Crypto-trading 1

I’ve been testing some cryptocurrency trading strategies since the new year. Mainly because I want to spend my downtime learning and testing some personal projects in addition to catching up with jobs around the house, but also because I had the chance to buy into the mania when Bitcoin was a few dollars, and again when it was a couple of hundred dollars. I never did, and I regret my sheepishness.

So, with the ability to burn a fixed amount per month as the worst-case, my new year resolution was to put £100 into my trading account each month for the year and try out some strategies. Total potential loss: £1200. Absolute gain: education. Potential gain: unknown. Opportunity cost: 1.5% AER in an ISA, so about £9 over the year.

Now, it’s easy enough to say buy-low-sell-high, but the reality of the crypto market is that it’s very fickle, very volatile, and very corrupt. This will make it somewhat harder, though on the upside I have no interest in massive gains, nor long-term health of the underlying token. So I have some ideas to play with:

  • I want 1% return per day as a modest target. I wholly accept that I won’t make this some days (more on this later).
  • The highest fee I’ll pay per trade is 0.3% on GDAX. Double that for both ends of a sell/buy movement, and add my target, and I need to leverage at least 1.6% per trade, per day ideally.
  • Since I don’t care about the long-term value – only about returning 1% per day – I can happily trade at any price, as long as it’s volatile (again, more on this later).
  • I can hold long or churn quickly. I’ll need to try out both.
  • I can manually trade (as I’ve been doing during month 1), or
  • I can automatically trade (write a basic engine to capture my trade results and place corresponding buy/sells in the opposing direction), or
  • I can build out an AI engine to predict the market (the long-term goal based on the year of trading, learning and training).

So, back to my modest target and the volatility…

I was doing pretty well in the first week – 16% gains based on that modest 1% trading margin. But then I hit a snag: South Korean ban rumours, Facebook advertising policies, thefts in Japan and most recently bans in India have all been moves that have tanked the market, and in a way that has not only sunk the underlying prices by 60%, but flatlined volatility.

Holding both ETH and LTC, I had no cash reserves left within the month’s allowance to leverage what little volatility remained on the downward slope, so I’ve just had to sit back and watch them plummet. One month in and my book value then is -24% instead. And that was yesterday – today it’s -66% as the markets utterly collapsed overnight.

On the upside, I now have this month’s allowance injected to see what I can recover at these new price levels.

Again, the goal isn’t actually to make money – that’s a fringe benefit. The goal is spending somewhere between £9 and £1200 on a hands-on trading course… and in that regard it’s been a great month!