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April 11, 2013, 08:12:56 PM |
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The crash today taught me several things about volatile markets.
- First of all, either invest money you can afford to not have for very long time or can lose forever.
- Wait, don't jump straight into the peak. Buy at week or month local minimum, this means bigger price fall in short time. Now is the best time to buy, but be ready for that the price will even fall - nobody knows the minimum and the best buy price to be added to limit order.
Don't be sad if the price goes down too much. If you sell, you add to the panic and lose your money.
- Consider your withrawal policy and trading rules BEFORE you make your first trade (buy Bitcoin). Never buy or sell because you feel it, you should follow your rules.
Now, the strategy. Bitcoin market changes in tens percent in minutes and there is big space for big profit or much bigger loss if you don't follow your rules.
I call it volatility compounding strategy and it is more effective than just buy and hold, which was my previous strategy until now. The graph is never monotone and the price falls often, so there always are opportunities to take profit even if the price falls.
The point is to sell a half of your Bitcoins if price doubles and buy back if the price falls. You may change levels or percentages to your own if you want.
Let's buy 100 Bitcoin for the current price $50 - generally, it is great opportunity to buy now, it's almost month's local minimum!
If the price falls, don't sell. It will, sooner or later, raise and reach $100. Then it's your time to take your money back - sell 0.5 (half of all) of your Bitcoins.
Either take your investment back and go from the point you got 50 BTC for free and run this strategy again or leave the dollars at the exchange account.
Now, two things may happen - price doubles again - you do the same, sell half of your BTC balance for the same amount (now you have doubled your money collected back in dollars) and so on. But, at $265 a sudden fall will come. This strategy will make you profit when you wake up and the price is less than half the price you cashed out at last time. So, let's say you sold 50 BTC at $100 and 25 BTC at $200 and the price is $80 and falling. Don't wait much if it falls more, it may go up back as fast as it falled down.
Now, having 25 BTC and $10,000, you use half of your dollar balance to buy Bitcoins back. In ideal case, you buy 50 BTC for $100 each, but you buy more for $80 in real. Now you have 75 bitcoins and $5,000 (your original investment). But you are unlucky and the price falls more, to $40. Now you buy Bitcoin for half of your dollar balance again. In ideal case, you would buy 50 Bitcoins for $50 each, totaling $2,500 and leaving you further reserve $2,500 and 125 BTC.
Now the price rises to $100. You sell half of your BTC balance, so (let's say you have 120 BTC to calcuate easily) sell 60 BTC for $6,000. Now you have $8,500 and 60 BTC. Remember, you had 50 Bitcoins and $5,000 at $100 level previously. That's why this strategy earns you more money in time than in just price going up. Like collecting energy from walking.
Low price means much more Bitcoins and high price means much more dollars, so you can afford to withdraw sometimes.
I used 2 or 0.5 respectively as a factor, you may use 3 or 0.33, 1.5 or 0.66, 1.25 or 0.8 etc).
The weak point of this strategy is to buy at too high price so your profit levels will all be too high. But you may use only 50% or 25% of your investment for first buy - you are at the first (second) profit level then, not the initial deposit level!
If you think this will be your strategy too, consider sending a thank-you to 18YV8mk1jM1f78mxqenwbd27j879KeyrZy
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