Goomboo's Journal

[Sargasm]

Goomboo was suggesting shorting on bitcoinica and going long on mt gox...

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[RyNinDaCleM]

Goomboo was suggesting shorting on bitcoinica and going long on mt gox...

This^

I've been doing my thing, and then trying this out a bit on the side. The margins kills ANY attempt at profit with such little movement. I shorted early  .
Base @ $6.34, the best it got was +$0.07...

[Sargasm]

I was able to net .09 btc after fees on that trade.

Woohoo.  that's like .57

Well, it's cool to see it works.

Mtgox made a few bucks at least.

[piotr_n]

and now look what you've done:


nobody wants to trade against your system anymore

[notme]

and now look what you've done:


nobody wants to trade against your system anymore

Except all the people on the other side of those trades .

[piotr_n]

Except all the people on the other side of those trades .

yeah.
i hope you are there

[buck92]

I think people are really over-analyzing the effect of Goomboo's thread. IMHO we are simply seeing a state of faux-stability set on by the mini-crash a few days ago leading to a sense of confusion and lack of confidence in the market among traders who have decided to sit on the sidelines until the market indicates it is going one way or another. Another factor leading to such small trading volume has been the Chinese New Year, which more then likely kept many Asian traders out of the market this past weekend.

These indicators that Goomboo is using have been around for a long time and any smart/experienced trader would have already had them as part of their arsenal long before this thread came about. Besides anyone smart knows that it is incredibly stupid to rely on a single market indicator when trading, you gotta mix things up a bit and utilize a range of tools in your arsenal to make the most informed decision possible or else you are engaging in the trading equivalent of a soldier following a blind-man into battle.

[Sargasm]

You mean... by trading according to his instructions or otherwise?

He was saying that speculating tends to be nonsense and instead to use systems that you've rigorously checked, objectively making decisions based upon the historic success of the system over time.

He also directly contradicted what you're saying almost in its entirety.

[Goomboo]

I do believe that BTC is in a highly-speculative bubble and that just like the traditional spot FX markets, >95% of the volume is done purely by speculators.  Additionally, from the knowledge that the majority of individuals are wrong and lose money when they trade, this furthers my belief when I look at the * on Bitcoinica.  However, all this aside, I will not force this belief on my trading. If a long signal is generated, I will take it because the market can stay "irrational" a whole lot longer than I can stay solvent.

I believe that the $6.xx price of BTC as it stands now, is based on pure speculation.

Trading inside this highly speculative bubble is feasible to the extent that as you say "...the market can stay "irrational" a whole lot longer than I can stay solvent."  

Yeah, only price pays so even if something doesn't "make sense", it doesn't mean that you should ignore signals which have been shown to be profitable in the past.

Take the Nasdaq as an example.  In the late 1990s, it was considered to be overvalued.  If a trader were to make a trade simply by the "economics" of the situation and argue with the madness of the market, he would have shorted and experienced a >100% loss on his trade.  However, for the trader who simply followed the trend, across the following months he could have doubled his investment.

[Goomboo]

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

Have you considered automation?

I mean, if you're a proponent of using truly deterministic strategies for trading, it seems like a logical way to keep those strategies running without having to babysit them 24/7.

I'm a huge proponent of algorithmic system based trading.  I am more comfortable running my strategy through a VPS that I check once per week than actually trading - in a traditional market.  In a previous post I said I prefer to enter and exit by hand, which is true of bitcoin, but in almost any other market I have traded / am working on trading full automation of all of my strategies.

My issues with automation in this market are fickle liquidity, a market not modeled as well by technical analysis, and backtest results radically skewed by past data.

Additionally, when I design trading systems in the "normal" markets, I go through a process of attempting to quantify what is typically and what is atypical and trade around these important statistical ideas.  In this market, typical does not exist.

[Goomboo]

Wealth of information in this thread!

Totally digging it.  Have to sleep and spend some time reading it tomorrow.

I am a little unsure as to whether or not BTC has a 'real value'.  IMO BTC isn't like a currency exactly.  It's somewhere between a currency and commodity.  The fact that there are only such and such a number of coins and that people might find utility in holding them or exchanging them exerts price pressure upon them.

Especially as the currency stabilizes I expect to see the utility increase, adoption to increase and relative price to go up.

At the same time, I appreciate the sentiment, because the only thing really propping up the price of BTC at this point is speculation because consumption is a relatively small amount of use for it.  

Good to keep my heels cool.  

Also... if you're shorting do you only short if you are just in time when the lines cross?  Will you short any time after the indication, or would your risk increase and reward decrease pretty quickly if you were slow to pull the trigger?

