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Author Topic: How about this Bitcoinica strategy?  (Read 3125 times)
notme
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January 06, 2012, 09:17:16 AM
 #21

You should buy back in before your profit evaporates.

This is a short position, I bought back all but 1 at the bottom of the spike.  The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.
I'm hoping that I understand the forced liquidation calculations enough to keep this hedging account from getting Zhoutonged.

  The profit is not really the point here; you could say I already locked in this profit by buying back in all but one.  AT least that's the way I'm understanding it right now -- I am very sleep deprived though.

Corrections are welcome, suggestions too.

I was making the (sarcastic) suggestion we would be passing $18 soon.  I believe your strategy is valid, although I don't see why you don't close out your position at the bottom and convert the profits to btc.

Reducing the position to one sort of "locks in" profits up to that point, then if the market surprises you you can use that last one to scrape out additional profits  Grin

A 1 BTC short position will earn you a whole 20 cents for every 20 cent price drop.  If you believe it's the bottom, why lock in your profits in USD instead of BTC?

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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January 06, 2012, 06:51:23 PM
 #22

My general strategy is to take an expected future value, something simple like a linear interpolation from the past week or so. When the price jumps higher sell, when it's lower buy, but only a little bit. In the inevitable situation that the price jumps again, sell/buy more. Make sure you have enough reserves to double down 3 or 4 times. If you predict it wrong 4 times in a row, well then you lose.
That's called Martingale strategy and is an absolutely certain (probability=100%) way for anyone to go bust. Read any book on trading.

I would say this is gambler's strategy.

With unlimited reserves and zero trade commissions, your overall winning is guaranteed.

With limited reserves and some trade commissions, your overall losing is guaranteed.

The chance of blind predicting wrong 4 times in a row is 1/16 and you would lose the entire investment. The profit of predicting correctly after 1, 2 or 3 jumps will always be less than 1/16 of your entire investment.

So:

P=15/16 -> profit less than 1/16
P=1/16 -> lose 1


...assuming that jumps are random independent unrelated events. But they aren't.

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January 07, 2012, 11:21:30 AM
 #23

http://www.mediafire.com/imageview.php?quickkey=1j0o0m1qhmfdqdn

I thought it was rather clever, considering where I think price is headed.  Whaddya think?


Looks like you found a way to game the system.

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January 07, 2012, 04:28:50 PM
 #24

Best Bitcoinica strategy = owning it.

Whats the best way to rob a bank?  Own It.
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January 07, 2012, 04:50:42 PM
 #25

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.
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January 07, 2012, 06:00:20 PM
 #26

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.

Super n00b question...When you say "close" do you mean "liquidate"?
notme
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January 07, 2012, 06:43:27 PM
 #27

Liquidate, or use a limit order to achieve the same.  When your position is back to zero, profits are "realized" and added to your reserve balance.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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January 07, 2012, 08:00:20 PM
 #28

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.

He dint short at $18 (was bitcoinica open then?), he shorted at a much lower price and the closed out all but 1BTC

The way bitcoinica works is it recalculates the base price when you add or reduce a position.

e.g. Short 2BTC at $10, bid drops to $5
bitcoinica shows: Base price $10

Buy 1BTC @ $5
bitcoinica shows: Base Price $15

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January 07, 2012, 08:15:28 PM
 #29

e.g. from selling down a previously leveraged long position



If I took this down to just 1 BTC the base price would be miniscule

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January 07, 2012, 08:16:02 PM
 #30

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.

He dint short at $18 (was bitcoinica open then?), he shorted at a much lower price and the closed out all but 1BTC

The way bitcoinica works is it recalculates the base price when you add or reduce a position.

e.g. Short 2BTC at $10, bid drops to $5
bitcoinica shows: Base price $10

Buy 1BTC @ $5
bitcoinica shows: Base Price $15

thanks for the clarification.

Proudhon:  notme is correct but do realize that liquidation means you'll accept any price to get out of your position even if it means a loss.  limit orders are more safe and allows you to choose at which price you want your order executed.
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January 07, 2012, 08:24:07 PM
 #31

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.

