? Because I believe that Wal-Mart has room to grow for their online platform. Lastly... remember that wealth isn't accrued over time. It takes years to build. The quickest way to increase your wealth is by investing in yourself-- your career and earning potential. The sooner my income increased, the quicker I had more capital to buy into stocks. Also, if you've gotten this far, the point of my post isn't to say that you should invest into tech. The message I'm trying to get across is-- when picking companies, pick companies in fields or verticals you have good knowledge in. Heed Buffet's advice to only pick companies you believe in and understand. Play to your strengths, don't mindless toss money based on one person's posts on Reddit-- always do your own due diligence. Use DD as a guide and use personal research and experience to drive your decision.
Hi I have recently been considering learning some daytrading, but I'm having a difficult time focusing my attention on one thing. I initially looked at penny stocks, I dont have a great deal of money I could risk so it seems to be a good option however I gathered most of it is short selling and from what I could tell you would have to fish for the moment to buy/sell. There doesnt seem to be a learning hub for penny stocks like forex. I couldn't find a straight line... Then I looked at forex and found babypips which is quite appealing, bite sized learning seems straight forward and allows me to know where to focus but the amount of investment is higher than penny stocks. Are there any other choices I could look into? What would you recommend to a noob wanting to make some extra income?
Former investment bank FX trader: Risk management part 3/3
Welcome to the third and final part of this chapter. Thank you all for the 100s of comments and upvotes - maybe this post will take us above 1,000 for this topic! Keep any feedback or questions coming in the replies below. Before you read this note, please start with Part I and then Part II so it hangs together and makes sense. Part III
Squeezes and other risks
Crap trades, timeouts and monthly limits
Squeezes and other risks
We are going to cover three common risks that traders face: events; squeezes, asymmetric bets.
Economic releases can cause large short-term volatility. The most famous is Non Farm Payrolls, which is the most widely watched measure of US employment levels and affects the price of many instruments.On an NFP announcement currencies like EURUSD might jump (or drop) 100 pips no problem. This is fine and there are trading strategies that one may employ around this but the key thing is to be aware of these releases.You can find economic calendars all over the internet - including on this site - and you need only check if there are any major releases each day or week. For example, if you are trading off some intraday chart and scalping a few pips here and there it would be highly sensible to go into a known data release flat as it is pure coin-toss and not the reason for your trading. It only takes five minutes each day to plan for the day ahead so do not get caught out by this. Many retail traders get stopped out on such events when price volatility is at its peak.
Short squeezes bring a lot of danger and perhaps some opportunity. The story of VW and Porsche is the best short squeeze ever. Throughout these articles we've used FX examples wherever possible but in this one instance the concept (which is also highly relevant in FX) is best illustrated with an historical lesson from a different asset class. A short squeeze is when a participant ends up in a short position they are forced to cover. Especially when the rest of the market knows that this participant can be bullied into stopping out at terrible levels, provided the market can briefly drive the price into their pain zone. There's a reason for the car, don't worry Hedge funds had been shorting VW stock. However the amount of VW stock available to buy in the open market was actually quite limited. The local government owned a chunk and Porsche itself had bought and locked away around 30%. Neither of these would sell to the hedge-funds so a good amount of the stock was un-buyable at any price. If you sell or short a stock you must be prepared to buy it back to go flat at some point. To cut a long story short, Porsche bought a lot of call options on VW stock. These options gave them the right to purchase VW stock from banks at slightly above market price. Eventually the banks who had sold these options realised there was no VW stock to go out and buy since the German government wouldn’t sell its allocation and Porsche wouldn’t either. If Porsche called in the options the banks were in trouble. Porsche called in the options which forced the shorts to buy stock - at whatever price they could get it. The price squeezed higher as those that were short got massively squeezed and stopped out. For one brief moment in 2008, VW was the world’s most valuable company. Shorts were burned hard. Incredible event Porsche apparently made $11.5 billion on the trade. The BBC described Porsche as “a hedge fund with a carmaker attached.” If this all seems exotic then know that the same thing happens in FX all the time. If everyone in the market is talking about a key level in EURUSD being 1.2050 then you can bet the market will try to push through 1.2050 just to take out any short stops at that level. Whether it then rallies higher or fails and trades back lower is a different matter entirely. This brings us on to the matter of crowded trades. We will look at positioning in more detail in the next section. Crowded trades are dangerous for PNL. If everyone believes EURUSD is going down and has already sold EURUSD then you run the risk of a short squeeze. For additional selling to take place you need a very good reason for people to add to their position whereas a move in the other direction could force mass buying to cover their shorts. A trading mentor when I worked at the investment bank once advised me: Always think about which move would cause the maximum people the maximum pain. That move is precisely what you should be watching out for at all times.
