My Crypto Trading Journal

[Mondeoman]

A new financial year, and a new trading journal.
We have been investing in Crypto for just short of a year (10 months) and have decided to align our second year of adding Crypto to our portfolio of investments with the UK tax year, so starting 06Apr2021.
Last year, I felt like the nature of our Crypto experience had little or nothing to do with Babypips forum since it was more like a long term investment aimed at slow accumulation. Even in week 1 of the initial business plan authored last year, I mentioned that, when the time was right, our interest in Crypto would evolve beyond long term investment to include trading, which for the purpose of our business planning I refer to as “anything with a time horizon of less than 3 months”. The first year was all about getting to know the peculiarities of Crypto as opposed to Forex, stock or commodities. I thought that Crypto currencies were like stocks on speed. What a stock may do in a year, a Crypto currency could do in a week or even in a day. It has certainly been a very entertaining ten months, and I have managed to put together some templates that I intend to use for decision making.

Bear in mind, I have been at this caper - on and off - for nearly 30 years, so I should have learned some discipline along the way. Until last year, we were pretty determined to go to the two extremes with our choice of markets. On the one hand, we are long term gold holders (vaulted, no counterparty risk, stay away from ETFs like the plague) and at the other extreme, we managed a portfolio of highly leveraged buy to let properties for the past 13 years, and we started disposals three years ago. That will take another decade.

Our 2020/21 plan called for “A minimum of 60% of funds in long term Crypto holding, and a maximum of 40% of funds in Crypto trading”. This journal will not record any of the long term holding trades, only the short term (less than 3 months duration) trades that are meant to augment the long term investment returns.

There are two parts to the crypto trading strategy. Up to 20% of the whole Crypto portfolio value will be assigned to taking trades without leverage, and therefore not requiring the risk-managed setting of a stop loss. In addition, up to another 20% of the whole Crypto portfolio value will be assigned to taking trades WITH leverage - where the leverage ratio is as yet not prescribed, but will begin at 2:1 and is intended never to exceed 10:1.

The initial goals for each component will be a 200% annual gain. To anyone who has not got involved with Crypto yet, the rationale behind setting this seemingly massive target is that it just happens to be the compounded return on Bitcoin investment over the last 11 years of its existence. So it’s not like I am pulling numbers out of thin air.

The experience I have gained in my first short year?
One “currency” has returned us a five times (5X) profit. In chasing this major currency, we had sold out many other smaller investments including holdings in BTT, SC, DGB, ADA, only to see them moon by as much as 12X.

The current crypto bull market will not last forever, but it has been bull since April 2020 and is more likely than not to remain bull into Q4 of 2021. Make hay while the sun shines, they say.
About the trading component, when the bear market does arrive I have no way to continue planning profit. For that I need a solution (and some experience) in markets in which I can place short trades. To date I do not have that capability and must add it to my learning curve.

I will post my first set up shortly - part of the initial unleveraged trading component. Wish me luck.

[Mondeoman]

The first of five setups is attached as a word document that contains a TradingView chart and explains the strategy and the plan and expected take profit results range. This is not a leveraged trade, so there is no requirement to set a stop loss. The stop loss is effectively zero because leverage is 1:1.

Comments on this setup are welcome.

My objective is to provide some real examples that use two (or three) indicators to arrive at a valid setup. Note that the minimum target reward / risk ratio is 4 (ZIL price expected to 4X before exiting this trade), and there is no stop loss set so we cannot be adversely affected by stop loss hunting whales. It is hoped that these examples can just as easily be used with a leveraged account, and a stop loss in place.

By using only unleveraged trades first, the historical price action can be recorded until the trade is exited, and can be used to determine the likely maximum leverage ratio that would have resulted in being stopped out of the trade. It is by accumulating these unleveraged trades that a reasonable leverage multiplier can be applied to future trades with low risk of hitting stop loss.
06Apr21 ZIL analysis - setup and plan.docx (236.0 KB)

[Mondeoman]

Need some quality time to establish some tools of the trade.

The last few days have felt like I don’t have a plan. I have been all over the place, and positively distracted today with an unexpected surge in the price of XRP.

The first thing I did was to further develop the 2021/22 plan. Then to concentrate on the source of funds for the 20% unleveraged and 20% leveraged positions. My mindset is still in the “100% investment” mode of the past ten months. XRP decided to moon today, and it is only 4 days since we decided to sell 1/4 of our XRP holdings, exchanged for ADA and more BTC. This time it will be exchanging 1/5 of remaining XRP for BTC, then to use that excess BTC to fund an initial part of the 20% small cap trades and 20% leveraged trades. Slowly, slowly.

On the subject of the leveraged trades, I have been doing some reading. I wish to choose a charting package and will probably settle on TradingView as I got used to using it already. I will take the one month free subscription on offer. I viewed three Youtube videos from Bitboy Crypto extolling the virtues of Bybit as a broker / exchange. He took the viewer through setting up an account, to entering a trade, monitoring and exiting the trade, explaining leverage in a good way for a beginner or intermediate. I thought the simplicity of the interface was refreshing. But I noted later that unless I wish to use a VPN, as a UK citizen an application for an account would be rejected. So I will be looking at other alternative brokers/ exchanges, and may already have an account with one - FTX. Ideally, I wish to use a broker who has a choice of a large number of pairs though I may end up concentrating on, for example, only 10 or so. I wish to find a broker that allows leverage - up to 10X will be sufficient in the beginning since I plan to limit leverage to low numbers until I can either do some backtesting or establish the full lifecycle track record of entered and exited trades of a sufficient quantity to start to estimate the actual system expectancy.