He dint short at $18 (was bitcoinica open then?), he shorted at a much lower price and the closed out all but 1BTC

The way bitcoinica works is it recalculates the base price when you add or reduce a position.

e.g. Short 2BTC at $10, bid drops to $5
bitcoinica shows: Base price $10

Buy 1BTC @ $5
bitcoinica shows: Base Price $15

thanks for the clarification.

Proudhon:  notme is correct but do realize that liquidation means you'll accept any price to get out of your position even if it means a loss.  limit orders are more safe and allows you to choose at which price you want your order executed.

Thank you.  I'm going to mess around with limit orders now.
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January 07, 2012, 08:26:46 PM
 #32

I found all my limit orders were executed in a fast moving market at much better prices than I had booked them in for which was an unexpected bonus

edit: sry actually those were some market sell orders where I noticed this

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January 07, 2012, 09:05:52 PM
 #33

You should buy back in before your profit evaporates.
The idea is to keep it open so that when we spike back up, I can sell again, then buy out when we spike down again, lather rinse repeat.

first of all congrats on what looks to have been a tremendous short from $18.

i agree with notme.  if u believe we're headed back up towards $18, why not close the 1 BTC short now, then re short @ $18?

in fact, if you had closed this 1 BTC short @ $2, you would have made an additional profits by this point.

He dint short at $18 (was bitcoinica open then?), he shorted at a much lower price and the closed out all but 1BTC

The way bitcoinica works is it recalculates the base price when you add or reduce a position.

e.g. Short 2BTC at $10, bid drops to $5
bitcoinica shows: Base price $10

Buy 1BTC @ $5
bitcoinica shows: Base Price $15

Exactly.  The idea is to keep my base price high on this account so I can have it locked & loaded when we reach the peak.

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January 07, 2012, 09:09:57 PM
 #34

e.g. from selling down a previously leveraged long position



If I took this down to just 1 BTC the base price would be miniscule

Otoh: you have no margin balance.. how did you get that position?!
edit: never mind, it's obvious now.

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January 07, 2012, 09:10:52 PM
 #35

e.g. from selling down a previously leveraged long position



If I took this down to just 1 BTC the base price would be miniscule

Otoh: you have no margin balance.. how did you get that position?!

He must have cashed out after he opened the position, it lets you use your profit as margin

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January 07, 2012, 09:19:53 PM
 #36

e.g. from selling down a previously leveraged long position



If I took this down to just 1 BTC the base price would be miniscule

Otoh: you have no margin balance.. how did you get that position?!

He must have cashed out after he opened the position, it lets you use your profit as margin

Right -- if you think the trend won't continue, or you just want to withdraw profits without closing the position, you can sell down some of your position (buy down when going short), which will lower your base price and lock in your profits.

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January 07, 2012, 09:25:47 PM
 #37

otoh - if you sold 28 at that price your base price goes to ~$0.029

any more and it goes negative! (don't ask me, I'm just the messenger!)

sell 242 at that price and your base price will be -$1424.41
)

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January 07, 2012, 09:33:06 PM
 #38

otoh - if you sold 28 at that price your base price goes to ~$0.029

any more and it goes negative! (don't ask me, I'm just the messenger!)

sell 242 at that price and your base price will be -$1424.41
)

Yes, this is true -- I have generated negative base prices on my own positions at times.  I don't know what this would mean, if anything -- maybe if you profit from there too much, you get Zhoutonged?  Huh  Grin

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January 07, 2012, 09:45:19 PM
 #39

thanks for the tip, I may sell another 28 if when we go over $7 again just to see, then eventually limit sale the rest all as one lot as I don't have a clue what a negative base price may result in, yep originally I opened the long position after depositing 300 BTC for margin (about $1,000 att), I sent them back to Gox once there were sufficient unrealised profits to act as margin, basically it's now a play with the house's money or more exactly zhoutonged shorter's money, less $567 I paid in to cover leveraged losses from shorting with those 300 over thanksgiving in order to play round 2 with them & I do appreciate that while I was down that much Bitcoinica let it ride & didn't foreclose my 300 BTC as it was a week or 2 before I could raise that amount of $ to cover my gambling losses there

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January 07, 2012, 09:51:10 PM
 #40

If I have the formulas right, then it means you can't get zhoutongued. Even if the price goes to $0. Your unrealised profit and loss is greater than the max possible loss you could incur.

Of course this only apple for long positions. Short positions are always at risk of zhoutonguing! Smiley

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