Goomboo's Journal

[elux]

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

The pleasure is mine. Looking forward to updates.

[Goomboo]

Goomboo, it was informative reading your posts! It looks like you are setting up a nice self fulfilling prophesy here! 

Why did you wait so long to join us?

I've been lurking for a long time :p ... basically I didn't want to influence the community because to be honest, I believe that the masses are almost always wrong.  I would listen to the opinions of all of the people on the speculation board and when they were screaming that it was going to "da moon" then I was looking to get short.  Additionally, BTC is kind of my "pet project" - I spend most of my time / efforts / money in the "real" currency markets trying to find ways of compounding larger quantities of money.

Here's a little "proof" of how the masses are almost always wrong.  FXCM, a large Forex brokerage posts a chart showing the aggregate positions of all of their traders.  When the red line is above the green, traders are mostly short and when the green is above the red, traders are mostly long.  Notice how most people consistently lose money by betting against the trend?  They have a mentality of "I'm getting a good price, it's lower than it was yesterday...I'll buy!".

http://www.dailyfx.com/forex/technical/ssi/eur-usd/2012/01/19/ssi_eur-usd.html

And here's one more for you - here's a breakdown of all of the forex brokers operating in the United States and the percentage of their profitability.

http://forexmagnates.com/us-forex-brokers-profitability-report-for-q3-2011-oanda-back-on-top-profitability-up/

So basically - if the speculation board starts screaming buy, you can be fairly confident that a good short is coming up.  I didn't want to influence it and be a voice screaming "be rational".  Too late :p.

[Goomboo]

A word of advice to those who want to be traders.

First off, let's establish - what is a trader?  A trader is someone who will buy or short with equal willingness.  If your objective is to profit from changing prices in the financial markets, you are a trader.  If you are holding onto the concept of bitcoin and believe in its future, you are an investor.

What is a trader's objective?  Profit.  He exists purely to profit from the financial markets and earn a return on his or his investors' capital.  This said, it is a trader's duty to seek out markets in which he can confidently exude a profitable edge which is both consistent and scalable.  At this point, I need to draw the harsh reality to the fact that bitcoin, at the moment, is not a scalable market.  You cannot earn even a moderate return on sizable sums of capital ($1m +).  

Since you are a trader, it is your duty to spend most of your work and energy in markets in which you can earn a return.  This is why I prefer the "real" currency markets.  In a given day, maybe $2,000,000 trades in the bitcoin markets.  In the currency market, a single currency pair - EUR/USD - millions trade every minute.  If your objective is scalabe profit, this is the type of market you should be involved in.

You will hear many voices about technical analysis - "it works", "it's snake-oil" - these comments are just opinions.  The facts about technical analysis is that it is a tool, nothing more, nothing less.  Technical analysis can be used to generate profits in the markets if you know how to implement and use it.  Just like any other tool, if you haven't spent the time to learn how to use it, technical analysis can lead to lots of pain and blame.

I believe that technical analysis is an effective method for extracting profits from the financial markets.  I do not base this opinion on what a book, a person, or a forum says.  I base this solely on the fact that I have spent thousands of hours testing thousands of ideas across nearly every traded asset class and I have found that with dedication, persistence, and effort an edge can be created.

Here is my tangible advice on how you can learn to be a trader:

1.  Develop a system
--Learn about technical analysis until you have a conceptual framework of when to participate in market action
--When will you enter the markets?
--How much money will you risk per trade?  Is this scalable and dynamic?
--When will you exit the markets?  Both profitable exit and unprofitable exit.
--What hours of the day will you trade?

2.  Backtest the system
--You must acquire or create some method of exploring if your system worked in the past.
--My suggestion is a demo feed connected to NinjaTrader and MB Trading.  When you open a chart in NinjaTrader, you can click the arrow keys to move a candle onto and off the chart allowing you to see the price action as though it is happening live.
--Drag a chart of historical prices one candle at a time, recording your trades as though you actually were taking them in a spreadsheet.  Chart your profit and loss.  Analyze, scrutinize, and try to disprove your edge.
--I suggest you do this for 200-400 trades across as much data as you can get your hands on.

