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Author Topic: Qoheleth's strategy  (Read 1742 times)
Joe200
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October 28, 2013, 02:05:55 PM
 #1

Every strategy has its pitfalls. What are the pitfalls of this one?

https://bitcointalk.org/index.php?topic=318109.0
Quote from: Qoheleth
The trick is managing the amount that you buy/sell. My usual approach is to keep a trading purse that's half BTC, half my favorite national currency. Then, as the price rises and falls, I buy/sell so as to keep those balances equal. There's a strong underlying assumption (namely, that neither BTC nor my favorite national currency are in danger of falling to zero), but given that, and given long-term BTC bullishness, you're able to profit from swings without risking losing all your ammo.

Here is what I could think of.
- With this strategy, you always have to keep fiat on an exchange. This, in itself, is risky. You might not get it back. Or you might have to wait a long time to get it back.
- Trading too much means you're spending your money on commissions. To avoid this, you would buy / sell only after price moves by X%? What's a good value for X?

Others?
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October 28, 2013, 02:53:34 PM
 #2

I have a $3-rule: Never to sell the previous buy unless the price has gone up by at least $3 per BTC, which covers the fees and gives a tiny profit in a certain price range. With my currently reduced fees at Bitstamp I can actually do with $2 increase, but I stick to 3. If the price goes down: don't sell.

And my overall strategy is somewhat similar to Qoheleth's, though I plan to go 100% holding. Trading takes an emotional toll, however detached you try to be.

EDIT: Added a small clarification. Also, as notme pointed out in the posts below, I should have been more specific that this rule is a rough threshold to avoid selling at a loss during a turbulent trend reversal.

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October 28, 2013, 02:56:45 PM
 #3

I have a $3-rule: Never to sell the previous buy unless the price has gone up by $3 per BTCwhich covers the fees and gives a tiny profit. With my currently reduced fees at Bitstamp I can actually do with $2 increase, but I stick to 3. In the price goes down: don't sell.

And my overall strategy is somewhat similar to Qoheleth's, though I plan to go 100% holding. Trading takes an emotional toll, however detached you try to be.

You might want to change that to a percent based rule.  $3 may cover fees now, but if price goes up too much it won't.  Similarly, if price craters for a while you will be missing opportunities.

https://www.bitcoin.org/bitcoin.pdf
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October 28, 2013, 03:09:27 PM
 #4

Well, I have the range between $100 and $200 covered by that rule. It gives a much more immediate, at-a-glance indicator from where to place a sell order, especially during a more volatile period when I have to react fast. I would obviously need to pick another threshold if the price goes too much up or down.

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October 28, 2013, 03:12:20 PM
 #5

Well, I have the range between $100 and $200 covered by that rule. It gives a much more immediate, at-a-glance indicator from where to place a sell order, especially during a more volatile period when I have to react fast. I would obviously need to pick another threshold if the price goes too much up or down.

Sure, but you will also have significantly higher risk and smaller reward at $200 than at $100.

https://www.bitcoin.org/bitcoin.pdf
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October 28, 2013, 03:40:52 PM
 #6

True. However, I don't say I sell at buy price + $3, but that I will not place a sell order at below that threshold. I may well place a sell order at price + 5 or price + 10, depending on the order book constellation. It's just an indicator as to whether I should sell without a loss or hold when I see that the trend is reversing.

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“We are only as strong as we are united, as weak as we are divided.”
“It is important to fight and fight again, and keep fighting, for only then can evil be kept at bay, though never quite eradicated.”
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October 28, 2013, 03:46:41 PM
 #7

True. However, I don't say I sell at buy price + $3, but that I will not place a sell order at below that threshold. I may well place a sell order at price + 5 or price + 10, depending on the order book constellation. It's just an indicator as to whether I should sell without a loss or hold when I see that the trend is reversing.

So in other words, your "rule" has a bunch of caveats that you failed to mention in your first post.  This is why I pushed the point, so that less experienced traders can begin to understand the subtleties.

https://www.bitcoin.org/bitcoin.pdf
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October 28, 2013, 04:44:42 PM
 #8

Good that someone keeps me on my toes. Smiley I've updated my first post slightly.

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“It is important to fight and fight again, and keep fighting, for only then can evil be kept at bay, though never quite eradicated.”
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October 28, 2013, 04:55:00 PM
 #9

- Trading too much means you're spending your money on commissions. To avoid this, you would buy / sell only after price moves by X%? What's a good value for X?
What I've done for this is basically to doctor the prices in the manner of forex sites. In Bitcoinland, commissions are usually percentage-based, so it's simple to just pretend that the market ask is a little higher, and the market bid is a little lower. The natural result is that the rebalances wait for the market to shift a little more than they otherwise would in a zero-fee world before rebalancing in the opposite direction from the previous move. (I'm leaving a couple steps out of the math here, but I'll be happy to elaborate if people are interested.)

- With this strategy, you always have to keep fiat on an exchange. This, in itself, is risky. You might not get it back. Or you might have to wait a long time to get it back.
This is unfortunately a classic problem with no real answer until we get decentralized exchanges (and/or someone trustworthy operating a national-currency-backed colored coin). I've still got about a grand of FRNs sitting in Goxwire purgatory.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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October 28, 2013, 09:52:08 PM
 #10

Every strategy has its pitfalls. What are the pitfalls of this one?

https://bitcointalk.org/index.php?topic=318109.0
Quote from: Qoheleth
The trick is managing the amount that you buy/sell. My usual approach is to keep a trading purse that's half BTC, half my favorite national currency. Then, as the price rises and falls, I buy/sell so as to keep those balances equal. There's a strong underlying assumption (namely, that neither BTC nor my favorite national currency are in danger of falling to zero), but given that, and given long-term BTC bullishness, you're able to profit from swings without risking losing all your ammo.