Also known as picking up pennies in front of a steamroller. This risk has caught out many a retail trader. Sometimes it is referred to as a "negative skew" strategy. Ideally what you are looking for is asymmetric risk trade set-ups: that is where the downside is clearly defined and smaller than the upside. What you want to avoid is the opposite. A famous example of this going wrong was the Swiss National Bank de-peg in 2012. The Swiss National Bank had said they would defend the price of EURCHF so that it did not go below 1.2. Many people believed it could never go below 1.2 due to this. Many retail traders therefore opted for a strategy that some describe as ‘picking up pennies in front of a steam-roller’. They would would buy EURCHF above the peg level and hope for a tiny rally of several pips before selling them back and keep doing this repeatedly. Often they were highly leveraged at 100:1 so that they could amplify the profit of the tiny 5-10 pip rally. Then this happened. Something that changed FX markets forever The SNB suddenly did the unthinkable. They stopped defending the price. CHF jumped and so EURCHF (the number of CHF per 1 EUR) dropped to new lows very fast. Clearly, this trade had horrific risk : reward asymmetry: you risked 30% to make 0.05%. Other strategies like naively selling options have the same result. You win a small amount of money each day and then spectacularly blow up at some point down the line.
We have talked about short squeezes. But how do you know what the market position is? And should you care? Let’s start with the first. You should definitely care. Let’s imagine the entire market is exceptionally long EURUSD and positioning reaches extreme levels. This makes EURUSD very vulnerable. To keep the price going higher EURUSD needs to attract fresh buy orders. If everyone is already long and has no room to add, what can incentivise people to keep buying? The news flow might be good. They may believe EURUSD goes higher. But they have already bought and have their maximum position on. On the flip side, if there’s an unexpected event and EURUSD gaps lower you will have the entire market trying to exit the position at the same time. Like a herd of cows running through a single doorway. Messy. We are going to look at this in more detail in a later chapter, where we discuss ‘carry’ trades. For now this TRYJPY chart might provide some idea of what a rush to the exits of a crowded position looks like. A carry trade position clear-out in action Knowing if the market is currently at extreme levels of long or short can therefore be helpful. The CFTC makes available a weekly report, which details the overall positions of speculative traders “Non Commercial Traders” in some of the major futures products. This includes futures tied to deliverable FX pairs such as EURUSD as well as products such as gold. The report is called “CFTC Commitments of Traders” ("COT"). This is a great benchmark. It is far more representative of the overall market than the proprietary ones offered by retail brokers as it covers a far larger cross-section of the institutional market. Generally market participants will not pay a lot of attention to commercial hedgers, which are also detailed in the report. This data is worth tracking but these folks are simply hedging real-world transactions rather than speculating so their activity is far less revealing and far more noisy. You can find the data online for free and download it directly here. Raw format is kinda hard to work with However, many websites will chart this for you free of charge and you may find it more convenient to look at it that way. Just google “CFTC positioning charts”. But you can easily get visualisations You can visually spot extreme positioning. It is extremely powerful. Bear in mind the reports come out Friday afternoon US time and the report is a snapshot up to the prior Tuesday. That means it is a lagged report - by the time it is released it is a few days out of date. For longer term trades where you hold positions for weeks this is of course still pretty helpful information. As well as the absolute level (is the speculative market net long or short) you can also use this to pick up on changes in positioning. For example if bad news comes out how much does the net short increase? If good news comes out, the market may remain net short but how much did they buy back? A lot of traders ask themselves “Does the market have this trade on?” The positioning data is a good method for answering this. It provides a good finger on the pulse of the wider market sentiment and activity. For example you might say: “There was lots of noise about the good employment numbers in the US. However, there wasn’t actually a lot of position change on the back of it. Maybe everyone who wants to buy already has. What would happen now if bad news came out?” In general traders will be wary of entering a crowded position because it will be hard to attract additional buyers or sellers and there could be an aggressive exit. If you want to enter a trade that is showing extreme levels of positioning you must think carefully about this dynamic.
