Hi all,
I have been thinking about a (new?) trading idea and wanted to see if any of you have any thoughts on this idea.
In order to remove sentiment or gut-feeling from trading, I want to come up with a "clean" strategy consisting of conditions and steps. Just follow the rules!
And not just for piece of mind, but also to be able to trade with a bot.
The idea is to make something like a Cryptocurrency Index (similar to Dow Jones, S&P 500) based on trading volume and build a portfolio based on that Index by trading on a cryptocurrency exchange.
(Arbitrary) Conditions are:
- The goal is to make BTC
- Source for market cap information is coinmarketcap.com (offers API)
- I trade on Poloniex (offers API too)
- Invest in 20 assets max
- Make sure to limit the "big" assets to max 10%
As "Arbitrary" implies, any of these conditions can be changed.
As a result of these conditions, "my" portfolio should consist of 20 assets that can be traded on Poloniex, based on a home made BTC Index that is built on trading volumes as obtained from coinmarketcap, where "big" assets (like for instance ETH) should represent no more than 10% of the total portfolio value.
Initial steps are:
1] Retrieve information from coinmarketcap and sort the assets on volume, biggest at number 1
2] Retrieve information from poloniex which assets can be traded
3] Excluding the "goal" currency, take the "biggest" 20 as candidates for our portfolio.
4] Distribute exchange balance (available BTC) over assets (keeping maximum share in mind).
5] Buy assets based on that distribution.
Whenever I want to reassess my portfolio, I will take following steps:
1] Retrieve information from coinmarketcap and sort the assets on volume, biggest at number 1
2] Retrieve information from poloniex which assets can be traded
3] Excluding the "goal" currency, take the "biggest" 20 as candidates for our portfolio.
4] Sell of assets no longer in the Top 20 (increases available balance)
5] Calculate current total trading value (i.e. what I would get if I sold the lot)
6] Distribute that value PLUS available balance over assets (based on new calculated quota)
7] For all assets "over quota", sell of the "over quota" part
8] For all assets "under quota", buy the "under quota" part
As a result, I end up with a (new) Top 20, where the distribution of shares should be as desired.
Whenever I deposit funds or at any other time I wish, I repeat the reassessment process. Over and over again.
I may be wrong (please tell me if so), but "price" is more or less unimportant in this strategy. Here's why (I think):
- It almost never happens that all assets in the Top 20 loose money. Therefore I can safely assume that "the money" moves within the Top 20. Perhaps historical data may tell us to maintain a Top 21 or more.
- Assets no longer in the Top 20 are traded less frequent than the ones within, limiting price fluctuations, making it hard to make profit (at least harder than the ones within the top 20). With the result of the sell(s) new asset(s) can be bought.
- An asset will become "over quota" if it's price increases (or others in the Top 20 decrease). Selling the "over quota" part provides us with means to buy "under quota" asset(s).
- Assets becoming "under quota" offer an opportunity to buy cheap(er).
Side note: While implementing the idea in a bot, I found an opportunity to "safe" a little on (the already low fees), by looking at "foreign" markets too:
If the strategy implies selling ETH for BTC and buying LSK with BTC, I can safe some fee by buying LSK with ETH.
So, what do you think? Did I miss something? Can you see it working? Will it make money or eventually go bust? Should I take buy/sell signals into account?
Please leave questions and/or comments; I can't wait to read them!