Here is what I could think of.
- With this strategy, you always have to keep fiat on an exchange. This, in itself, is risky. You might not get it back. Or you might have to wait a long time to get it back.
- Trading too much means you're spending your money on commissions. To avoid this, you would buy / sell only after price moves by X%? What's a good value for X?

Others?

This is simply a balancing strategy....we even have a publicly available bot to keep it in balance automatically.
https://bitcointalk.org/index.php?topic=181584.0

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October 29, 2013, 01:33:13 PM
 #11

I've never been a big fan of balancing strategies.  They run away from success and towards failure.

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October 29, 2013, 03:34:47 PM
 #12

I've never been a big fan of balancing strategies.  They run away from success and towards failure.

Good point. I tried it for a while with a percentage of my coins and didn't like it either.

I'd prefer a strategy where it buys on the way down (to obtain more coins) and holds remaining cash all the way up.
Ie. It starts with a balanced position at the current level then buys on the way down and holds the position on the way up.

Some simple change to the balancer.py should make this possible...I should work on that.


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October 29, 2013, 03:49:43 PM
 #13

But first you need to define what is "all the way up" and where "up" ends.

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October 29, 2013, 05:05:56 PM
 #14

They run away from success and towards failure.
How so?

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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October 29, 2013, 05:14:19 PM
 #15

They run away from success and towards failure.
How so?

You are always trading against the trend, so you miss a good amount of the action on big moves.  However, for many people, stability of wealth is more important than compounding growth.  Each of these groups define success differently, and that's okay.

https://www.bitcoin.org/bitcoin.pdf
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October 29, 2013, 06:35:25 PM
 #16

They run away from success and towards failure.
How so?

To keep things in balance, you have to sell the winning asset and take on more of the losing asset.  This is a good way to protect against a sudden drop in one side, but does not seem to be a winning strategy for the long run.

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October 29, 2013, 06:54:57 PM
 #17

Every strategy has its pitfalls. What are the pitfalls of this one?

https://bitcointalk.org/index.php?topic=318109.0
Quote from: Qoheleth
The trick is managing the amount that you buy/sell. My usual approach is to keep a trading purse that's half BTC, half my favorite national currency. Then, as the price rises and falls, I buy/sell so as to keep those balances equal. There's a strong underlying assumption (namely, that neither BTC nor my favorite national currency are in danger of falling to zero), but given that, and given long-term BTC bullishness, you're able to profit from swings without risking losing all your ammo.

Here is what I could think of.
- With this strategy, you always have to keep fiat on an exchange. This, in itself, is risky. You might not get it back. Or you might have to wait a long time to get it back.
- Trading too much means you're spending your money on commissions. To avoid this, you would buy / sell only after price moves by X%? What's a good value for X?

Others?

The issue with the strategy is that it effectively has half-leverage. So you're throwing half of your potential leverage out the window, which has the potential to lose returns.

In Bitcoin, its a pretty good strategy, though, IMO.

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October 29, 2013, 10:00:07 PM
 #18

To keep things in balance, you have to sell the winning asset and take on more of the losing asset.  This is a good way to protect against a sudden drop in one side, but does not seem to be a winning strategy for the long run.
I think the main thing is that is plays on a different underlying assumption about price action.

When you talk about a "winning" asset and a "losing" asset, the assumption is that an asset which has just gotten a "win" will continue to win in the future, and that the "loser" will continue to lose.

My feeling in the Bitcoin world is that sudden reversals are the rule, rather than the exception. That up-and-down is the name of the game. It's a highly volatile thing - the price moves 10% and people call it a slow week. So instead of seeing a rally as BTC "winning" and USD "losing", what just happened is that BTC are "more expensive" and USD are "cheaper".

If the price will ever return to what it is today, a balancer strategy will make you money.

If BTC are going to the moon, well, that's another story.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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October 30, 2013, 02:35:29 AM
 #19

Winning at trading isn't so much about having a good strategy, it is about figuring out when to stop using one strategy and then picking the next one wisely.

Every strategy has pitfalls.  If one didn't, we'd all be using that one.  Balancing has a place, as does momentum trading, which is very nearly the exact opposite.  I don't think I'd be comfortable recommending either of those as "the strategy" for the public at large to be using, but for some specific people with specific needs, one or the other might be perfectly correct for them.

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October 30, 2013, 02:44:40 AM
 #20

Winning at trading isn't so much about having a good strategy, it is about figuring out when to stop using one strategy and then picking the next one wisely.

Every strategy has pitfalls.  If one didn't, we'd all be using that one.  Balancing has a place, as does momentum trading, which is very nearly the exact opposite.  I don't think I'd be comfortable recommending either of those as "the strategy" for the public at large to be using, but for some specific people with specific needs, one or the other might be perfectly correct for them.
That much is definitely true. If you can tell which way the wind is blowing, you can blow pure balancer-trading out of the water.

If there is something that will make Bitcoin succeed, it is growth of utility - greater quantity and variety of goods and services offered for BTC. If there is something that will make Bitcoin fail, it is the prevalence of users convinced that BTC is a magic box that will turn them into millionaires, and of the con-artists who have followed them here to devour them.
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