Retail traders often drastically underestimate how correlated their bets are. Through bitter experience, I have learned that a mistake in position correlation is the root of some of the most serious problems in trading. If you have eight highly correlated positions, then you are really trading one position that is eight times as large. Bruce Kovner of hedge fund, Caxton Associates For example, if you are trading a bunch of pairs against the USD you will end up with a simply huge USD exposure. A single USD-trigger can ruin all your bets. Your ideal scenario — and it isn’t always possible — would be to have a highly diversified portfolio of bets that do not move in tandem. Look at this chart. Inverted USD index (DXY) is green. AUDUSD is orange. EURUSD is blue. Chart from TradingView So the whole thing is just one big USD trade! If you are long AUDUSD, long EURUSD, and short DXY you have three anti USD bets that are all likely to work or fail together. The more diversified your portfolio of bets are, the more risk you can take on each. There’s a really good video, explaining the benefits of diversification from Ray Dalio. A systematic fund with access to an investable universe of 10,000 instruments has more opportunity to make a better risk-adjusted return than a trader who only focuses on three symbols. Diversification really is the closest thing to a free lunch in finance. But let’s be pragmatic and realistic. Human retail traders don’t have capacity to run even one hundred bets at a time. More realistic would be an average of 2-3 trades on simultaneously. So what can be done? For example:
You might diversify across time horizons by having a mix of short-term and long-term trades.
You might diversify across asset classes - trading some FX but also crypto and equities.
You might diversify your trade generation approach so you are not relying on the same indicators or drivers on each trade.
You might diversify your exposure to the market regime by having some trades that assume a trend will continue (momentum) and some that assume we will be range-bound (carry).
And so on. Basically you want to scan your portfolio of trades and make sure you are not putting all your eggs in one basket. If some trades underperform others will perform - assuming the bets are not correlated - and that way you can ensure your overall portfolio takes less risk per unit of return. The key thing is to start thinking about a portfolio of bets and what each new trade offers to your existing portfolio of risk. Will it diversify or amplify a current exposure?
Crap trades, timeouts and monthly limits
One common mistake is to get bored and restless and put on crap trades. This just means trades in which you have low conviction. It is perfectly fine not to trade. If you feel like you do not understand the market at a particular point, simply choose not to trade. Flat is a position. Do not waste your bullets on rubbish trades. Only enter a trade when you have carefully considered it from all angles and feel good about the risk. This will make it far easier to hold onto the trade if it moves against you at any point. You actually believe in it. Equally, you need to set monthly limits. A standard limit might be a 10% account balance stop per month. At that point you close all your positions immediately and stop trading till next month. Be strict with yourself and walk away Let’s assume you started the year with $100k and made 5% in January so enter Feb with $105k balance. Your stop is therefore 10% of $105k or $10.5k . If your account balance dips to $94.5k ($105k-$10.5k) then you stop yourself out and don’t resume trading till March the first. Having monthly calendar breaks is nice for another reason. Say you made a load of money in January. You don’t want to start February feeling you are up 5% or it is too tempting to avoid trading all month and protect the existing win. Each month and each year should feel like a clean slate and an independent period. Everyone has trading slumps. It is perfectly normal. It will definitely happen to you at some stage. The trick is to take a break and refocus. Conserve your capital by not trading a lot whilst you are on a losing streak. This period will be much harder for you emotionally and you’ll end up making suboptimal decisions. An enforced break will help you see the bigger picture. Put in place a process before you start trading and then it’ll be easy to follow and will feel much less emotional. Remember: the market doesn’t care if you win or lose, it is nothing personal. When your head has cooled and you feel calm you return the next month and begin the task of building back your account balance.