That is entirely based upon user preference / risk tolerance.  If I miss an entry into a trade, I will wait until a pullback/throwback/retracement before shorting.  In traditional markets, every time I panic and hit the buy or sell trigger without waiting for a retracement, I almost always kick myself because a better entry afforded itself later in the trade.

Basically the market is a grinding battle between the bulls and the bears and profit taking from longs and shorts allows a temporary movement away from the immediate trend.  If you watch a traditional market, you will see volume dry up during the beginning of retracements and a large surge in volume during the candles in which the trend resumes.  Basically, this is from patient traders who missed the initial entry or are adding to their existing position (pyramiding).

To learn more about retracements, check the below link.  In the author's chart, point A is the golden opportunity to enter the trade because the breakout occurred and price retraced to previous support allowing them the ability to short with very little price-risk.

http://thetradequest.com/retracements.html

You always need a failsafe point for a trade.  A failsafe point is basically a well-thoughout location which essentially says, "if I miss the initial entry, where will I enter the trend"?  The idea here is that if you are out of the market and the market goes up thousands of percentage points (last year), you don't want to be on the sidelines.

In The Turtle System (check one of my earlier posts in this thread), the Turtles would buy or sell when prices reached a new 20 day high or low.  There was a catch though - if the last trade was / would have been profitable, they ignored the trade, believing that it would probably chop around.  However, to prevent themselves from missing out on a runaway trend, they had a failsafe long/short location equal to the 55 day high / low.  If they were out of a trade and a new 55 day high / low were made, they would enter in the direction of the trade.

[buck92]

You mean... by trading according to his instructions or otherwise?

He was saying that speculating tends to be nonsense and instead to use systems that you've rigorously checked, objectively making decisions based upon the historic success of the system over time.

He also directly contradicted what you're saying almost in its entirety.

I see your point, basically what I am getting at is: you should never rely too heavily on one indicator because the market can fundamental change in an instant and you have to be ready to react to that change so that you are not left in the dust.  I know Goomboo said you should stick to your plan, but he has also mentioned that it is good to experiment with other strategies or indications to make you more confident in your decisions.  For example a few posts back Goomboo mentioned he used the simple moving average as opposed to the exponential mentioned in his OP for his last short. He is using different signals so how am I contradicting him?

[Goomboo]

It makes very little sense to hold this for your retirement.  This shows that you believe it will appreciate over time against the dollar.  Fundamentally, this makes very little sense.  Who cares if there are 21 million bitcoin?  I can find stocks with 21 million or less shares - is that a justifiable reason for me to put it in my retirement?

The stock analogy doesn't work. Stocks are not easily transferable, in fact stocks are heavily regulated. And companies can decide to launch new stock to the market.

Just like BTC launches new coins into the market every 10 minutes at an even higher percentage increase than most stocks on the market (excluding penny stocks)?

How does the transfer-ability of stocks contribute to or subtract from their value?  Additionally, note the dryness of my post?  I'm clearly telling the initial author that his reason of "only 21 million" is hollow.

Additionally, we have covered this - excluding speculative bubbles, currencies aren't a traditional "retirement" class investment since there is no directional bias - a fundamental building block of risky investments.  By risk I mean variance of returns - the idea is that you should only assume higher units of risk if you potentially expect higher units of reward.

Furthermore, let's go into his investment logic.
-He believed that in 30 years, the price would be $10.
-Taking the current market price of $6.27, compounding it across 30 years yields an annual percentage return of 1.72%.
-The current 30 year U.S. bond rate of return is 3.15% YTM.
-YTM is an approximation of what you would actually earn across the time period, but it's roughly twice what he expects with significantly less risk.
-For a 30 year time period, does it make sense to invest in something which offers half of the "risk-free" rate of return?

Bond yields:

http://online.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000

[notme]

Furthermore, let's go into his investment logic.
-He believed that in 30 years, the price would be $10.
-Taking the current market price of $6.27, compounding it across 30 years yields an annual percentage return of 1.72%.
-The current 30 year U.S. bond rate of return is 3.15% YTM.
-YTM is an approximation of what you would actually earn across the time period, but it's roughly twice what he expects with significantly less risk.
-For a 30 year time period, does it make sense to invest in something which offers half of the "risk-free" rate of return?

Your first point is false.  I do not believe it will be anywhere near $10.  I said at least $10, just to make the point that it will be worth more more than it is now, or worth nothing.  This market will act like a currency in the future, but we're not there yet.

[Goomboo]

Trading update:

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

-Exited the trade at $6.33 - a loss of $.02 per BTC or .3% pre-commission.

-Short signal generated at current prices on daily charts using 21/10 (SMA)

-Short at $6.28 (Low leverage - the higher the timeframe, the more wiggle room you need to allow)

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

I used the SMA - there's a silly rule in trading - if you're new, you stick with the system, if you're old, you know when you can adapt the system :p.  Basically on the surface it's hypocritical, but with experience you will begin to see times when it is appropriate to modify.

