A south korean trader wants to open a short position on the stock market. He thinks for a while on which stock to be shorted. He then do a research on young people’s behavior in South Korea. He finds that young people nowadays promote healthy lifestyle. He came to a conclusion that fried chicken business will starts to go down because of that. He chose one fried chicken company and shorted it. Few days later, Jensen Huang came to South Korea, ate fried chicken, and the man lost his money.
While the story ended badly, but the steps he took aren’t bad. In fact, that is what most manual traders do.
Edit: the story above is based of this reddit post, so take it with big grain of doubt. But as said, the idea behind it isn’t wrong.
Step one – Choose side
First step you want to do is to decide first whether you want to go long or short. This will impact the rest of the steps. Let’s use the example above and assume we want to go short.
Step two – Identify pairs category
After you know you want to go in which direction, next step is to know which category/criteria of pairs will suit your preferred direction. This is the hardest part, because what you want isn’t specific static pair(s), but criteria(s) to be able to filter those pair(s). You will need to spend time here and do some researchs, trial-and-error, and maybe some out-of-the-box thinking.
To be able to identify such category, you will need to understand the market, how it move, why it move. Spend times looking at several pairs. Try to find similarities between them, try to find some scriptable patterns or connections.
Again, using the example above, since we want to go short, we want to get stocks that most likely on downtrend. The GameStop case was actually a good short trade in theory. If people would just live their life as usual, GameStop stock most likely would go very low. But instead, people knew that a lot of money was shorting the stock and went for some trading vigilante (another reason why you don’t want people to know your strategy and assets portfolio).
Anyway, you need to identify assets that (in theory) will go in the direction you set on step one. Since we are doing short, if we are doing it on stock, as said in the example above, maybe you can try to identify dying businesses. For crypto, it might be different, since any project can be rugpulled in matter of seconds.
This is an example of how I tried to identify a good shorting pairs. Take top 100 volume pairs, then remove high marketcap pairs from it, and then only take those who have gone up for at least 5% over the last 24 hours.
Step three – create strategy for it
Now this is where things are very open-ended. If you really sure that the pairs will move in your direction, then you can just run a very simple strategy with less (or even no) indicator(s). While this isn’t the hardest step, but this is the step that will take most of your time to do trial-and-errors.
Sadly there is no real guide on how to create the strategy. because it will all depends on many things. The only tips I have is to be less greedy and use low ROI first. You don’t need complicated exit logics in the beginning. First goal is to have long dry-run bot that have good performance. Only after that, you can start experimenting with higher roi and/or some complex exit logic(s). If the dry run failed, analyze why it fail, mayeb you need to have stricter entry, or maybe you need to exit faster, or both.
As you can see from the steps above, it’s very different than how most users does in their strategy development, which is usually starts with trying to find the “best” indicator(s).
WARNING!!!!!!! Please don’t run any of it on live mode if you still don’t have profitable long-run dry bot.
Dry run exist for reasons like this, for users to be able to test their ideas safely. Have fun in this “fried chicken” method, if you choose to take the challenge. Remember, a dumb man used to say “One success is too much, a million failures is not enough”.