That's a wrap on risk management
Thanks for taking time to read this three-part chapter on risk management. I hope you enjoyed it. Do comment in the replies if you have any questions or feedback. Remember: the most important part of trading is not making money. It is not losing money. Always start with that principle. I hope these three notes have provided some food for thought on how you might approach risk management and are of practical use to you when trading. Avoiding mistakes is not a sexy tagline but it is an effective and reliable way to improve results. Next up I will be writing about an exciting topic I think many traders should look at rather differently: news trading. Please follow on here to receive notifications and the broad outline is below. News Trading Part I
Why use the economic calendar
Reading the economic calendar
Knowing what's priced in
First order thinking vs second order thinking
News Trading Part II
Preparing for quantitative and qualitative releases
Data surprise index
Using recent events to predict future reactions
Buy the rumour, sell the fact
The mysterious 'position trim' effect
Some key FX releases
*** Disclaimer:This content is not investment advice and you should not place any reliance on it. The views expressed are the author's own and should not be attributed to any other person, including their employer.
Lition - $8 Million Dollar Market Cap With Real Use Right Now and a New Product They Are Developing Which Has Huge Potential.
I’m not usually one to shill my own coins but I’ve stolen a few good picks from this sub so I thought I’d share a new one I recently stumbled upon. Before I go into more details, I’d like to preface this by saying that I never invest in anything which I don’t think has the fundamentals to last at least 5-10 years and I don’t think this is a project which you will see a few hundred percent gains in a month or two. The hype isn’t there with this project and it’s more of a mid-long term play. If you want overnight gains, gamble on some of the smaller caps posted in this sub which are more like ponzi schemes riding on DeFi hype which you sell to a greater fool.
Lition is a layer 2 blockchain infrastructure on top of Ethereum that enables commercial usage of dApps. The Lition protocol complements the Ethereum mainchain by adding features such as privacy, scalability and deletability for GDPR compliance. Everybody can choose to build on Lition without the need for permission.
In addition to the above, they also have a P2P energy trading platform currently operating and is supplying green power to customers in over 1000 towns and cities across Germany. Through their power platform, Lition customers are able to save about 20% on their monthly energy bill, while producers generate up to 30% higher profits since they are cutting out the middle men. However, the real moonshot here is not their already successful smart energy platform (which utilises the same token) it is the enterprise layer 2 solution described in the quote above. Their layer 2 enterprise infrastructure which is still in development will offer infinite scalability through sidechains and nodes staking LIT tokens on these sidechains. Block times will be fast at around 3 seconds and fees will be tiny fractions of a cent. However, the real selling point for enterprises will be that the data on these sidechains can be deleted and can be public or private, with private chains being validated via Zero-Knowledge proofs to verify that the private data is correct. This is huge and makes Lition a solution for a wide range of enterprise use cases due to these optional features. But it doesn’t stop there. Lition is also GDPR compliant - a big deal for Europe based enterprises and for the record, very very few blockchain solutions are GDPR compliant (I believe VeChain is one of the few other projects which are).
Important Bullet Points
They have a very close partnership with SAP who if you don’t know are the world’s leading business software company. SAP’s Chief Innovation Officer is even an advisor for the project. As stated in the whitepaper: ”SAP can easily implement this blockchain into their existing products and services for their customer base of >400,000, making them immediately ready for blockchain use cases. It is therefore well positioned to become the standard mainnet for business applications.”
They have a partnership with Microsoft and they are integrated with Microsoft Azure Cloud.
