Goomboo's Journal

[RationalSpeculator]

The observant speculator should make note of the thread titles that crop up on this message board during times of market volatility.  Of the current popular threads, over half are either questioning why prices are falling or essentially begging fellow coiners to “hold the line”.  Does either of these classifications of market participants seem prepared to handle market volatility?  One person seeks to find an answer before acting and another shuts his mind off to the possibility of market collapse.

During bull markets, when all seems well and unrealized profits grow every day, there seems to be very little need for discipline and risk management.  When prices are increasing by leaps and bounds, it is easy to mentally agree that discipline and a method are important, because after all, “if my account is rising, then I must surely be doing something right”.  The error underlying this reasoning is that your entire foundation is built upon emotion.  When the market collapses however, your foundation is shaken and you are either in denial or asking why (the most popular topics on BitcoinTalk these days).

There is an old market saying: “Bull market foster sloppy habits.  Bear markets cultivate a healthy respect for risk management and discipline.”  If you are currently asking why or thinking about doubling down in your BTC investment to “buy the lows”, I encourage you to consider using the current market conditions as an excellent teaching opportunity.  Learn discipline and practice a tested method. It is more important that you learn discipline from this endeavor than make money.  Luckily, in the world of trading, disciplined traders tend to be best positioned to ultimately profit.

I agree with your wise words.

On a side note I think certain strategies, like mine, do lead you to buy more when the price goes down (up to a certain limit) while at the same time keeping risk management in check.


I'm also wondering if your technique to buy and sell based on crossing moving averages can fail?

I think it can when the market moves sideways giving false signals accumulating many small loses into a large one.

How do you avoid that such scenario ruins your capital?

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[TsuyokuNaritai]

For those not waiting for the daily chart, he EMAs crossed back strongly a few hours ago. The price was around 69, it's now 75 already.

http://bitcoincharts.com/charts/mtgoxUSD#rg1ztgSza1gEMAzm1g10za2gEMAzm2g21zv

Edit: And this is why I don't day-trade BTC<->Fiat! It crossed back 8 hours later. Score one for the daily EMA charts over the hourly charts.

[lebing]

For those not waiting for the daily chart, he EMAs crossed back strongly a few hours ago. The price was around 69, it's now 75 already.

http://bitcoincharts.com/charts/mtgoxUSD#rg1ztgSza1gEMAzm1g10za2gEMAzm2g21zv

[Goomboo]

I'm also wondering if your technique to buy and sell based on crossing moving averages can fail?

I think it can when the market moves sideways giving false signals accumulating many small loses into a large one.

How do you avoid that such scenario ruins your capital?

Absolutely, there is no fail-proof trading strategy.  The way to survive sideways action is to trade less size.  If you were to simply risk only 1% of your account balance on every trade, you would progressively trade less when losses abound.

As a general rule of thumb - if you can't survive 20-30 losses in a row, you are trading in too much size.  If you're risking 1% per trade, this means that if you lose 30 trades in a row, your account balance will only be down 26%.  The reason that you're only down 26% instead of 30% is that as you lose money, you trade less size.  For the mathematically curious, you can recreate these results by compounding a figure at -1%...this is what you're doing when you only risk 1% per trade.

Trading is a game of survival, first and foremost.  You absolutely must insure that your capital is preserved during periods of drawdown and loss so that you can earn a profit when the market favors your strategy.  In my personal trading, I win 37% of my trades and I have lost upwards of 9 trades in a row.  Despite this however, I am profitable.  The reason for this paradox (losing the majority of my trades and yet being profitable) is that I do everything in my power to manage risk.  I lose 1% every time I am wrong, but when I am right, I earn multiple percent.  It's just a numbers game.

[woodrake]

I have always been very skeptical of companies that allow "shorting" in the BTC markets.  In the stock market, when you short, someone is lending you a share which you sell and buy back later, while paying interest to the lender.  In the Bitcoin market, I have seen no such offering which means that you are engaging in a synthetic short position.  A synthetic short means that you are trading against the broker which can be a recipe for unscrupulous behavior.

Ah, I see. That makes sense; my understanding of shorting was on the share-lending basis but can see how BTC ones have not been doing that for the most part.

The best way to use the order book is to start with two questions: 1)  How many coins will I be trading and 2) What is my expected return on investment.  For example, if you are trading the moving average crossover system on an hourly timeframe and expect to earn 3% on each average trade, but you are trading in such a size that you will cause the market price to move 5%, you have inadequate liquidity and need to change your approach.