3.  Forward test the system
--Once you have confidence that your strategy worked in the past, you must ensure that it works in the future.
--Open a demo account and trade fake money for at least two months to prove that your edge still exists

4. Live trade the system
--Start with tiny amounts of money and adhere to your system perfectly.  The amount of capital at risk should be so small that if you lost it all, you wouldn't be financially disadvantaged.
--If you can continue to make profit for at least 30-50 more trades, you should be able to gradually add more and more capital to your system.


Of course this isn't easy and more than likely the majority of people won't do it.  My purpose in saying this is just to let you know that this is what it takes if you wish to have a sustainable edge in the market.

[ineededausername]

I'm afraid I'm too emotionally attached to trade Bitcoin properly.

Me too. 
You know, back when I first got into Bitcoinica, I got zhou's $1 and started trading.  Made 44 cents.  I thought "whoa I am a good trader."  I bought and sold with equal willingness because I didn't have an emotional attachment to a single dollar at all.
Then I put in a few hundred, lost it, put in more, lost that too, etc.  Several times...
Since then, I have had nothing on Bitcoinica.  My forum posts, which are pretty accurate, are based on analyses conducted with no position at all in the market.  Whenever I actually try to trade, I fail.

@Goomboo: Excellent post.

[Goomboo]

A word of advice to those who want to be traders.

Of course this isn't easy and more than likely the majority of people won't do it.  My purpose in saying this is just to let you know that this is what it takes if you wish to have a sustainable edge in the market.

Another great post. I guess I am an investor. I've invested quite a bit of money, time, and effort into Bitcoin. I know I don't have what it takes to trade, but I often wish I did.

I'm afraid I'm too emotionally attached to trade Bitcoin properly. I find it fascinating watching other people trade, or attempt to trade though. I haven't seen many posts like yours in this forum, and I have to say it's a refreshing addition.

Thank you for the kind words Holliday,

Emotion really is a killer in the financial markets.  I've lost thousands to emotional decisions.  I used to trade "pink sheet" stocks - basically scam companies with share prices around $.0001/share.  I did it because I became emotionally attached to the idea and realized that if it took off, I could make millions.  At one time I owned 7,000,000 shares in a company...and I lost nearly all of my money.

A trader who was very influential to my thinking once said "successful speculation begins with objective observation".  He wrote a book called Technical Analysis Using Multiple Timeframes and it ranks in my top 3 best trading books ever written.  If anyone desires to learn to trade, this is a great place to start.  If not, the quote alone is worth thousands.

http://www.amazon.com/Technical-Analysis-Using-Multiple-Timeframes/dp/1598795805/ref=sr_1_1?ie=UTF8&qid=1327124041&sr=8-1

You know, there is absolutely nothing wrong with not trading.  If your objective is to profit and you realize that trading is not a profitable venture for you, then hey, you made a very wise trade.  I will say though that if you are looking for something to invest in, I highly, highly recommend Currensee.  I highly encourage you to look into it.  Basically you allow professional traders to manage your money and the ONLY way they get compensated is if you make money.

http://www.currensee.com/

[Goomboo]

I'm afraid I'm too emotionally attached to trade Bitcoin properly.

Me too. 
You know, back when I first got into Bitcoinica, I got zhou's $1 and started trading.  Made 44 cents.  I thought "whoa I am a good trader."  I bought and sold with equal willingness because I didn't have an emotional attachment to a single dollar at all.
Then I put in a few hundred, lost it, put in more, lost that too, etc.  Several times...
Since then, I have had nothing on Bitcoinica.  My forum posts, which are pretty accurate, are based on analyses conducted with no position at all in the market.  Whenever I actually try to trade, I fail.

@Goomboo: Excellent post.