In terms of their energy platform, Lition has a growth target of 235,000 customers by the end of 2022. 3 months ago they stated that they were ahead of their goal. Right now there is a ”solid 4-figured number of new customers every month with each new customer bringing in ~€1,000 Euros in annual recurring revenue”.
Oh, and did I mention they support staking? Staking returns are currently over 15% for node operators.
Their token has two primary uses. First, it is a utility token and they plan on making the LIT token the preferred payment method for all of the services on the Lition protocol. Secondly, it is used as collateral for staking which I can see locking up a large proportion of the supply in the future. Unfortunately the circulating supply is currently 50% of the max supply but that said, coins like LINK have just 35% of the total tokens currently circulating, so relative to other projects, this isn’t too bad and many of the tokens are still to be earned by staking.
With their existing energy platform seeing real adoption and steady growth in Germany, in my opinion, this alone would be enough to justify their current market cap. However, I can see their second layer solution for enterprise being a really big deal in the future as protocol coins tend to accrue more value than utility tokens. As a versatile L2 solution for Ethereum, LIT gets the best of both worlds - adoption and network effects from Ethereum by helping it to scale as well as accruing value from the wide range of enterprise use cases which can be built on top of Lition. At just $8 million dollars in market cap, it seems to me that their work-in-progress L2 enterprise solution has not been priced in. However, due to a lack of hype and marketing right now, I don’t see LIT exploding in the short term. Rather, I can see it slowly outperforming ETH and climbing up the CMC rankings throughout this bullrun, much like Chainlink did in the bear market. Their building and partnerships over marketing strategy also reminds me when I held Chainlink back in 2018 when Sergey was busy building out the project rather than blowing their ICO money on marketing a bunch of vaporware like so many other projects. Personally, I can see LIT becoming a top 100 project (not top 10) as it isn’t the first of an important new type of project like Chainlink was/is but it is an L2 protocol with unique advantages and selling points over other existing L2 projects which scatter the top 20-200 range. This would put the market cap at just under $120 million dollars which is a 15x from here. This is of course a valuation which assumes that the total crypto market cap remains where it is right now at just under $400 billion dollars. However, if BTC makes it to 100K and Ethereum gets to $5K then that is another 10x from here which compounds on any LIT/BTC or LIT/ETH ratio gains. In this scenario, a top 100 project would be worth around $1BILLION DOLLARS by market cap which is over 100x from here and probably even more if ETH hits 10K and Bitcoin dominance falls back down to the 30% range or below towards the end of the bullrun. Disclaimer, the above figures are a theoretical best case scenario and are far from financial advice. They are my moonshot estimates which assumes all goes well for the project and the wider crypto space. Website: https://www.lition.io/ CoinGecko: https://www.coingecko.com/en/coins/lition Medium: https://medium.com/lition-blog
TL;DR: LIT has current real world use which is consistently growing with their P2P energy trading platform and has huge potential with their new L2 protocol for enterprise due to its unique features. They have a close partnership with SAP and are also partnered with Microsoft. Currently around #400 on CMC, my target is for LIT to be top 100 by the end of the bullrun. Edit: Sorry 4chan, I didn't mean to shill one of your FUDed coins. Lit is a shitcoin scam, ignore this post.
Investment Thesis: Why investing in POW.TO (Power Corporation of Canada) now is an investment in a future high market cap Wealthsimple IPO
I have seen some posts here wondering about the wisdom of investing in Wealthsimple's parent company, Power Corporation of Canada (POW.TO). I decided to look more into this, decided to post my investment thesis and research on why I, long-term, I have a very bullish view on Wealthsimple (and by extension POW.TO), and why I think this is equal to being an early stage investor in a Wealthsimple IPO.
Ownership: Power Corporation of Canada (POW.TO) (83.2% ownership)
AssetsUnderMangement: $5.4 billion, as of June 30, 2020 (4.9 billion in June 30, 2019)
Wealthsimple Invest (ETF Roboadvisor service), WS was one of the first-movers in this space in Canada and offered robo-advising as part of its initial product in 2015. WS claims to have largest digital investing presence in Canada (70% of the market) (reference).
