Following on my previous post about greed in algo trading, some of you might wonder what is a good realistic target then. I will share my own algo trading approach. Be aware that none of them are based of any scientific experiment or something similar. They are all based of my own experience, what others have shared (the good and the bad), and my own reasoning.
Trade only high marketcap coins
At the beginning, I was trading 80 volume pairs, then down to 60, then 40, then top 20 marketcap pairs. Lately I’m also experimenting with btc-only strat. Only the last two approaches can give stable long-term performance so far. By performance, I don’t mean a big profit. I mean a steady profit and small (or no) losses. The idea of having a strategy aimed at specific pairs isn’t really a new idea. It has been tried by other users before, although most (if not all) of them have failed. When I’m trying to analyze why they were all failed, it was because they were trading altcoins.
The main reason why people love trading altcoins (especially low marketcap coins) are those coins have big volatility and price change. They can go to more than 10% change in a short time. While it’s tempting, they forgot that the same volatility also can hurt them. Those coins can have big change in either directions. When you are entering a trade at the wrong direction, you are screwed.
The reasoning behind trading top 20 marketcap coins is simple. They would have (relatively) less volatility compared to low marketcap coins, even when BTC has a dip. While it will reduce the possible profit, it will also limit my potential losses.
And for my BTC-only strat, the main idea is because BTC is the king of crypto. When BTC makes a big move, almost all coins would follow. Only when BTC is in sideways move that the other coins can have their own movement. That means trying to predict the movement of altcoins is harder because you have to consider the movement of the altcoins themselves and the movement of BTC. That’s why for my top 20 marketcap strat, they are trading long only. I still don’t have full confidence on the long logics, adding shorts would just add unnecessary risk.
Set a low ROI
As mentioned in the previous post (linked at the start of this post), it’s better to have a realistic profit target. For me, if I can get 10% profit in a year, it’s already good enough for me. That means my target is just 0.83% profit per month, or let’s round it up to 1% profit per month for simplicity. I just need to have one 1% trade per month. That goal is really within reach.
So what’s the hard part? Greed. “1% trade? Come on. When would I be rich if I make such a low profit?” As said here, never consider algo trading to replace your full-time job(s), because it never be able to. Look at it as side income.
Get out fast
If the ROI never triggered within the first 20 candles, the ROI is lowered to zero after that, which means the bot is allowed to exit on breakeven. To avoid too many breakeven trades means I have to really find the best entry logics.
Entry is the key
Since my exit is very simple (1% ROI), there is no exit logic needed to be optimized. That means I can focus all my time working on the entry. And since my target is just one trade per month, it makes it easier to focus on good entries and not needing to gamble on questionable entries. There is also no pressure to have at least one trade daily. You just need to wait until the best entry signal come.
All for one, not one for all
Some people like to have one big “complete” strategy, that have many entry logics in it. Personally, I prefer to have many bots that have their own specific logics, and have them work on one wallet. It makes it easier for you to work on specific ideas. After you finished on that idea, you can run a new bot with a different idea, and so on. When you found out that a certain idea don’t work as expected, you can just stop that specific bot and let other bots still working rather than have to stop a bot to fix only part of it.
And the last but the most important point is….
Have a good night sleep
If you don’t have a good sleep at night due to FT bot, then you have set the strategy wrong. No matter how big or small the profit is, the number one indicator of how good the strategy is can be seen by how you (as the owner of the bot) have big trust that it can do the best job in trading, and you can have a good sleep and not have to worry that it might open bad trade(s) while you are sleeping.
In the end, all the points above are my own opinions. At this point of my life, peace of mind is more valuable than the adrenaline rush. I strongly believe that as long as you can enjoy this long-and-rough algo trading journey, you can do this long term and don’t get burned out. While I can’t promise that you will find the treasure at the end of the road, I hope that you are gaining knowledge along the way that might be useful somehow in your life.
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