I know exactly what you mean - emotion and lack of discipline have taken a huge chunk of my earnings in the past.  I've gone through and done rough calculations of how much money I would have made if I actually stuck with my plan since the beginning, it would have been millions.  I used to live in regret about this kind of stuff, but I found it influenced my trading.  I wasn't objective, I was emotional.

Here's the first stock trade I ever did.  I made 10% in a day...thought I was brilliant.  I cut my profits by 400%.



Here's the next stock trade I did.  Man, I thought I was on fire!  Made another 10%!  But cut my profits by another 200%.



There's a classic mantra in trading - cut your losses and let your profits ride.  Too often traders will do the opposite and take a profit and hide a loss until it overwhelms an account / you get a margin call.  Following these two trades in which I booked a fast profit, I held a stock for 7 months and watched my account fall by 50%.  Learning is difficult.

Here's some great advice from The Turtle Trading article I posted earlier:

[jojo69]

dood

you are giving away the secrets man

 

[Goomboo]

dood

you are giving away the secrets man

 

Haha, yeah the irony of the markets: everyone is chasing "the secret", but there never really was a secret to begin with :p

[nhodges]

Hehe, trading on the MACD lines is the Rich Dad, Poor Dad tactic they try to sell you at their conferences. It really is a simple concept to grasp and easy to keep a watchful eye on.

[bb113]

Hello Goomboo, do you have any experience trading stock in an industry you are an expert in? Or do you ignore such factors all together?

[stochastic]

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.

Yea money management is just as important as a strategy.  I also recommend people back-test.  Do you use any oscillators with your EMA signals?

[Timbo925]

subscribing +1
Will try this out for fun  

Made the short @ 6.2866

[notme]

I won't be joining this short, but I may buy a little more on the next long signal.

[Bebop]

Much gratitude and respect Sir Goomboo.

I notice on the first red arrow, the 10/21 didn't actually cross-over, but just met together for a moment. In retrospect, it was the time to sell. So I guess this means the lines don't strictly need to cross-over, but a coming-together can be enough to initiate a sell.

Now look, again (right now as I type this), the 10/21 have met... lets see if the strategy plays out.

http://i41.tinypic.com/bdwndi.jpg


Zoomed (1 day):

http://i43.tinypic.com/de4op2.jpg

Also Goomboo, the question which is probably on the tip of a few tongues right now. Pure skepticism -- I'd like to ignore it, but curiosity has the better of me. Although you instructed people not to use your 10/21 forumla, its almost impossible to expect anyone would not use it (Diffusion of responsibilty). If someone (such as youself) had a hunch that a bunch of people would be working explcitly with the 10/21 system, is there a way that you could use a counter-measure to make extra profits from this manipulation of the trend?

(this question is asked with much respect by the way).

[proudhon]

Also Goomboo, the question which is probably on the tip of a few tongues right now. Pure skepticism -- I'd like to ignore it, but curiosity has the better of me. Although you instructed people not to use your 10/21 forumla, its almost impossible to expect anyone would not use it (Diffusion of responsibilty). If someone (such as youself) had a hunch that a bunch of people would be working explcitly with the 10/21 system, is there a way that you could use a counter-measure to make extra profits from this manipulation of the trend?

(this question is asked with much respect by the way).

That's what I meant when I said this isn't going to work for long.

[Timbo925]

Also Goomboo, the question which is probably on the tip of a few tongues right now. Pure skepticism -- I'd like to ignore it, but curiosity has the better of me. Although you instructed people not to use your 10/21 forumla, its almost impossible to expect anyone would not use it (Diffusion of responsibilty). If someone (such as youself) had a hunch that a bunch of people would be working explcitly with the 10/21 system, is there a way that you could use a counter-measure to make extra profits from this manipulation of the trend?

(this question is asked with much respect by the way).

That's what I meant when I said this isn't going to work for long.