Wealthsimple Cash, a savings account service
Wealthsimple Trade, a commission free trading app where users can buy and sell ~8,000 stocks and ETFs
Wealthsimple Crypto, a commission free cryptocurrency trading app, currently in beta
SimpleTax.ca, a free tax-return service used by ~1 million Canadians per year, acquired in late 2019
WS has had many successful rounds of funding and a vote of confidence from both its parent POW.TO and other multinationals investing in fintech.
Last year WS received a $100 million dollar investment led by Allianz X, the start up investor arm of German financial services giant Allianz
WS has had 7 total investing rounds, totalling $266.9 million (reference)
WS has been extremely aggressive in targeting growth areas. Wealthsimple’s CEO Mike Katchen has said he wants to position the company as a “full-stack” financial services company. Here are some of their current expansion areas:
UK and USA Expansion - in 2017, they started offering similar investing services in the UK and the US (reference and reference).
Socially Responsible ETFs - WS recently partnered with Mackenzie Investment to offer socially responsible ETFs with a social and environmental focus. Although probably not something that older investors care about, this is particularly important for younger investors who want to make sure their investments are socially responsible
Cryptocurrency - WS is currently testing a beta service of their cryptocurrency app, and offering fee-free cryptocurrency trading, similar to Wealthsimple Trade. Whatever your views of cryptocurrency (I'm of the view that I can in some cases be part of a portfolio to hedge against risk), it's here to stay. Earlier this month, WS was the first company in Canada to register with the Ontario Securities Exchange Commission (reference). My sense is that crypto will face increasing regulations and scrutiny in the coming years, which will be a good thing for WS which is a step ahead of the game (reference). Even Google is starting to look into relaxing its restraints on crypto (reference).
Other full-stack services - WS has been mum on what other services they might offer, but insurance, mortgages, and chequing accounts could be other areas of disruption. (Reference)
WS is run by young guys who have big ambitions and plans for the company. Sometimes there are CEOs with the intangibles that can really drive a company's growth, and from what I can glean, I think the company has a lot of potential here in terms of vision by its leaders. You can read more about the founders here
Michael Katchen, CEO, Background: Led product and marketing at a start up called 1000memories, a Y Combinator startup later acquired by Ancestry.com. Worked for McKinsey & Company.
Brett Huneycutt, COO, Rhodes Scholar... not much else I know about the guy
Quote sfrom CEO: Michael Katchen On being laughed out of the boardroom when he proposed his idea for Wealthsimple:
Within the last month, Wealthsimple has also opened an office in London. Katchen said a push into the European market is “possible” as its “ambitions are global,” but right now the Canadian and U.S. markets are “a lot to chew.” It is a far cry from the company’s early days: Katchen said he was “laughed out of the boardroom” for laying out a global vision for Wealthsimple at a time when they had just $1.9-million in funding and 20 users***.***“It’s a very personal mission of mine since I moved back from California, to inspire more Canadian companies to think big and to think internationally about the businesses that they’re building,” he said. (reference)
On Wealthsimple's growth in the next 10-15 years:
Wealthsimple has more than $5 billion in assets under management and 175,000 customers in Canada, the U.S. and U.K. He sees that reaching $1 trillion 15 years. “We’re just getting started,” he said. “Our plans are to get to millions of clients in the next five years.” (reference)
Brand Value and Design
Out of all the financial services company in Canada, WS probably has the most cohesive and smart design concept across its platforms and products. I see the value in Wealthsimple in not just the assets they have under management, but also the value of the brand itself. I mean, what kind of financial services company makes a blog post about their branding colour scheme and font choices? Also see: Wealthsimple’s advertisement earlier this year capturing 4 million views on Youtube. There also seems to be very strong brand awareness and brand loyalty amongst its users. I think a lot of users find WS refreshing as a financial services company because they cut through the "bullshit" and legalese, and try to simply things for the consumer. They also have their own in house team of designers and creative directors to do branding, design, and advertising, and this kind of vertical integration is generally unheard of in the financial services industry (reference).