Here's my reasoning for using the SMA and not the EMA in that specific incident
-I looked at price-action and saw that we were in a prolonged trading range...if price goes above this trading range, we'll be in an uptrend, if it goes down, we'll be in a temporary downtrend until we break $4.60 (low of prior retracement)
-There really isn't much different between the two moving averages - EMA uses a smoothing factor with SMA is just a normal average
-I don't have time to monitor anything shorter than daily charts during the trading week and BTC movements are typically explosive and short-lived (not much follow through)
-SMA 10/21 generated a signal at the time of write - an excellent opportunity for me to short at a reasonable spot within the range

[Goomboo]

Furthermore, let's go into his investment logic.
-He believed that in 30 years, the price would be $10.
-Taking the current market price of $6.27, compounding it across 30 years yields an annual percentage return of 1.72%.
-The current 30 year U.S. bond rate of return is 3.15% YTM.
-YTM is an approximation of what you would actually earn across the time period, but it's roughly twice what he expects with significantly less risk.
-For a 30 year time period, does it make sense to invest in something which offers half of the "risk-free" rate of return?

Your first point is false.  I do not believe it will be anywhere near $10.  I said at least $10, just to make the point that it will be worth more more than it is now, or worth nothing.  This market will act like a currency in the future, but we're not there yet.

The average yearly return on the stock market for the past 150 + years is typically 11.98%.  Let's call this your "cost of capital", or your opportunity cost / lost rate of return you substitute by investing in BTC.

$6.00 * 1.1198 ^ 30 = $178.80.  If Bitcoin is above $178.80, your investment will be worthwhile in 30 years.

Look at what you just said - The market will act like a currency in the future (no directional bias) and yet you are holding for this future.  Translate that into finance talk - you are holding an investment speculating that in the future it will trade sideways and your money won't experience growth from an increase in prices.  Your logic is flawed.

I don't have time or interest in debating you on this message board.  This thread is called "Goomboo's Journal" because I'm sharing my thoughts with the community.  You contributed your time to the thread by giving your opinion.  If you say something flaky and I don't call you out on it, it would be a disservice to you.

[Goomboo]

Well have gone in and out with the crossovers, and lost just a tiny bit

Refreshing to maintain the discipline by following a trading system. Now on to the next cross-over!

I'm happy that you are sticking with a plan!

One of my favorite feelings in the market is losing less than I normally would have - it's just below earning a profit on a trade

[notme]

Furthermore, let's go into his investment logic.
-He believed that in 30 years, the price would be $10.
-Taking the current market price of $6.27, compounding it across 30 years yields an annual percentage return of 1.72%.
-The current 30 year U.S. bond rate of return is 3.15% YTM.
-YTM is an approximation of what you would actually earn across the time period, but it's roughly twice what he expects with significantly less risk.
-For a 30 year time period, does it make sense to invest in something which offers half of the "risk-free" rate of return?

Your first point is false.  I do not believe it will be anywhere near $10.  I said at least $10, just to make the point that it will be worth more more than it is now, or worth nothing.  This market will act like a currency in the future, but we're not there yet.

The average yearly return on the stock market for the past 150 + years is typically 11.98%.  Let's call this your "cost of capital", or your opportunity cost / lost rate of return you substitute by investing in BTC.

$6.00 * 1.1198 ^ 30 = $178.80.  If Bitcoin is above $178.80, your investment will be worthwhile in 30 years.

Look at what you just said - The market will act like a currency in the future (no directional bias) and yet you are holding for this future.  Translate that into finance talk - you are holding an investment speculating that in the future it will trade sideways and your money won't experience growth from an increase in prices.  Your logic is flawed.

I don't have time or interest in debating you on this message board.  This thread is called "Goomboo's Journal" because I'm sharing my thoughts with the community.  You contributed your time to the thread by giving your opinion.  If you say something flaky and I don't call you out on it, it would be a disservice to you.

I appreciate your attempts to educate me, but I assure you BTC is not my only investment.  As I've already stated, I have stocks and gold holdings that I have paid for with BTC profits.  I understand that all-in long is not the answer, and will gladly diversify my holdings again when the opportunity is presented.  Bitcoin is the reason I have any assets at all, so I'm a little partial.  However, my strategy is far from the rigidness you seem to continually try to apply to it.  Just because I'm long now, doesn't mean I will remain so heavily invested as conditions change.  You may have seen good growth in stock in your lifetime, but I'm willing to bet that millions of babyboomers retiring will dampen that a bit for the next decade or two.  But, like I said, I have stocks too in case I'm wrong.

