Bitcoin Forum

(major updates available on my blog (http://david.latapie.name/blog/investment-strategy-10-200-and-trailing-stop/))

Disclaimer:
1. I did not apply these rules in the past and I lost a lot of money.
2. I am starting to apply them now but it is still too early to say if the work. Caveat emptor.
3. These are well-known rules, I didn't invent anything.

- Don't invest more than you can afford to lose
- Buy low, sell high - which means selling when it seems that it could still go higher
- Don't panic buy, don't panic sell (easier said than done)
- Identify what can go very high and buy
- Everytime it doubles, sell 10% or your remaing amount. After three  doubling (and thus three selling), you paid back your investment; even if the price crumbles now, you would still make a profit. I call this the "10/200" rule and credits go to rpietila and kmicic77 (https://bitcointalk.org/index.php?topic=469640.msg6199573#msg6199573)
- Place trailing stop (http://www.investopedia.com/terms/t/trailingstop.asp) orders at 10%. If the exchange doesn't accept trailing stop, move to another exchange

- best option if trailing stop is not available: stop loss (a.k.a. seat belt)
- third best option (always available): take profit

"Take profit" is implemented in any crypto exchange that I know of. You say at wich price you will sell (for instance, I'll sell my crypto I bought at 1000 once it will reach 1070).
"Stop loss" is like a seat belt for your money (if the price goes below 1010, sell). Would you drive a car without a seat belt? Well, on most crypto exchange, you are driving without a seat belt. That's probably one of the reason why money go so high: no one wants to lose and the best way to ensure this is to have the price go higher. Still, this is not a sane attitude.

Finally, trailing stop is a the best one. It will sell not at a fixed price, but at a percentage of the current price! It depends much less on the faith you have on the crypto so it is much less about luck. Of course, you have to choose the percentage carefully plus, there is a chance that the percentage brings the price lower than the one at which you bought (if the price goes down just after you bought)

You buy at 1000. The price moves to 1100 then when you come back, it is down to 900
No conditional order: you lost money
Take profit at 107%: you earnt 70
Stop loss at 1010: you earnt 10
Trailing stop at 10%: you earnt 90

Of course, the price could spring back from 900 to 1200 and then you would get 200 with no conditional order. Much like when you bet at the Russian roulette and win. Does still make Russian roulette worth it? I let you be the judge.

Plus, consider the stress. Do you want to be constantly thinking about the charts and have no life? There are three variables (or operands) in calculating the cost of something, and people rarely consider the three of them. By decreasing order of attention (not of importance), these are:
- money
- time
- energy

With no conditional order, either you are careless, or this money doesn't matter for you or you'll spend a lot of (emotional) energy. Personally, this is the third one. Now the added monetary value is not worth the extra energy I would spend.




I know only two crypto exchanges with trailing stop: kraken.com (for major cryptos) and swaphole.com (for minor cryptos)

I'm still pondering one thing (ouf of the "will my strategy work" question, of course): should I place trailing stop orders on the money I plan to sell? Ideally, I would use a combined order (trailing stop or take profit, whichever comes first), but I don't know any market which allows it.

I understand this may sound complex. So please don't hesitate to ask, I'll be delighted to reword it to make it easier to understand.

Great, thank you.


Just a typo - wihci

Thanks Colin! (for the compliment and for the typo)