First of all, a disclaimer: I haven't traded before, but I'm interested in the subject of trading. This isn't investment advice and I'm not responsible if you lose money by trading according to this.
After doing some heavy thinking I figured out an idea for doing profit trading with USDT/BTC pairs. I derived this post from
this topic and
my reply to it, and to avoid derailing his thread, which seemed to have gone south fairly quickly, I am starting my own thread. In a nutshell, it makes money in bear markets but preserves the value of your money in bull markets. With this method, you don't have to worry what would be the perfect price to sell BTC at. You'd need a lot of money to start off, at least a few ten thousand dollars, so that the profit made from this can be significant, in the hundreds. Think of it like compound interest except every time you convert BTC to USD you secure a profit. I will try not to use the terms "buy" and "sell" in this post to avoid confusing people which asset is being bought and sold.
First you get a USDT address that you deposit into at a particular price which I will call
target, and a BTC address solely for exchanging USDT from that address. Money in this USDT address will be converted when the price of BTC drops a certain amount form the target which I will call
stopgap. For example, you could have a USDT address that you deposit $10K in, while the BTC price is $9000 and you trade USDT for BTC when the BTC price hits $8500:
The basic ideas in this diagram is that you are supposed to convert USDT to BTC after the price drops to $8500, and back to USDT when the price rises back to $9000. Since you converted $10000 worth of USDT into BTC when the bitcoin price was $8500, it will be worth more when the price becomes $9000, precisely target/(target-stopgap) = 9000/8500 - 100% = 5.89% profit. So starting with $10000 you earn:
Trade pair 1 $10000 * 5.89% = roughly $10588
Trade pair 2 $10588 * 5.89% = roughly $11211
Trade pair 3 $11211 * 5.89% = roughly $11870
Trade pair 4 $11870 * 5.89% = roughly $12568
etc.
The reason you turn it into USDT is so the extra worth isn't lost when BTC dips again.
Where
aaaa is a value greater than $10K or its BTC equivalent at the moment.
Now $500 is an arbitrary value I used for the stopgap, and you could change it to any reasonable amount. I wouldn't make it less than $100 because each gain you make will be too small, which in the $10000 investment example makes you less than 1% profit after the first pair of trades. But don't make the stopgap so high that the price will only dip past the stopgap and back again a few times. You can also use profit percentages to calculate the stopgap bounds if you want. The key to making this method work is that the profit accumulates after many trade pairs.
Now what most people would do at this point is calculate a different stopgap value after each trading pair is completed, by analyzing the market. I don't like this because nobody is a price predicting maven and a single error has the potential to wipe a lot of your investment. So instead of altering the stopgap value, you make more investments with different stopgaps, each with different Tether and Bitcoin addresses.
I deposit four times as much money, but I split it in equal amounts across different address with different stopgaps. There is nothing special about the number 4 or any of the stopgap values I'm using; if you have enough money to invest you can make 10 different investments with stopgaps counting from $100,$200,$300 to $1000. They don't even have to be equally spaced, so if you believe the price will dip in smaller amounts instead of larger amounts, you could have a bunch of small stopgaps and a few large stopgaps.
You can imagine what happens when we hit each stopgap. Every time we hit a stopgap, the corresponding USDT is exchanged to BTC. Then when the price gets back to the target,
all of the BTC addresses are exchanged for USDT. If we don't reach a stopgap value then its addresses are left untouched. And, if we don't reach the target,
none of the BTC is exchanged.
Suppose the price changes from $9000 -> $8200 -> $9100 -> $8700 -> $9400 -> $8600 -> $7800 -> $8200 -> $9050 -> $8700 -> $8400 -> $9100:
The trade with stopgap $250 crossed the target 4 times, stopgap $500 crossed it 3 times, $750 twice, and $1000 once. The amount of money you will have with the investments in the second example are:
Trade pair 1
stopgap $250: $10000 * 9000/8750 = $10000 * 2.85% = roughly $10285
stopgap $500: $10000 * 9000/8500 = $10000 * 5.89% = roughly $10588
stopgap $750: $10000 * 9000/8250 = $10000 * 9.09% = roughly $10909
stopgap $1000: $10000 * 0% = $10000 (was not exchanged)
Trade pair 2
stopgap $250: $10285 * 9000/8750 = $10285 * 2.85% = roughly $10578
stopgap $500: $10588 * 0% = $10588 (was not exchanged)
stopgap $750: $10909 * 0% = $10909 (was not exchanged)
stopgap $1000: $10000 * 0% = $10000 (was not exchanged)
Trade pair 3
stopgap $250: $10578 * 9000/8750 = $10578 * 2.85% = roughly $10880
stopgap $500: $10588 * 9000/8500 = $10000 * 5.89% = roughly $11210
stopgap $750: $10909 * 9000/8250 = $10909 * 9.09% = roughly $11900
stopgap $1000: $10000 * 9000/8000 = $10000 * 11.25% = roughly $11250
Trade pair 4
stopgap $250: $10880 * 9000/8750 = $10880 * 2.85% = roughly $11190
stopgap $500: $11210 * 9000/8500 = $11210 * 5.89% = roughly $11869
stopgap $750: $11900 * 0% = $11900 (was not exchanged)
stopgap $1000: $11250 * 0% = $11250 (was not exchanged)
So your net profit is $1190 + $1869 + $1900 + $1250 = $6209. You can't make an apples-to-apples comparison with the first example, but generally the more stopgaps you have, the more profit you will make in a shorter period of time. Besides, markets don't always dip by $500 so having more stopgaps spaced appropriately will milk you more profit from a volatile market.
Two very important scenarios haven't been discussed yet:
What happens if the price keeps going downIn this case the price crashes and never reaches the target value. You have two options:
- If you have capital to spare, make more investments using whatever the new lower price is as the target, with either the same or different stopgaps, and make trading pairs with that. Then one day if the price ever comes back to the target value of the other investment group again, you can trade those back to USDT as well. Also see the other scenario.
What happens if the price keeps going up and never falls below the targetIf a bull run happens and the price is well above your target, then you can liquidate and withdraw your investments with the profits. Since you are holding your investments in USDT, and you only exchange to BTC when the price is below your target, the value of your investment has not changed at all.
Or to do this in a practical way, you withdraw the profits, and you adjust the target of your investments accordingly, to avoid withdrawing everything and making an unnecessary deposit.
You also need some kind of app to alert you when the price has crossed your stopgaps and targets, so that you can exchange them manually. In order to trade at all hours of the day, including when you are sleeping, perhaps you can coordinate trading with a group of friends, some who would need to live on the other side of the world obviously. Trading bots cannot be relied upon for exchanging your investments since you have to adjust them every time you change the target. And if you're doing that, then it's worse than manual trading, you might as well get rid of the bots.
TL;DR
When you have a lot of BTC stored while the price is high, and suddenly it crashes, you lose a lot of dollar value in your assets. This method avoids that by exchanging to BTC when the price is below a certain threshold and only changing it back to USDT when it reaches back to your target.
I hope you found this topic useful, and happy trading.