[Goomboo]

I think people are really over-analyzing the effect of Goomboo's thread. IMHO we are simply seeing a state of faux-stability set on by the mini-crash a few days ago leading to a sense of confusion and lack of confidence in the market among traders who have decided to sit on the sidelines until the market indicates it is going one way or another. Another factor leading to such small trading volume has been the Chinese New Year, which more then likely kept many Asian traders out of the market this past weekend.

These indicators that Goomboo is using have been around for a long time and any smart/experienced trader would have already had them as part of their arsenal long before this thread came about. Besides anyone smart knows that it is incredibly stupid to rely on a single market indicator when trading, you gotta mix things up a bit and utilize a range of tools in your arsenal to make the most informed decision possible or else you are engaging in the trading equivalent of a soldier following a blind-man into battle.

I agree (to the over-emphasis on the strategy) - it's a just moving average crossover system -> one of the most basic trading systems out there.  If you pick up a technical analysis book on trading strategies, this is probably the first one you'll come across.  As I've said in an earlier post, if you use it consistently, it works.  Across the past 10 years, it's delivered an 70% return while the S&P 500 is relatively flat.

I agree with you about using a single tool to an extent - if your objective is to get a nail into a piece of wood, then a hammer does a pretty good job.  Basically what I'm getting at is that if you:
-Know how to use a single tool
-Have tested this tool
-Can use it even when it seems to not be working
-You can come out ahead

So I don't think there is anything wrong with using a single tool - as long as you use some other tools to test the validity of your tool in the first place!

Here's a little known factoid about the industry: most of the consistently successful individuals in this industry use simple tools and don't complicate things.  Very few traders actually earn a consistent profit switching from idea to idea chasing what worked in the past.  Most failed traders trade a system until it "stops working" and then run to what was just working well.  Look back over the historical performance of the moving average crossover system.  Notice something interesting in the equity curve?  It didn't make money for over a year.  You would have set there, taking trade after trade, and not have reached new highs in your account balance for over a year.  However, if you stuck with it, you eventually would have knocked the S&P 500 out of the ballpark.

[Goomboo]

I think people are really over-analyzing the effect of Goomboo's thread. IMHO we are simply seeing a state of faux-stability set on by the mini-crash a few days ago leading to a sense of confusion and lack of confidence in the market among traders who have decided to sit on the sidelines until the market indicates it is going one way or another. Another factor leading to such small trading volume has been the Chinese New Year, which more then likely kept many Asian traders out of the market this past weekend.

These indicators that Goomboo is using have been around for a long time and any smart/experienced trader would have already had them as part of their arsenal long before this thread came about. Besides anyone smart knows that it is incredibly stupid to rely on a single market indicator when trading, you gotta mix things up a bit and utilize a range of tools in your arsenal to make the most informed decision possible or else you are engaging in the trading equivalent of a soldier following a blind-man into battle.

I agree (to the over-emphasis on the strategy) - it's a just moving average crossover system -> one of the most basic trading systems out there.  If you pick up a technical analysis book on trading strategies, this is probably the first one you'll come across.  As I've said in an earlier post, if you use it consistently, it works.  Across the past 10 years, it's delivered an 70% return while the S&P 500 is relatively flat.

I agree with you about using a single tool to an extent - if your objective is to get a nail into a piece of wood, then a hammer does a pretty good job.  Basically what I'm getting at is that if you:
-Know how to use a single tool
-Have tested this tool
-Can use it even when it seems to not be working
-You can come out ahead

So I don't think there is anything wrong with using a single tool - as long as you use some other tools to test the validity of your tool in the first place!

Here's a little known factoid about the industry: most of the consistently successful individuals in this industry use simple tools and don't complicate things.  Very few traders actually earn a consistent profit switching from idea to idea chasing what worked in the past.  Most failed traders trade a system until it "stops working" and then run to what was just working well.  Look back over the historical performance of the moving average crossover system.  Notice something interesting in the equity curve?  It didn't make money for over a year.  You would have set there, taking trade after trade, and not have reached new highs in your account balance for over a year.  However, if you stuck with it, you eventually would have knocked the S&P 500 out of the ballpark.

Here's what I'm getting at.  Rather than edit / delete over and over again, I'll just quote my old post and explain more :p

Closely look at the picture and imagine that at each PNL point, you were risking $1,000,000 of your hard-earned dollars.  Rejoin me in the text below the image.



Earlier I said that it was a year and a half of no profits - it's actually 4 years.  This simple trading strategy which radically outperforms your typical alternative traded sideways for 4 years.  The weaker hands in trading would have thrown in the towel after perhaps a few trades with no new equity peaks.

If you can test, research, and trade a system - even the simplest system - you can do very well for yourself.  Maybe not the next day, month, or year, but if you have the ability to stick with your edge, you have a good chance of being profitable.