No trade = no loss

This is a remark that often thrown around when a trader complained about their losing trade(s). But this sentence isn’t a joke. In a sense, it’s true and important. New users often put too much focus on having the best exit logics. How to get out quickly when a trade went bad? How to not exit too soon when a trade gonna fly to the moon? How to this and how to that, etc. All are focused on exit. But entry get a very small focus. Let’s take this question for example

Hi, I understand stoploss is necessary for risk management. But I do bear a lot of loss from stoploss. My bot trades spot in a minute basis and currently my winning rate is 63% but I am bearing a negative profit since large negative profits introduced by one stoploss could offset many positive ones. I’m setting a static stoploss and trailing stoploss, and stoploss is usually trigger in two circumstances:

  1. My bot enters long at a high point, then the price drops dramatically, which triggers stoploss.
  2. The market maker shorts with huge capital, which leads to huge drawdown and triggers stoploss.

My points to reduce the loss from stoploss are:

  1. Use a dynamic stoploss percentage, which could be accomplished by cutom_stoploss( )
  2. Check dynamic profit and loss with high frequency, which is set by ‘stoploss_on_exchange_interval’. I read from the doc

‘The bot cannot do these every 5 seconds (at each iteration), otherwise it would get banned by the exchange’.
So I set it to 6 seconds. Is that possible I set a smaller number since it’s crucial to monitor stoploss?

  1. Hedging. Currently got no clues on how to hedge with freqtrade.

Any instructions for point 2 and 3 or any other ideas would be highly appreciated : )

question from freqtrade’s issue on github

As mentioned clearly above, the issue isn’t the exit logics, but the entry logics. The entry logics is too loose and often bought coins on its’ peak. If you focused too much on the exit logics, you will never be able to solve the issue, because either

  • You set a very tight profit taking logics and you would often exit on low profits while still have the same issue with large losses, or
  • You set a very tight stoploss and profit taking, and you would end up with many trades that only went down momentarily before it went up (which is a very normal thing in crypto trading), which means you are missing out on a lot of would-have-been-profit trades and have to settle for a lot of small losses, or
  • Keep existing loose profit and stoploss logics and keep the same “roller-coaster profit chart” issue

It’s much easier to tackle the issue by prevent such bad entries. There are a lot of indicators to be used to check whether a coin is at (or around) its peak or not, whether the coin is in overbought area, whether the coin was pumped and now in dump phase, and so on.

One thing that make new users don’t like this approach is that it would make the bot open less trades, which isn’t a bad thing in my opinion. As mentioned by the OP above, risk management is important. But they forgot that stoploss is only one part of risk management. Not entering bad trades is also part of risk management. I’m gonna end the post with one thing that I always tell new users and so far never been proven wrong

Anything that goes up fast, will comes down even faster


Leave a Reply

Your email address will not be published. Required fields are marked *