Goomboo's Journal

[Goomboo]

Hi all, Goomboo here!

I'm a Forex / Bitcoin trader and I thought I'd open a thread in which I share my method / trades.

I have tried trading thousands (literally, thousands) of trading strategies for the past few years, but I have found that the more simple and less elaborate I make my trading, the more profitable it becomes.  The system I use for Bitcoin is very, very simple and straight forward.

I trade a 10 and 21 exponential moving average crossover.  When the 10 crosses over the 21, I buy.  When the 10 crosses under the 21, I sell or sell short.  I chart and trade through RTBTC.




Here is a table of contents containing what I believe to be important posts in this thread:

The Logic Behind Moving Averages
A Simplified Example of Trading the S&P 500
A Note About Leverage
Technical Trading Strategies Can Be Profitable for the Long-Term

The Steps to Profitable Trading
Traders Don't Predict - They React
Stick with the Plan!

Technical Analysis Tools Don't Work As Advertised
A Decade of Trading Results
You Can't Fade the System Forever
Don't Cut Your Profits Short
Risk Management Defines Us As Traders

Rules You Won't Follow Don't Matter
Why You Shouldn't Trust Your Gut

4500% Closed PNL: Don't Get Too Excited
Be Skeptical of Historic Results
Bitcoin Trading Is Very Expensive

Optimizing the Trading System
A Good Reading List
A Comparison Between Simple and Exponential Moving Averages

Stewardship Is Key
What If Too Many People Trade the Strategy?

Trader or Investor? It's All About Personality
True Fundamental Analysis: Fact-Telling, Not Story-Telling
We Search for Reasons When There Are None

Simplicity Is Key
Trading with an Edge

Trading Isn't for Everyone
You Must Honestly Examine Your Performance
Separate Your Ego from Your Desire to Trade
Trading in a Drawdown
The Backbone of a Trader Is Discipline
Avoid Worthless Speculation
Foolishness Abounds During Periods of Market Volatility
Trading Is About Survival
The Sole Job of a Trader
How to Pick a Winning Trader

System Performance As of 4-20-2014

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[Goomboo]

Since the Bitcoin market has so little liquidity, I suggest that new trader try a variant of my system.  If a large group of people were to trade the 10/21 crossover, the entries / exits would become crowded and price would move violently around those points, hurting us all!  I suggest that people try things such as a 9 / 14 crossover or a 5 / 8 crossover.

I caution against the lower timeframes because for the most part, they are just noise.  The spread is so large and the market is so thinly traded that if you are trying to make money on a chart of less than an hour, it can be very difficult.

[nmat]

Thank you for your contribution. How long have you been trading bitcoin?

[RyNinDaCleM]

Beware! The Boogie Man resides in these parts!  

Good luck!  

[ineededausername]

You'd think that simple strategies like this would not work.

They actually do.

[chsados]

can you go into a little detail about what exactly 10/21 means?  how do i set btccharts up for EMA?

[Goomboo]

Oh, and one more word about leverage!

I do use Bitcoinica, but I DO NOT use more than 2.5 times leverage.  My method is a trend following system which simply means I'm looking for a new trend to start and I want to be trading in the direction of that trend as long as it remains.  Trend following systems typically only have a 30% profitability ratio which means that if you trade, you have a 70% chance of being wrong and losing money on that trade.  If you are using 10:1 leverage and are wrong 3-5 times in a row, you're bankrupt!

Leverage is great in some situations, but it is a double-edged sword.  The beautiful thing about leverage from my perspective is that it allows individuals to practice fixed-fractional money management on lower timeframes.  Basically this means that leverage allows you to adhere to your risk management system by giving you buying power.

An example of an appropriate use of leverage:
-You have a $1,000 account.
-You are willing to risk 2% on a trade.  This means that if you're wrong, you lose $20.
-You know that a logical stop / place for you to exit if you are wrong is $.30 away from the market price.
-This means that you should buy > Dollars At Risk / Price move > $20 / $.30 = 66 bitcoin.  If you didn't have the money to buy 66 bitcoin, leverage finds a use.

[proudhon]

You'd think that simple strategies like this would not work.

They actually do.

Not for long.

[Goomboo]

Thank you for your contribution. How long have you been trading bitcoin?

Hi nmat, I have been trading bitcoin since April of last year.  I made the same mistakes that many here have made.  I am very experienced with technical analysis / risk-management / trading / markets, but I believed BTC was different.  My first trade I bought at $14 and sold at $18 (after the huge bubble) using technical trading / my plan.  I then caught onto the "bull fever" thinking that maybe this was the future and it would go to $100,000 a coin.  I reinvested my profits and sold out at $6, losing 50% of my small investment.  Basically, I have snapped back to reality - "there is nothing new on Wall Street, since speculation is as old as the hills" - and I am trading using my system / methodology once again and I thought I'd document it on this thread / talk to other bitcoin traders to see what they're up to.

I view bitcoin as highly speculative, so I have only put "play money" here.  I trade the currency market with my company and retirement accounts.

By the way, if no one has read this, it is awesome...a great reality check.  I think you can get it free in some places, but I suggest buying it to support the authors:

Reminiscences of a Stock Operator
http://www.amazon.com/Reminiscences-Stock-Operator-Investment-Classics/dp/0471770884/ref=sr_1_1?ie=UTF8&qid=1327114156&sr=8-1

[Goomboo]

Beware! The Boogie Man resides in these parts!  

Good luck!  

Lol, yes - I have seen some of the silly stuff posted here about Elliot Wave / Lunar Cycles / "Look at this LINE"

--Technical analysis only works in markets in which there are enough participants to make it work.  It's a self-fulfilling prophesy.  Elliot Wave / trend lines don't mean very much here in my opinion :p

[elux]

can you go into a little detail about what exactly 10/21 means?  how do i set btccharts up for EMA?