So if you will short when there is a crossover (and many ppl do this). This creates a extra downward momentum so the way to make a profit from this is to also sort yourself. So in a way if many ppl use it. Don't really see how you could make extra profit of this.  If the market goes up again there is a new crossover so you if you this system, you will sell your shorts and go long.
(I'm not an expert just a enthusiastic noob.  )

[mav]

What are your thoughts on RSI? It seems like another simple yet popular indicator for overbought / underbought

[Bebop]

(I'm not an expert just a enthusiastic noob.  )

Me too now

I think I'm feeling the gist of what you are explaining. Its like the wave of sell and buy becomes more exaggurated. So, the falls in price are steeper and deeper, and the rises are steeper and higher, or something close to that description.

Seems like a good thing, if you can ride the front of the wave.

So, extending on from this; could one say that the effect of introducing the 21/10 cross-over to an increased portion of the BTC trading population; that a more reliable (or profitable) wave of short and long momentum has been potentially created?

[proudhon]

Also Goomboo, the question which is probably on the tip of a few tongues right now. Pure skepticism -- I'd like to ignore it, but curiosity has the better of me. Although you instructed people not to use your 10/21 forumla, its almost impossible to expect anyone would not use it (Diffusion of responsibilty). If someone (such as youself) had a hunch that a bunch of people would be working explcitly with the 10/21 system, is there a way that you could use a counter-measure to make extra profits from this manipulation of the trend?

(this question is asked with much respect by the way).

That's what I meant when I said this isn't going to work for long.

So if you will short when there is a crossover (and many ppl do this). This creates a extra downward momentum so the way to make a profit from this is to also sort yourself. So in a way if many ppl use it. Don't really see how you could make extra profit of this.  If the market goes up again there is a new crossover so you if you this system, you will sell your shorts and go long.
(I'm not an expert just a enthusiastic noob.  )

Right, until enough people do this, then when there's a crossover I watch everybody short, I put a few thousand in bitcoinica on 10:1 margin and squeeze everyone out.

[Timbo925]

Also Goomboo, the question which is probably on the tip of a few tongues right now. Pure skepticism -- I'd like to ignore it, but curiosity has the better of me. Although you instructed people not to use your 10/21 forumla, its almost impossible to expect anyone would not use it (Diffusion of responsibilty). If someone (such as youself) had a hunch that a bunch of people would be working explcitly with the 10/21 system, is there a way that you could use a counter-measure to make extra profits from this manipulation of the trend?

(this question is asked with much respect by the way).

That's what I meant when I said this isn't going to work for long.

So if you will short when there is a crossover (and many ppl do this). This creates a extra downward momentum so the way to make a profit from this is to also sort yourself. So in a way if many ppl use it. Don't really see how you could make extra profit of this.  If the market goes up again there is a new crossover so you if you this system, you will sell your shorts and go long.
(I'm not an expert just a enthusiastic noob.  )

Right, until enough people do this, then when there's a crossover I watch everybody short, I put a few thousand in bitcoinica on 10:1 margin and squeeze everyone out.

Good point. But most important thing is not working met a big leverage. Because of the way it works on bitcoinica, the risk is to high. To protect you from this it would be quite easy. If your short on 6.5 just set a stop order on 6.7. This way you liquidate your position when the market turns against your position. This of course will lose you money. But it also protects it.

I was also wondering about the values to use for the moving leverages. Maybe the gap between the everages should be variable compared to the margins between the sell and buy price. (Because this is a direct loss your taking when selling/buying fast on bitcoinica). So if the sell/buy price is 6.13/6.25 the margin is 0.12 you should be using something like 10/22 for the moving averages.
Totaly not sure about this but it seems if theire is a great gap between buy/sell, the higher difference in your 'moving avarages' lines will only make you jump sides when it is clearly time to switch. (You need to be sure because a change of direction 'cost' more money)
On the other hand when there is almost no margin you can switch possibly cheap so your should switch faster to maximize profits.

This is just a theory but seems logical in a way to me.  

edit: your avatar is exactly the face i'm making while writing this.
edit2: Or maybe divide the margin by 2 and make this the difference between the moving averages