Interestingly, the CEO’s ultimate goal is to take the company public. Therefore, I see an investment in POW.TO as being an early stage pre-IPO investor in WS (reference).
The goal is to get Wealthsimple to the size and scale to go public, something that Katchen said he’s “obsessed with.” While admitting that an IPO was still a few years down the road, Katchen already has a target of $20 billion in assets under administration (AUA) as the tipping point (the company recently announced $4.3 billion in AUA as of Q1 2019) (reference)
Ultimately, my sense is that a spun-out Wealthsimple IPO eventually be worth a lot, perhaps even more than POW.TO at some point. Obviously the company is losing money right now, and no where even close to an IPO, and there are still many chances that this company could flop. The best analogy that I can think of is when Yahoo bought an early stake in Alibaba (BABA) back in the early 2000s, and there came a point where their stake in BABA was worth more than Yahoo’s core business. I think an investment in POW.TO now is an early investment in WS before it goes public. (reference)
Expansion problems. In the UK, they reported significant losses and despite increasing users. (reference). The US is also an especially competitive space with lots of similar competitors.
The robo-advising, fintech space is highly competitive now, and the Big Five Banks and other investment/trading companies could easily start offering low-cost or commission free trading
Competitors such as Robinhood could also expand into the Canadian market and take out a huge chunk of WS's userbase
The X Factor
What I find particularly compelling about WS is they have aggressively positioned themselves to be a disruptor in the Canadian financial services industry. This is an area that has traditionally been thought to be a firewall for the Big Five Banks. There is also a generational gap in investing approaches, knowledge, and strategy, and I think WS has positioned itself nicely with first-time investors. My sense is that COVID-19 has also captured a huge amount of young adults with its trading app in the last few months, who will continue to use Wealthsimple products in the future. The average age of its user is around 34. As younger individuals are more comfortable with moving away traditional banking products, I think Wealthsimple’s product offering offers significant advantages over its competitors.
Power Corp is a Good Home
Currently POW.TO is trading at $26.30, down from its 52-week high of $35.15. I see an investment in POW.TO now as fairly low risk, and while WS grows, and there is also the added benefit of a high dividend stock. One of the most confusing things I found about Power Corp was its confusing corporate structure where there were two stocks, Power Financial Corp, and Power Corp of Canada. Fortunately, in Dec 2019, they simplified and consolidated the stocks, which also simplifies the holding structure of WS. I currently see POW.TO has a good stock to hold as well if you're a dividend holder, with a dividend of 6.86%. Also, POW.TO is patient enough to bide its time and let its investment in WS grow, unlike a VC that might want to sell it quick. For example, the reason why WS went with POW.TO instead of the traditional VC route is explained here:
Katchen has directly addressed the question of why he did not go the traditional VC route recently, saying: If you are a business that requires perhaps decades to achieve the vision you have, well, if you’re not going to be able to generate the kind of returns that venture needs is they will force you to sell yourself, they will force you to go public before you’re ready, or they will just forget about you because you’re going to be a write off. And so Katchen essentially flipped Wealthsimple to Power Financial. Power is well known as a conservative, patient, long-term investor. (https://opmwars.substack.com/p/the-wealthsimple-founders-before)
My belief is there is a huge unrecognized potential in POW.TO's massive ownership stake in WS that will be realized maybe 5-10 years down the road. I didn't really dive into the financials of POW.TO in relation to WS's performance, because the earnings reports do no actually say much about WS. I'm aware of the main criticisms that POW.TO is a mature company and dividend stock that has been trading sideways for many years, and the fact that WS is currently not a profitable company. I am not a professional investor, and this is just my amateur research, so I certainly welcome any comments/criticism of this thesis that people on this subreddit might have! (Please be gentle on me!).
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