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Author Topic: why my strategy failed?  (Read 1083 times)
alan2here
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January 05, 2012, 12:43:20 PM
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Yesterday I bought some bitcoins with leverage on Bitcoinica. I then bought some more with the profits for a bit as the price rose before leaving it, seemingly thats sort of how Bitcoinica leverage works.

The price went up and up and my profits increased. Eventually I went to sleep for a bit but when I woke my position had a forced liquidation seemingly around market price although it won't tell me in the order history the exact price.

What caused the liquidation seemed to be a tiny downward trend that wasn't that deep.

I had been noticing that although the price was rising my profits after a cirtain amount were staying about the same and at the bottom of the slight downward dip while the price was cirtainly much higher than when I made the last trade it was still enough to cause the position to fail.

This is due to the spreads?

This means that even where the price keeps going up it can be best to sell when you'r making a good profit not right at the top of the trend?
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alan2here
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January 05, 2012, 12:54:42 PM
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Not all but yeah, most, and there wasn't a great deal in the account for this very reason. I can see the maintenance value and why it occured, forced liquidation seems quite a useful feature in some respects, it would be nice if it were possible to optionally specify/unspecify you'r own value to liquidate sooner. It was 10:1 but you don't seem to get 10:1 right off, it's like you've got to trade and then trade the profits ect... before you can get neer the full 10:1.

What I can't see is how there was any scope for the price to fall that much, it would have been above a safe level to start with and only ever went up, the bottom of the dip was above the point when I left to sleep. I can see on Bitcoin charts that this was the case.

Either Bitcoinica or Charts are lying, or the spreads progressively increased faster than the price did and Bitcoinica selectively saw either end of the spread as to be not in my favour. Is this possible?

It's as if you get 10:1 where the price falls but only 4:1 where it rises.

I wish Bitcoinica showed more relevent detail as to what was going on and less irrelevant stuff.
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January 05, 2012, 06:09:19 PM
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Not all but yeah, most, and there wasn't a great deal in the account for this very reason. I can see the maintenance value and why it occured, forced liquidation seems quite a useful feature in some respects, it would be nice if it were possible to optionally specify/unspecify you'r own value to liquidate sooner. It was 10:1 but you don't seem to get 10:1 right off, it's like you've got to trade and then trade the profits ect... before you can get neer the full 10:1.

What I can't see is how there was any scope for the price to fall that much, it would have been above a safe level to start with and only ever went up, the bottom of the dip was above the point when I left to sleep. I can see on Bitcoin charts that this was the case.

Either Bitcoinica or Charts are lying, or the spreads progressively increased faster than the price did and Bitcoinica selectively saw either end of the spread as to be not in my favour. Is this possible?

It's as if you get 10:1 where the price falls but only 4:1 where it rises.

I wish Bitcoinica showed more relevent detail as to what was going on and less irrelevant stuff.
When you buy at Bitcoinica, you buy at the high price on the spread -- e.g. around $6.257 right now. When you sell, you sell at the low of the spread -- $6.157 right now. When the price takes a big spike up, the buy price will jump up so that it's always higher than the buy price at MtGox; however, the sell price does not move up immediately in response and will lag by several minutes at least. This is all done to protect Bitcoinica from rapid fluctuations.

So, what happens if there's a huge buy immediately followed by a huge sell? The buy price on the spread jumps up several percent higher than the highest recent price on MtGox, and the sell price of the spread drops to several percent lower than the lowest recent price on MtGox, the result being that the spread might be over $0.50 at the current prices. Last night there was a time where the price jumped from $5.89 to $6.36 over a period of four minutes, and then dropped to just under $6 about nine minutes later. Six minutes later it's back up to $6.24. At that point the spread could be something like $5.75 sell, $6.50 buy, and with a high leverage you get force liquidated. However, the force liquidation occurs (I believe) at the current MtGox price, so by the time it gets processed the actual liquidation price might be at $6.15 or something.

Two lessons: One, don't use high leverage in a volatile market -- you're almost guaranteed to get liquidated at a loss. Two, if you're using high leverage and you see a big profit, take it! LOL. You could always try using a stop order to secure profits (still not guaranteed unless you're way up).

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January 05, 2012, 06:13:27 PM
 #4

Sounds like your strategy failed because you bought more with the profits, which left you with zero margin.  With zero margin, the tiniest downward movement will cause forced liquidation (aka margin call).

You need to maintain margin, always.  The more margin you have, the bigger a swing you can handle without getting force liquidated (aka "dreaded margin call").

Read babypips.com to learn more about margin trading.  Not a playground for kids; its a very dangerous game.

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January 05, 2012, 07:53:08 PM
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I have had this same problem with 5:1 leverage, and I will not go to 10:1.  I learned from my mistake and now I know to deposit enough funds to cover a downspike to whatever level the price will drop to (or vice-versa if you're short), and sometimes I'll take a coin or two that I mined and deposit it just to make sure, if the price drops a bit.

The loss tolerance on bitcoinica for 5:1 leverage is 16% -- so after you lose 16% or move (P/L shows minus however much 16% of your margin is), you get force liquidated.
That percentage is only 6% for 10:1 -- no way I'm using that.

10% off at CampBX for LIFE:  https://campbx.com/main.php?r=C9a5izBQ5vq  ----  Authorized BitVoucher MEGA reseller (& BTC donations appreciated):  https://bitvoucher.co/affl/1HkvK8o8WWDpCTSQGnek7DH9gT1LWeV5s3/
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alan2here
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January 05, 2012, 10:31:37 PM
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Thanks for the info. One thing I didn't count on was the delay + spreads effect on the price. And yeah, I'll not go for the peak again but the profit on the way up.
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January 05, 2012, 10:38:31 PM
 #7

Thanks for the info. One thing I didn't count on was the delay + spreads effect on the price. And yeah, I'll not go for the peak again but the profit on the way up.

Read this thread all the way through if you haven't already:
https://bitcointalk.org/index.php?topic=56731.0

PM me if you have any questions about using Bitcoinica.

10% off at CampBX for LIFE:  https://campbx.com/main.php?r=C9a5izBQ5vq  ----  Authorized BitVoucher MEGA reseller (& BTC donations appreciated):  https://bitvoucher.co/affl/1HkvK8o8WWDpCTSQGnek7DH9gT1LWeV5s3/
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alan2here
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January 05, 2012, 10:50:44 PM
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That thread is great. tyvm
Crypt_Current
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January 05, 2012, 11:28:34 PM
 #9

That thread is great. tyvm

Not a problem.  I have recently come into an excess of free time, while the general interest in Bitcoinica seems to be rising.  Maybe Zhou and Jon are spread too thin with other stuff to be helping people learn to trade, but I am not.  I have been teaching myself margin trading solely using Bitcoinica for a couple months now.

Anyone looking for help with Bitcoinica that Bitcoinica cannot provide, please PM me.

10% off at CampBX for LIFE:  https://campbx.com/main.php?r=C9a5izBQ5vq  ----  Authorized BitVoucher MEGA reseller (& BTC donations appreciated):  https://bitvoucher.co/affl/1HkvK8o8WWDpCTSQGnek7DH9gT1LWeV5s3/
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