Topic: Developing an effective trading strategy (Read 778 times)

I have done quite well doing that  so far



That is very interesting. I am a linux user and proficient with python so I will take a look at that. I have actually written a bot using twisted that monitors btc-e, bitstamp, cryptsy, and mintpal markets and have been working on my own charting application similar to bitcoinwisdom.

Best strategy ever: buy and hold bitcoin.:-)

or
https://bitcointalksearch.org/topic/goxtool-bot-portfolio-rebalancing-181584

I have been spending some time looking at various ways I can grow my crypto holdings and process of trading seems to appeal to my nature. I have absolutely no experience in finance outside of the crypto world but I am an extremely quick study on most matters. One important thing that I have noticed from my research is that price movement(not value and not just in crypto) seems to be dictated by fear and greed. Those two reasons for price movement are also the most likely reason that most people losing money trading. This means that I have to come up with a plan and have logical/unbiased reasons for all actions I take.

I have approached my trading in two different ways and have two different approaches. For the purchasing of long term holdings(bitcoin and a few altcoins) I have used dollar cost averaging or in the case of altcoins bitcoin cost averaging. DAC for those who don't know is simply buying a fixed dollar(or base currency) amount of an asset on a set time interval. This protects you from price swings overtime.

As of right now, for short term, I am just identifying over sold/bought conditions and buying/selling at 3%+/-. Meaning if a buy goes up 3% I reevaluate and either cashout or take profits and leave the remaining as another trade with a new +/-. Should the buy go down by 3% I also reevaluate and either get out or buy more if I think the trend will reverse.  

The problems with my current short term strategy are: 3% is just an arbitrary number I came up with, my position sizes are pretty much random and have no real correlation to anything.


I have been thinking an alternative and effective strategy could be something like:

As I see it a successful plan should start with a clear reason for trading. For example:

Entry/Exit:
  1) identified a market as over sold indicating a coming spike
  2) identified existing holding as over bought indicating a coming dip


Next a basic plan:
   1) buy low and sell high
   2) sell high and buy back at the low

Now this is where it starts to get tricky. With each plan I think I need to project the right point to get out/back in and somehow quantify the risk as well. Using Fibonacci fans is fairly useful for finding entry/exit points but the issue I have is determining the risk.  Without knowing the risk I have trouble with coming up with my position sizes.


Are Fibonacci fans an effective method for determine entry/exit points? If so at what points do you draw them?
How would you determine the risk for a trade?
How would you determine the position size for a trade?
Is this an effective basic strategy?