[Goomboo]

You'd think that simple strategies like this would not work.

They actually do.

Haha yeah, I've found that the easier the strategy to understand and implement, the better the results!  One of the best books I have ever read on technical analysis is below.  In the book they have a whole chapter on old and simple strategies backtested for nearly a hundred years.  Their findings is that even a simple and well thought-out system outperforms the market by a cumulative of hundreds of percentage points.

Technical Analysis: The Complete Resource for Financial Market Technicians
http://www.amazon.com/Technical-Analysis-Complete-Financial-Technicians/dp/0137059442/ref=sr_1_1?ie=UTF8&qid=1327114543&sr=8-1

[chsados]

can you go into a little detail about what exactly 10/21 means?  how do i set btccharts up for EMA?

thx

[Goomboo]

can you go into a little detail about what exactly 10/21 means?  how do i set btccharts up for EMA?

Hi chsados,

1.  Go to www.bitcoincharts.com
2.  Click on Mt. Gox on the right
3.  Change the time period to 10 day, 1 hour - it's kind of hard to see on my monitor, but in this type of market, it doesn't make too much sense to scrutinize price action
4.  In the "Moving Averages" box at the top, click on exponential on 10.  Next, click on exponential for 25 and type 21 instead and click draw.

The simple logic behind moving averages:

Moving averages basically show you the trend / direction price is going.  They are used in many industries for a variety of purposes, but here in trading, we use them for trend following / support and resistance.  I use them to give trade signals and the trend direction.  When the trend is going up, the shorter term moving averages will be above the longer term moving averages.  When the trend is going down, the longer period moving averages will be above the shorter term moving averages.

I use the 10 and 21 because they fit price well and I have found them to generate not too many or too few trading signals.

Here's a chart of the financial sector.  Basically, the moving averages give you an idea where price COULD be heading in the future:

[Goomboo]

You'd think that simple strategies like this would not work.

They actually do.

Not for long.

I strongly disagree with you proudhon.  One of the simplest trading systems is known as the Turtle Trading System.  In the system, you basically buy if the price is higher than the past 20 periods or sell when the price is lower than 20 periods.  This system generated millions for the participants and followers of it.  One of the "Market Wizards" did a test in which he hired a group of random people and taught them to trade the simple system - the majority of them made several million dollars in the following years.

If you would like to learn more about the Turtle Trading System, the complete rules can be found here:
http://bigpicture.typepad.com/comments/files/turtlerules.pdf

Also, here is an image of the historic performance of this system for the past 41 years.


This was found in this thread:
http://www.tradingblox.com/forum/viewtopic.php?t=7379

Also, the great book on the Market Wizards - or some of the best traders ever:
http://www.amazon.com/Market-Wizards-Interviews-Top-Traders/dp/1592802974/ref=sr_1_1?ie=UTF8&qid=1327115564&sr=8-1

[elux]

If you find me helpful, please help me out!
1Pim4bw15QCBkJfGLGfno5y7GCLgHZQaYq

Sent you 0.1 Bitcoins in appreciation of this thread.

[Goomboo]

If you find me helpful, please help me out!
1Pim4bw15QCBkJfGLGfno5y7GCLgHZQaYq

Sent you 0.1 Bitcoins in appreciation of this thread.

Thanks man!  I'm really hoping that having a simple system helps many of the traders on here.

[Goomboo]

For those who are new to the idea of a moving average crossover, I'll go into the benefits / detriments of it.

One of the main benefits of a trend-following system is that it aligns you with the direction that prices are actually going.  Below is a chart showing the S&P 500 and how you could have protected / made money during the financial crisis and crash of 2007-2009.  The comically-big red arrow shows where you would have exited a long position and entered a short position.  This would have earned you a 59% return during the financial crash.  Following this, you would have exited your short position and entered long, earning you a 31% return on the run-up in prices.  Basically, trend following earns a great return when prices actually trend!



However, prices don't trend that often.  Lots of times they just chop around - this is known as whipsaw.  Basically you get whipsawed around and can steadily lose money practicing trend following.

In this thread, I'm going to attempt to trade my way to a regained account balance through a simple system.  If I am able to do this, then I will be justified in adding a few thousands dollars to my trading account to attempt to continue profitable trading of the bitcoin market.

[chsados]

wow this stuff is crazy!  so are you pretty much out of luck using this system until one of the 2 lines crosses to start a new position using the technique? 

for example right now the bigger number (21) is above the lower (10) meaning its saying an uptrend.  I assume there is no way to use this system to predict when they may cross?

[Goomboo]

wow this stuff is crazy!  so are you pretty much out of luck using this system until one of the 2 lines crosses to start a new position using the technique? 

for example right now the bigger number (21) is above the lower (10) meaning its saying an uptrend.  I assume there is no way to use this system to predict when they may cross?

Yep, this is basically where discipline comes in.  Do you have the emotional strength to sit on the sidelines until the moving averages cross?  Right now you SHOULD be long according to the system, but if you are not, it is too late.  You have to wait until the crossover to go short.  This is why many traders just can't make the cut - a lack of discipline.


Prediction - this is the sell-side of technical analysis.  Individuals who try and predict where prices are going typically do so so that they can sell their information to subscribers / etc.  Predictive technical analysis is normally not done by actual traders.  Traders are reactive to technical events.  Basically, we react to the moving average crossover by trading rather than predicting where prices will be.  I have absolutely no idea where price will be tomorrow or next year, but I absolutely have a game plan as to how I will handle market events as they come along.  I am a trader - I react to events, I don't predict them.