Ah, I had already been doing that. I either make bids/offers at my desired price and wait to see if they fill or, if there are orders for more than the amount I'm looking to buy/sell at roughly the right price I use that price in my profit calculations.

Now about BTC/EUR.  I don't think I've ever looked at a chart of any other currency vs. BTC, but I'm pretty sure that I know what it shows.  Due to triangular arbitrage, all BTC pairs will essentially show the same price movements.  For example, if BTC/USD starts rising, but BTC/EUR isn't moving, traders can sell their BTC for USD, convert USD into Euro, buy BTC and lock in a "risk-free" profit.  This relationship virtually ensures that as long as money is allowed to freely be exchanged, price movements across currency pairs will be similar.  Since the moving average crossover system is a trend-following strategy and the trends will be similar, it doesn't make too much sense to me to change to a less liquid pair.

That makes sense. My approach to get around my concerns of lots of automated trading has been to set my clock a little fast. Pablo thinks there are few bots yet on Gox though. Regardless, I'm moving some my automated trading to BTC-E due to their much lower fees! The difficulty there is of course the liquidity. I'll ask him how the bot handles that actually.

I did try arbitrage, but due to the difficulties of moving fiat in and out of the crypt-exchanges in a timely manner (especially Gox) it was impractical given the relatively small amount of funds I was willing to commit. To get a useful return I'd have had to have several tens of thousands of Euros in flight at any point to balance things on the different exchanges! This led me to conclude that the reason that BTC is higher on Gox than BTC-E and BitStamp (which now has twice BTC-E's volumes btw!) was the difficulty getting cash out.

Kate.

[Pompobit]

first, thank you goomboo for this thread, I learned a lot from your suggestions.

I am in doubt about how to know in good time when the EMAs cross. You said you use the hourly or daily bitcoinchart, but his update is not high enough to let you to profit from small oscillations. I mean, suppose the fast EMA cross above the slow EMA when price is 74, and comes below the fast EMA when the price is 76: we can get profit only buying before 76 is reached, and this often happens too quickly when there is a bounce.
So how to get this info quickly? Using the market API? Automatic trading softwares?

[ErebusBat]

first, thank you goomboo for this thread, I learned a lot from your suggestions.

I am in doubt about how to know in good time when the EMAs cross. You said you use the hourly or daily bitcoinchart, but his update is not high enough to let you to profit from small oscillations. I mean, suppose the fast EMA cross above the slow EMA when price is 74, and comes below the fast EMA when the price is 76: we can get profit only buying before 76 is reached, and this often happens too quickly when there is a bounce.
So how to get this info quickly? Using the market API? Automatic trading softwares?

I think that Goomboo mentioned that he only trades daily; however there are a couple of bots that you can use and just up the frequency, the Chrome Browser bot being the main one that comes to mind for this. 

Keep in mind that with higher frequency you also get more noise and thus the potentional for more losses (possibly profits too). Also it every strategy is meant to make money in all possible ways.   The purpose of this strategy is to provide a logic fact based way on when to be long or short. 

[Kuroth]

Hi..   New here and making my way through this thread(On page 3)

I had a couple of questions..

Could someone please explain to me the basics of what is meant by “Short”, “Long”, and “Stop”…   As it relates to trading..  I learn best by examples so a simple example would be appreciated VERY much..

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..


  Thanks!

[lucas.sev]

Hi..   New here and making my way through this thread(On page 3)

I had a couple of questions..

Could someone please explain to me the basics of what is meant by “Short”, “Long”, and “Stop”…   As it relates to trading..  I learn best by examples so a simple example would be appreciated VERY much..

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..


  Thanks!

Short: you are hoping that price will go down. How it works in real world? You borrow 10BTC, lets say price is 100$ sell them, and when you return BTC to the lender you buy them back, lets say at 80$ each, so you made profit.. Here on the forums when people say they go short it usually means that they simply sell and hope to rebuy cheaper. Although technically shorting would be if they rebought same amount as they sold cheaper and kept dollars to themselves 

Long: you hope price will go up, you buy BTC.

Stop: you close your short/long position. Long is closed by selling and short is closed by buying.

I think I got it right, please correct me if I'm wrong.

[notme]

Daily Goomboos: Prepare your fiat!

