Goomboo's Journal

[StewartJ]

there is nothing magical about the 10-21 cross

generally shorter averages will get you in or out earlier, but will have more zig zag trades

with longer averages you will miss more of the beginning of a trend, but there is less noise so more of your trades will be keepers

so for the above poster, maybe look for a 15-30 cross or something to confirm for adding to your position

I noticed your a bit of a cross fan.

Seems a little choppy to use the shorter numbers, but might help validate earlier entry points?

[jojo69]

exactly silverstew

that is the tradeoff; more chop and earlier trades, or less chop and missing more of the move

it all comes down to your appetite/tolerance for action

[Goomboo]

Goomboo do you have any suggestion on using the EMA10/EMA21 as described in this thread after it allready cross up/down to predict longer rally periods ie. I bought 50BTC as the EMA10 cross upwards over EMA21 however I then notice the line keeps trending upwards but now I want to buy more BTC to take advantage of longer rally however I dont know if at the time I buy more BTC the EMA10 will cross down over EMA21. Do you know of any strategy to make use of longer rally cross so I can add more BTC to my long(or short in case of downtrend) even after the cross happened.

Thanks for the question Clipse,

This is known as scaling in.  Basically it's adding to or building into a position.  The opposite of it is called scaling out - cutting your position as time unfolds.  Just like everything else, I'd recommend that you systematically test the concept and be sure that you are accounting for risk at every step.  After all, if you scale into a long position, you are increasing the average entry price of your trade, meaning that you could turn a winning trade into a loser.

For example, if you buy 100 BTC at $1, your average price is $1.00 per BTC.  The price goes up to $2 and you buy 100 more BTC.  Your average price is now $1.50.  Let's say price reverses and your exit signal occurs at $1.25 - you lost on this trade.

Here's some general and specific recommendations.  Let's start with specific.  Prior to entering a trade, if you are planning on scaling in, you should select a criteria which designates location as well as the amount you will scale in.  A very specific criteria I suggest is using the Average True Range (ATR) indicator to determine locations to scale in.  I use multiples of it at the time I enter a trade to determine scale in locations.  I use the 14 period ATR for this.  Period doesn't particularly matter, it should just make sense.

Example trade and scale-in:
-You enter the trade long at $3.06 and the ATR at time of the trade is $.26
-Scale in Location 1: Close + 2 * ATR = $3.58
-Scale in Location 2: Close + 4 * ATR = $4.10
-Scale in Location 3: Close + 6 * ATR = $4.62
-Scale in Location 4: Close + 8 * ATR = $5.14
--When price reaches these locations and you have an existing trade, you will buy / short another trade unit.  I suggest that this unit be equivalent or less than your initial size in the trade.
--For short trades, subtract the ATR value

General recommendation - every time price clears a prior retracement in the direction of the trend, then you can add to the position.  This is very subjective however and more vulnerable to emotional decision making.

I suggest not scaling more than 4 times.  The idea of scaling is that if the market strongly moves in a direction, you will be in it with progressively more capital.  If the market doesn't move very strongly, however, you will find that you have a higher percentage of losing trades.

[Goomboo]

I'm a trend follower, in this mornings case the extra indicators were added confidence but wouldn't necessarily dictated my action. Thanks for this thread by the way, it's good to have an extremely experienced person around to recommend the right books. I only wish I had the discipline to follow your approach and back test my strategy which I haven't even defined yet. But then again, that's the beauty of bitcoin, with only .65% commission at Gox, I have thousands of trades experience which I wouldn't have anywhere else along with the fact I can jump in and out. Were I paying 10$ a trade, along with account fee's I suspect I would be far more strict in my approach.

Thanks for participation in the thread!

.65% is actually a massive commission.  In the currency markets, the EURUSD is currently trading at 1.3217.  A .65% commission on it would be .0085 or 85 pips.  The commission I pay on EURUSD is about 1.1 pips.  Mt. Gox is 77 times more expensive to trade than the typical currency markets.

$100,000 trade on Mt. Gox
-> $100,000 * .0065 = $650 commission

$100,000 trade on EURUSD
-> $100,000 * .00011 = $11 commission

The only way to be profitable in short-term trading in the BTC market is volatility.  If volatility dries up, commission will crush trading.

[Goomboo]

i have a basic and probably dumb question. this exponential EMA average, how are the weights? how is this decay function defined and does it also have parameters additionally to the time-window?

A typical EMA weights the most recent prices more than the older prices.  They can be based on pretty much any form of data (open, close, high, low, volume, other indicators, etc.).  You can also shift them forward or backwards so that you project them into the future or lag them even more.  You can do lots with them, but I prefer to keep it simple.

http://en.wikipedia.org/wiki/Exponential_moving_average#Exponential_moving_average

[Otoh]

I'm a trend follower, in this mornings case the extra indicators were added confidence but wouldn't necessarily dictated my action. Thanks for this thread by the way, it's good to have an extremely experienced person around to recommend the right books. I only wish I had the discipline to follow your approach and back test my strategy which I haven't even defined yet. But then again, that's the beauty of bitcoin, with only .65% commission at Gox, I have thousands of trades experience which I wouldn't have anywhere else along with the fact I can jump in and out. Were I paying 10$ a trade, along with account fee's I suspect I would be far more strict in my approach.

Thanks for participation in the thread!

.65% is actually a massive commission.  In the currency markets, the EURUSD is currently trading at 1.3217.  A .65% commission on it would be .0085 or 85 pips.  The commission I pay on EURUSD is about 1.1 pips.  Mt. Gox is 77 times more expensive to trade than the typical currency markets.

