My Journey to Beat The Market And Control The Downside. Algorithmic Trading.

[Low Sigma]

Hello,

Welcome to my journey.
Very briefly: outside crypto market I'm an algorithmic and discretionary trader.
In this journey I will post my evolution on crypto market and write different opinions and good practices(for manual and automated traders).

My objective is to make more profit than Bitcoin rise while keeping downside risk somehow under control. So I will active trade only BTC for the moment.

I used the word "somehow" because in such a volatile market a lot of things could go wrong: no liquidity to close positions, slow or unresponsive exchange(via API or GUI), bugs in my own algorithms and by the time I manage to take control the market could have moved a lot in a few seconds, getting filled with a massive slippage(although it can be mitigated using proper LimitOrders) and other factors.

I'm approaching crypto market with pure systematic algorithms. I coded the entire trading infrastructure and all algorithms by myself.

I would say that I'm a High-Frequency-ish trader but sometimes I go Medium-Low Freq. This is mainly decided by the market regime model which tells me if I should use mean-reversion, momentum or trend following.
The thing is that you don't need to trade all the time! If you trade all the time then very likely you are going to trash in/out a lot of positions and get eaten by the spread and commission. You need to be patient and wait for your strategy to signal that your edge can be exploited.

Now... regarding the edge: for those who say that you can't beat the market in the long term, let's not forget something: sometimes the market participants behaviour is extremely irrational. What does this mean for Efficient Market Hypothesis? Very simple: EMH can be distorted by the unexperienced participants.
Broadly speaking I don't believe in EMH regardless of the market traded. Have a look at some of the most profitable investment funds in the world and how they are grinding double digits profit per year, many years. Yes, you can be lucky a year, two, three... but you can't be lucky more than 10 years and at the same time having a proper risk control to satisfy clients and regulatory bodies.
As long as there are humans taking decisions, there will be inefficiencies hidden to be exploited. If the markets were traded only by machines(ideally, very good algorithms) then yes, we could approach EMH. But we are not there yet.

Why I emphasized the human nature in relation with EMH so much? Crypto markets are full of beginners who are not prepared to trade/invest properly. It's really fascinating how little investment/trading knowledge the participants in crypto space have. Beside the lack of a proper strategy, the execution of their strategies/analysis is affected by the psychology aspect.

A few years ago I read an article that there was an experiment where a group of beginners were told that they will be trading in real markets. But they didn't knew that their orders were not executed in the markets but virtually booked in the trading infrastructure. So from their perspective they were trading with real money. Behind the scene, the organizers were executing real trades in the market, but opposite of their orders. When a beginner was submitting a Long position, the organizers were taking a Short position in real markets and vice-versa. In the end, the organizers were making money even taking trading cost in consideration(remember, this is not a zero sum game). Why? Because human emotions can really make you take very bad trading decision when fear + greed + stress + money are combined.

If you have any questions, feel free to ask.
Btw, some information will remain private so if I don't answer to your question please don't take it personally.

[Low Sigma]

reserved to post strategy performance metrics

[Low Sigma]

reserved to post strategy performance metrics

[eddie13]

I wonder how silly professional traders feel to know that all these stupid uneducated crypto traders are kicking their butts?

You can't beat the market long term? lol
You can't win every trade every time (unless you take very little risk for very little gain) but you sure can win more than you lose in the longterm therefore beating the market..
You can make money in a market on the way down without shorts too, catch the dead cat bounces..

I think the fact that many crypto traders trade emotionally is what makes the market and what makes it predictable to me..
You can see the fear, greed, FOMO, etc building and then take on momentum which feeds on itself until it fizzles out.. Learning to spot this momentum in it's earlier stages lets you jump on and ride the wave..

It's easy to look back on a chart and say "See this line did this and then the market did this blah blah blah", but right NOW the line isn't made yet..
Their are all sorts of trading patterns, sure sometimes they work, but then sometimes you get a whale setting up a pattern and then crushing it the other direction to trap as many people as they can..

Crypto, especially the smaller markets, huge RANDOM changes happen in the blink of an eye.. You even get fat finger trades..

[Low Sigma]

I wonder how silly professional traders feel to know that all these stupid uneducated crypto traders are kicking their butts?

You can't beat the market long term? lol
You can't win every trade every time (unless you take very little risk for very little gain) but you sure can win more than you lose in the longterm therefore beating the market..
You can make money in a market on the way down without shorts too, catch the dead cat bounces..

I think the fact that many crypto traders trade emotionally is what makes the market and what makes it predictable to me..
You can see the fear, greed, FOMO, etc building and then take on momentum which feeds on itself until it fizzles out.. Learning to spot this momentum in it's earlier stages lets you jump on and ride the wave..

It's easy to look back on a chart and say "See this line did this and then the market did this blah blah blah", but right NOW the line isn't made yet..
Their are all sorts of trading patterns, sure sometimes they work, but then sometimes you get a whale setting up a pattern and then crushing it the other direction to trap as many people as they can..

Crypto, especially the smaller markets, huge RANDOM changes happen in the blink of an eye.. You even get fat finger trades..

What I wanted to say with "beat the market long term": make more profit than just holding and at the same time not being afraid that BTC will lose 50% overnight and instead maybe going Short and make a profit while the others are losing on that down move.

Of course I don't want to win every trade every time but instead I want to have full exposure when I'm right and lighter exposure when I'm wrong. Such that the winning trades on a weighted basis are above the losing ones.

I agree with you that the patterns work sometimes and I don't mind that a whale is playing because I have strict rules when it comes to risk management and the rules are executed via websockets so I can exit the market asap. Of course there are fat fingers like you said but no risk no gain.