[Goomboo]

I am in doubt about how to know in good time when the EMAs cross. You said you use the hourly or daily bitcoinchart, but his update is not high enough to let you to profit from small oscillations. I mean, suppose the fast EMA cross above the slow EMA when price is 74, and comes below the fast EMA when the price is 76: we can get profit only buying before 76 is reached, and this often happens too quickly when there is a bounce.
So how to get this info quickly? Using the market API? Automatic trading softwares?

Thank you for the question, I am happy to hear that you have learned from this thread.

My personal preference is to trade from the daily chart to avoid the small oscillations.  As I've mentioned throughout the thread, after you cross the bid-ask spread to physically buy and sell in addition to paying a .65% commission, the market must move substantially in your favor to actually provide a profit.  For these reasons, I favor trading less frequently, which is why I trade on the daily timeframe.

For the daily timeframe, I don't need an API/automatic system to alert me to opportunities.  You only get 1-2 trading signals a month (on average) using the daily method, so it's really just a matter of checking a chart every few days to see if a crossover is nearing.  When it comes to trading the lower timeframes however, you really need to be either actively monitoring the chart or utilize some sort of software to spot the 3-7 trades per week (on average), which are generated.

[Goomboo]

first, thank you goomboo for this thread, I learned a lot from your suggestions.

I am in doubt about how to know in good time when the EMAs cross. You said you use the hourly or daily bitcoinchart, but his update is not high enough to let you to profit from small oscillations. I mean, suppose the fast EMA cross above the slow EMA when price is 74, and comes below the fast EMA when the price is 76: we can get profit only buying before 76 is reached, and this often happens too quickly when there is a bounce.
So how to get this info quickly? Using the market API? Automatic trading softwares?

I think that Goomboo mentioned that he only trades daily; however there are a couple of bots that you can use and just up the frequency, the Chrome Browser bot being the main one that comes to mind for this. 

Keep in mind that with higher frequency you also get more noise and thus the potentional for more losses (possibly profits too). Also it every strategy is meant to make money in all possible ways.   The purpose of this strategy is to provide a logic fact based way on when to be long or short. 

Great answer, exactly.

[Goomboo]

Could someone please explain to me the basics of what is meant by “Short”, “Long”, and “Stop”…   As it relates to trading..  I learn best by examples so a simple example would be appreciated VERY much..

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..

Hi and welcome to the thread.  Thank you for the questions.


In general, when you:
"Go long" - you are buying something in hopes that the price of said item will increase and you can sell at a profit.  For example, I can buy/go long BTC at $50 and sell it at $75 for a $25 profit.
- Further reading: http://www.investopedia.com/terms/l/long.asp

"Go short" - you are selling something you don't own and hopefully buying it back at a lower price to earn a profit.  For example, I sell a BTC at $50, buy it back at $30, return the BTC to its proper owner and earn $20 in profit.
- Further reading: http://www.investopedia.com/terms/s/short.asp

"Use a stop" - you select a price at which you will exit an existing position.  For example, I buy BTC at $50 and I only want to lose $10 so I put a stop at $40.  If price trades at $40, I will exit my position.
- Further reading: http://www.investopedia.com/terms/s/stop-lossorder.asp
- Further reading for using stops to enter positions: http://www.investopedia.com/terms/s/stoporder.asp


There are several nuances to these definitions, but the general idea is that you're long if you think price is going up, short if you think price is going down, and you use a stop-loss to protect yourself in-case you're wrong!

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..

I don't use any algorithms to trade in the BTC market.  I haven't looked into any of the said bots and know nothing about them.   Personally, I am not comfortable trusting my hard-earned money to an algorithm I didn't program.


Thank you for the questions and I wish you the best in your trading.

[Goomboo]

Short: you are hoping that price will go down. How it works in real world? You borrow 10BTC, lets say price is 100$ sell them, and when you return BTC to the lender you buy them back, lets say at 80$ each, so you made profit.. Here on the forums when people say they go short it usually means that they simply sell and hope to rebuy cheaper. Although technically shorting would be if they rebought same amount as they sold cheaper and kept dollars to themselves 

Long: you hope price will go up, you buy BTC.

Stop: you close your short/long position. Long is closed by selling and short is closed by buying.

I think I got it right, please correct me if I'm wrong.

Right on, great answers!

[Goomboo]

It's been over a month since the performance of the 10/21 hourly crossover has been displayed.  Here's an update showing what happened to a $1.00 investment following the different approaches.