On the subject of backtesting, having read ChrisTaylor05 first NNFX trade experience, and having done a bit more background reading, I feel time may be better spent in the early days on looking into the Pine Editor feature of TradingView. I was not aware that TradingView has the capability to write EAs, and I am still very interested in writing my own scripts if I can understand how to write an EA. It was 1986 when I wrote my last programme, and it was force of necessity. I was a head of European sales for an oil services supplier specialising in well testing data acquisition, analysis and interpretation. That is big bucks. A reservoir limit test can predict how much residual oil is likely to be able to be extracted for the remaining economic lifetime of the oilfield. Numbers are in the billions of dollars. Anyway, I had sold a new service to the largest operator in the North Sea, but the instrumentation capability far exceeded the interpretation software available at the time on an IBM PC running a 80286 processor. I had sets of data with 30,000 lines that needed to be reduced to 500 lines, and the script kiddies in Houston told me that it would take five months after I submitted the right forms. I took off home with a vengeance on Friday night with a half-inched IBM PC from the stores, a text processor and spreadsheet (may have been Lotus 123 - can’t remember), the user manuals for the reservoir simulator programme and two books on “how to program in Basic”. After a very long weekend, I had written the code to reduce the 30,000 data lines to 500 and output was presented to the client Monday morning. Not five months, 3 days.

I feel I may be in a similar position with my passion to add leveraged trading to our Crypto experience. I wish to launch into an automated version of what I have been doing for the past 10 months but did not want to trust my backtesting to an entity or person I do not know. So the next few days will be spent familiarising myself with TradingView capability, and trying to do tasks in the right sequence before I put real money on any leveraged trade. I can always keep myself busy with the investment and unleveraged side of things. No immediate rush, though the leveraged element may result in superior results.

I will have to leave the choice of broker / exchange to a later date, but will take a look at the FTX interface meantime.

I would be grateful if anyone can suggest a UK-friendly broker / exchange that they use and like using whilst I decide if I want to become an old aged script kiddie all over again.

[Mondeoman]

My how things can change in 17 days! I finished reading The Crypto Trader (Glen Goodman) and just near the end, the crypto market decided to have one of its regular hissy fits, and went south to the tune of about 27%. This was a good test of whether my psychology had really improved since the 2015 era. And I am glad to report that though I felt a little uneasy, the crypto market correction was expected, and now it appears to have seen its worst, I am glad it has happened when it did, and not at a later date after yet another meteoric rise.

Why am I glad it happened now? Because it helped to accentuate some holes in my current strategy for crypto investment and trading. I was about to embark upon setting aside 20% of the crypto fund to practice “leveraged crypto trading” yet at the back of my mind was unfinished business from my last Forex participation back in 2015, and the failed recent live test of a sports betting strategy. There is much to learn from these events. Looking back to shortly after I decided to rejoin BabyPips, I dusted off a trading plan that has been on the shelf since November 2020, which was sidelined when my interest in Crypto went through the roof.

I can safely continue our Crypto investment and unleveraged trading plans without hesitation, but knowing I do not have a refined exit strategy that I must work on in the near term. But the leveraged plans for Crypto are being put on hold. The crypto market performance during April may have meant that if I had my leveraged crypto plan in place, I may have liquidated 20% of our portfolio since all of my (theoretical) stop losses would have been hit (except for Doge, which is less than 1% of holdings). So I stopped documenting the leveraged part of Crypto, and just carried on with the investment and unleveraged trading parts.

As a direct result of reading The Crypto Trader, and some more deep thought about getting my trading plan in order, I have reverted back to the November 2020 trading plans (there are two of them - one for Crypto and one for Forex) and decided to go back over old ground that I did not finish. That old ground consists of setting up a strategy and plan based on two sources of educational material. Forex 101 (completion of ALL quizzes in School of Pipsology), and Forex 201 (a commitment to go through the entire NNFX educational material presented as a series of podcasts and Youtube videos), in preparation for the creation of my third attempt at a Forex trading plan in just more than a decade.

Why is this important to me? I have unfinished business with Forex. I said I would do a lot of things, then in carrying out the continuous improvement cycles, realized that I had not stuck to my plans. Some of the reasons were logical and correctible (eg I had not laid down sufficient if, then rules) but some were unforgiveable (like placing money at risk on trades with indicators that I had not back-tested, or found evidence of others’ backtesting to confirm their validity or fitness for purpose. This is an introspective. A great colleague of my past (who sadly passed away last year with cancer) used to say that to be successful in life you have to do what you say, and say what you do. This seems very obvious at first glance, but if you can rise above yourself (like an out-of-body experience) and do a fundamental analysis on your documented actions in life, you will always find errors of judgement or actions that did not conform to a plan, even if you had taken the time to write down the plan.

So the future is clear for me now. Whilst the Crypto experience has given me the impetus to assure a continuing and increasingly successful short term journey, I have no plan in place whatsoever for when the crypto market goes bear, which could be very soon. So it is with relative urgency that I create the Forex plan with all the hindsight of ten years’ experience, and ensure that the rules are in place.

In parallel to this, I have subscribed to the Trading View charting package, and am interested in being able to find out whether I can automate the pine editor to produce (at least) some signals that will let me know when an underlying instrument is approaching a zone of interest.

The title of this thread may now be a little misleading, because the journal will be mostly about creating a NNFX-style Forex trading strategy and plan, and not about a Crypto trading journal. But unless I have misunderstood investment and trading, I believe that if I create a plan for Forex trading that results in a positive edge, the same rules can be used for Crypto trading, perhaps requiring some tweaking but not a major rewrite.
That’s all for now.