$100,000 trade on Mt. Gox
-> $100,000 * .0065 = $650 commission

$100,000 trade on EURUSD
-> $100,000 * .00011 = $11 commission

The only way to be profitable in short-term trading in the BTC market is volatility.  If volatility dries up, commission will crush trading.

0.27% actually



& even the € doesn't enjoy 25% daily swings against the $, so cheap at the price I'd say for a punt

[Goomboo]

I'm a trend follower, in this mornings case the extra indicators were added confidence but wouldn't necessarily dictated my action. Thanks for this thread by the way, it's good to have an extremely experienced person around to recommend the right books. I only wish I had the discipline to follow your approach and back test my strategy which I haven't even defined yet. But then again, that's the beauty of bitcoin, with only .65% commission at Gox, I have thousands of trades experience which I wouldn't have anywhere else along with the fact I can jump in and out. Were I paying 10$ a trade, along with account fee's I suspect I would be far more strict in my approach.

Thanks for participation in the thread!

.65% is actually a massive commission.  In the currency markets, the EURUSD is currently trading at 1.3217.  A .65% commission on it would be .0085 or 85 pips.  The commission I pay on EURUSD is about 1.1 pips.  Mt. Gox is 77 times more expensive to trade than the typical currency markets.

$100,000 trade on Mt. Gox
-> $100,000 * .0065 = $650 commission

$100,000 trade on EURUSD
-> $100,000 * .00011 = $11 commission

The only way to be profitable in short-term trading in the BTC market is volatility.  If volatility dries up, commission will crush trading.

0.27% actually

Okay - still a $270 commission.  That is insane.  

For the retail comparison, that's still 27 times a typical commission.

For an institutional comparison: trading with a voice broker like ICAP, you typically pay a $80 commission, but it's on instruments where the point value is $800.

[Otoh]

the € doesn't enjoy 25% daily swings against the $*, so cheap at the price I'd say for a punt

* edit: at least not as yet

[Goomboo]

the € doesn't enjoy 25% daily swings against the $, so cheap at the price I'd say for a punt

Right, but it does enjoy the liquidity and leverage where you can successfully do that for your account (not something I'd recommend).

[Otoh]

$100,000 last November in to BTC & Gox taxes you $270

hibernate for the winter

= win

try matching that return with €/$ however low the fees, high liquidity, leverage, etc

OK if you have B$ to invest but then why even bother to look at such a small cap as BTC where that would be unfeasible & anyway here the % returns potentially pwn & you can do it with your own $ rather than needing to manage a fund

[Otoh]

the € doesn't enjoy 25% daily swings against the $, so cheap at the price I'd say for a punt

Right, but it does enjoy the liquidity and leverage where you can successfully do that for your account (not something I'd recommend).

with enough leverage & enormous margin deposit one could I guess potentially get 25% daily returns on €/$ (or more likely 100% wipe outs), but this though is so different & harder for the average Joe to initiate as to be not even worth mentioning in this context, where as anyone with a few $ they don't mind risking can do this now relatively easily & basically anonymously via BTC

edit: someone buys $100 worth of BTC at Gox, they pay $0.55 fees, BTC move up or down 25% or more faster than the € can say TU, so how is that few cents going to matter even when it's no leverage 1:1, & @ 10:1 forget it

[Goomboo]

Thank you for contributing to the forum.

I wish you the best in your trading!

[Otoh]

many thanks    & igualmente  

[elux]

Crossover now. Short --> Long. 

[Sargasm]

That's what I was looking at...

http://bitcoincharts.com/charts/mtgoxUSD#rg10zigHourlyztgSza1gEMAzm1g21za2gEMAzm2g10zxzv

[Sargasm]

Ok, so Goomboo... how are you interpreting these charts... do you think the fuzziness of the EMA 10/21 has to do with the large number of people that might be trading on them now?

The last trade I lost a bit just because buy and sell were within the MT. Gox commission spread.

When the indicators are this weak, do you still follow them?  Seems that the indicators are kind of bouncing around a flat trend for the time being.

[Goomboo]

Ok, so Goomboo... how are you interpreting these charts... do you think the fuzziness of the EMA 10/21 has to do with the large number of people that might be trading on them now?

The last trade I lost a bit just because buy and sell were within the MT. Gox commission spread.

When the indicators are this weak, do you still follow them?  Seems that the indicators are kind of bouncing around a flat trend for the time being.

I think the fuzziness is due to the fact that markets tend to move in trading ranges around 70% of the time and trend 30% of the time.  The chop is where the discipline of a system trader is required.  I try and follow the system, regardless of how I feel about the strength of it.

If you look back over the backtest of this system on the EURUSD, at one time the system lost 9 trades in a row, but by following it, eventually you would have earned a good profit.

If this was being influenced by lots of people, they would have to be influencing the past 10-21 candles calculating ahead of time what the averages would be (highly unlikely).

[Goomboo]

As a follow-up on my previous post:

This is where risk-management really comes into play.  If you're risking more than 1-3% of your account equity on a trade, a sideways market can really clobber you.

If you're using a fixed-fractional money-management methodology, sideways markets do give you an opportunity to use leverage and trade with some size though.

Some of my best trades have come from sideways markets - I was risking 1% per trade and lost 10-11 trades in a row, but by sticking with the trading plan, I had a fairly large position when the trend began.

[Timbo925]

Crossover again Taking small hits but as you said this is expected. Currently trading with my whole balance tho.
Isn't good risk management but not really any point of splitting up 5BTC 

[gewure]

Crossover again Taking small hits but as you said this is expected. Currently trading with my whole balance tho.
Isn't good risk management but not really any point of splitting up 5BTC 

lol. nice one, i agree