A couple of things worth mentioning:

• The system performance before any trading expenses has resulted in a 2,407% gain since the beginning of the year
• This assumes no slippage from crossing the bid-ask spread
• This assumes no commissions
• This assumes no delays in execution
• When factoring in a .6% Mt. Gox commission, trading the 10/21 crossover results in a net gain of 571%

The chart below shows the performance potentially generated by a trader able to pay the lowest Mt. Gox commission of .25%:


A couple of things worth mentioning:

• Paying the lower commission of .25% results in a net gain of 1,339% since the beginning of the year
• This commission currently only applies to accounts trading more than 500,000 BTC per month: as trading size increases, systematic performance will vary due to increased slippage

[Goomboo]

It really is worth mentioning that commissions are a killer in this market.  The physical action of trading (buying and selling) is expensive.  The chart below shows the performance of the system since the beginning of January with differing commissions:

• The commission you pay is a very significant factor in your ultimate profitability
• Most successful traders seek to minimize the costs of doing business (commissions, slippage, etc.) to maximize profitability

Here's another way of looking at it:



The higher your commission, the less your profits!  Simple, yet often overlooked.

[Kuroth]

Thank you for the Info..  I am learning a lot..

Could someone please explain to me the basics of what is meant by “Short”, “Long”, and “Stop”…   As it relates to trading..  I learn best by examples so a simple example would be appreciated VERY much..

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..

Hi and welcome to the thread.  Thank you for the questions.


In general, when you:
"Go long" - you are buying something in hopes that the price of said item will increase and you can sell at a profit.  For example, I can buy/go long BTC at $50 and sell it at $75 for a $25 profit.
- Further reading: http://www.investopedia.com/terms/l/long.asp

"Go short" - you are selling something you don't own and hopefully buying it back at a lower price to earn a profit.  For example, I sell a BTC at $50, buy it back at $30, return the BTC to its proper owner and earn $20 in profit.
- Further reading: http://www.investopedia.com/terms/s/short.asp

"Use a stop" - you select a price at which you will exit an existing position.  For example, I buy BTC at $50 and I only want to lose $10 so I put a stop at $40.  If price trades at $40, I will exit my position.
- Further reading: http://www.investopedia.com/terms/s/stop-lossorder.asp
- Further reading for using stops to enter positions: http://www.investopedia.com/terms/s/stoporder.asp


There are several nuances to these definitions, but the general idea is that you're long if you think price is going up, short if you think price is going down, and you use a stop-loss to protect yourself in-case you're wrong!

GoomBoo when it comes to trading Bitcoin, do you ever use or experiment with automated bticoin trading bots?   I know some of them use your method(Trading Logic)..  Was just curious what you think of them and if you use them..

I don't use any algorithms to trade in the BTC market.  I haven't looked into any of the said bots and know nothing about them.   Personally, I am not comfortable trusting my hard-earned money to an algorithm I didn't program.


Thank you for the questions and I wish you the best in your trading.

[Kuroth]

So..  Could we see a Goomboo's Bot in the future?   Or see you team up with an existing Bot maker to make that Bot even better???

Now that would be Interesting..

I don't use any algorithms to trade in the BTC market.  I haven't looked into any of the said bots and know nothing about them.   Personally, I am not comfortable trusting my hard-earned money to an algorithm I didn't program.


Thank you for the questions and I wish you the best in your trading.

[notme]

So..  Could we see a Goomboo's Bot in the future?   Or see you team up with an existing Bot maker to make that Bot even better???

Now that would be Interesting..

I don't use any algorithms to trade in the BTC market.  I haven't looked into any of the said bots and know nothing about them.   Personally, I am not comfortable trusting my hard-earned money to an algorithm I didn't program.


Thank you for the questions and I wish you the best in your trading.

Goomboo bots exist... search this thread.  Or, if you can code, it would be dead simple to write.  If you can't code I personally wouldn't recommend you run a bot, but I'm biased.  I hate to use code I can't read and understand, particularly when it involves my money.

[Kuroth]

So..  Could we see a Goomboo's Bot in the future?   Or see you team up with an existing Bot maker to make that Bot even better???

Now that would be Interesting..

I don't use any algorithms to trade in the BTC market.  I haven't looked into any of the said bots and know nothing about them.   Personally, I am not comfortable trusting my hard-earned money to an algorithm I didn't program.


Thank you for the questions and I wish you the best in your trading.

Goomboo bots exist... search this thread.  Or, if you can code, it would be dead simple to write.  If you can't code I personally wouldn't recommend you run a bot, but I'm biased.  I hate to use code I can't read and understand, particularly when it involves my money.

Well I am already running a Bot based on Goomboo..    See my Sig...