Topic: Goomboo's Journal - page 8. (Read 281467 times)

On my phone so I won't address everything but 2.5 leverage means you can trade 2.5 times your margin(the amount on deposit).  Bitfinex.com allows margin trading.

First I would like to say thanks to Goomboo and the others who have been contributing to this thread. I read through the entire thing, and have learned a great deal. I'm in the process of backtesting now to decide on my strategy, but I have a few questions about risk management and leverage.

Early in the thread, Goomboo wrote the following:


I have no finance background so I'm having some trouble following this. If my understanding of leverage is correct, it would mean borrowing USD to buy BTC for long positions, and/or borrowing BTC to buy USD for short positions. If this is correct, then I have some specific questions:

1. Regarding '2.5 times leverage', does this mean for example that you're putting up 2.5 $ for every 1 $ you borrow when buying BTC? Or that you borrow 2.5$ for every 1 $ of your own?

2. How would this work for going short? I would think in that case you would sell your full BTC position (which itself may be leveraged) and then possibly borrow and sell additional BTC. What does the 2.5x refer to in this case?

3. Is 'shorting' BTC still viable post-Bitcoinica? Do any high-volume exchanges offer it now? I saw earlier in the thread that Goomboo was just selling his position on down-crosses and buying back in on up-crosses. Is shorting on a downturn any riskier than buying in on an upturn, or just another layer of complexity?


I think I'm understanding most of this, but I'm struggling to see how leverage comes into play here. Here is my interpretation of the above example:

1. $1,000 account refers to how much of my own money I want to 'play with' in BTC (maximum I want to risk).

2. Rather than buying 1000$ worth of BTC (risking it all on one trade), I want to limit my potential losses to 2% of my account balance per trade to make sure that I can handle a string of losses without losing much.

3. By using a percentage of account balance as my exit point, my losses per trade will shrink if I continue to lose money (first 20$, then 19.60$, then 19.20$...).

4. Risking 20$ per trade doesn't mean buying 20$ worth of BTC, because I'm planning an exit point in advance (to lose 20$ on a 20$ trade would mean holding BTC all the way down to zero).

5. At the time of this example, the price was about 6$ per BTC; and a price move of $0.30 against my position would have been a reasonable exit point, meaning I would only lose $0.30 per BTC. To make this amount to 20$ in total would mean buying ($20 total)/($0.30 per BTC) = 66 BTC, or about 400$ worth of BTC.

6. *If you didn't have the money to buy 66 bitcoin, leverage finds a use.* Here's where I'm running into trouble. If I didn't have 400$ to buy 66 BTC, then the above calculation would never have told me to buy that many. For example, if I only had 300$, then 300*0.02=6$ would have been my maximum loss per trade. In this case I should only be buying 6$/0.30=20BTC or 120$ worth (which I can afford without leverage).

The only way I can see to include leverage in this example is if the max loss per trade is kept at 20$ regardless of the account balance, but wouldn't this mean increasing rather than decreasing risk as losses accrue? Additionally, I'm having trouble seeing how the selection of a particular exit point is compatible with the moving average crossover strategies. Isn't the exit point determined by the next crossover, and thus not known in advance? Or is the crossover strategy meant to include these predetermined exit points to protect against rapid price changes and provide a way to quantify and limit maximum loss?

Hello Goomboo!
I have been looking for some time to take a peak into the trading word and after reading all your posts in this thread I think I did. Thank you!

Hello Goomboo;

Thanks for all this info! Instead of asking that you lurk around for 4 hours and make 5 posts when you join this forum; they should make reading your thread mandatory! I'm slowly going through all the pages of this topic, both recent and past. Letting it all sink in 

Thanks again and keep it comin'!

a slope that is exactly 0 is of course unlikely but you could sell on a slope of zero or less.

problem is that a lot of times the 10 day EMA oscillates a bit while going upwards without touching the 21 day EMA. if you sold during such a short downward movement, then you would have to wait for another crossover to buy back in (eventhough the 10 day EMA did not stop moving upwards overall)

I wonder about this to. I have never seen it tested but I suspect a crossover is just easier to implement and perhaps gives the same results

In a rigorous system, such trades happen sometimes. If you look at the backtesting data, in fact, it happens pretty frequently... but the system still makes money, even including those rough patches.

So you can be reasonably confident that even if you buy back in in the 800s, you'll still make money in the long run.

Now, if you want to start second-guessing the system, you don't have that guarantee anymore. There's no way to tell whether your improvised method is going to make money in the long run, because you can't add gut reactions like "don't want to buy in the 800's" to the model.

This is why discipline is so important when you're trading on a backtested system.

Not to seem harsh, but why would you trust that much money to a bot you dont know how to work? 

I bought the bot...  and it buys high, so far - I had 10.5 btc, now I have 9.6 BTC - that's 700 usd loss.

Plus -  a question - does my computer need to run all the time (with chrome running) for the bot to work, or is it in the Cloud?

I sold around 820 when the lines crossed - but now they've crossed again but it didn't crash enough - don't want to buy in the 800's...just wondering - are you still following this method?
did you sell at 825ish and are you now buying back in?

Goomboo thanks for this thread. Question since I haven't read through all of this where do you trade?  Haven't found a good place I trust yet

Thanks! 

i think you would probably want to react at a fixed time of day. daily EMA's are normally based on the closing prices of exchanges. so i think that if there is an exact time to react, it is then.

if you try to use whatever time it is at a certain moment as the closing price,
 then whether a crossover happened, would keep changing from one second to the next (not stable)

Is there a free program that makes a sound of any kind when the EMA lines cross because I keep missing it? Thank you!

Unrealized profit ~ 426% or $589 per coin.  Stay disciplined and stick with a tested plan.

The '10' is basically an average of the closing price of the last 10 trading days.  Since it's an exponential moving average, the formula isn't a straight average.

More info:

http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:moving_averages
http://en.wikipedia.org/wiki/Moving_average

I have a question regarding the EMA parameter setup.  What is the '10' and '21' exactly?  I understand the whole crossover method, but I don't understand what exactly is being graphed.  Any answers would be greatly appreciated.  Thanks in advance.

Quick question do any traders trade inflection points on EMA's?  BC although this is a good strategy it should be used in CONJUNCTION with others to have it trade correctly a higher percentage of the time.  I.E. we have 10/21 EMA lines when the slope of the 10 day EMA line becomes 0 after a bull run, it will either rise or fall.  I've looked at a substantial amount of bitcoin data and it seems that making a sell at this point, and a buy at a time inverse to this could prove to be more effective than when they cross.  The other option is to wait for the slope to reach a certain point after an inflection to make a more informed decision of where the price is headed.  Of course, this trade should only be made after due diligence of the trader, but can easily make money off of small changes in price from drops 2-5%, or give the trader a quick sell before a possible huge crash.

Thanks for sharing your accumulated wisdom - now to absorb all of this.

thanks for the reply.

the general idea seems to make sense. but, the issue for me is in considering a green square in a sea of red...

if you:
- use a smaller scale (ex: hours instead of days)
- or exclude the points where the red region occurs
you can make the region really big (a scaling problem).


i assume you mean something like finding a formula for part of a line. i can see that being dangerous
- but would this include sine waves?

greetings