Trading Example using Bitcoin
For those wondering, I use a site called Kraken.com. They slowdown to a crawl in high volume, but they haven`t yet crashed (on me). That being said, their order entry sheet is as rudimentary as can be. The confirmation times are so slow as to be maddening. Their site uses grey on white text, which is annoying to read. It also doesn`t scale well to a phone. So mostly, the site is RUBBISH. However, Kraken continues to function in volume (so better than most other sites). It also has sufficient volume and volatility to get good fills. That is critical when trading. If you are trading arbitrage, it could also be a good site as their peak price was $3000 below other trading sites during the frenzy spike.
I want to provide you with an example of how I trade, using the current big run in bitcoin. I want to be IN this market, but I also want to take chops to increase my size. I try to sell at peaks and re-enter with the same cash amount at bigger size.
I fully expect there to be a pullback of price in the near future. This is especially true when the Bitcoin Futures contracts come online next week. This will give the big players have a chance to short / manipulate this market.
For more information on that, see: 2017-12-10 Week - Bitcoin Futures
I will admit freely that I underestimated the frenzy that has occurred. This happens when trading. Being able to accept your mistakes is part of trading. Being fast to correct your mistakes is also part of trading. Here is what that looks like.
When price moved higher, fast, I saw an opportunity to sell at a peak and re-enter (Small Exit Attempt to Scalp). Then I placed scale-in entries, low-ball and mid-range price re-entry. The mid-range price will hit on a spike lower in volume. If the low-ball order misses the spike, I can often move it to near-exit levels for a better (small) re-entry price.
When loading my orders, I had a fat finger order, a costly mistake. It was an amateur move, I had SELL active instead of BUY (crap order entry on this site, as I said before). That order went in AT-Market ($200 below current price), which hurt. As price moved higher, the fat-finger eventually got very expensive. This is by no means my first fat-finger mistake in the last 20 years, so I know how to deal with it but I didn`t (because I am cheap). I SHOULD have just accepted the loss and re-entered at near market. Unfortunately, I get greedy when I think I am correct, and tried to turn a mistake into a profit (I didn`t).
While price moves against me, I try to recalibrate orders to re-enter this market. I started with order very low. I was expecting a bit of a sell-off on profit taking. This would also be a sound time to take some profits before the Bitcoin Futures start trading. The only move that such contracts will provide is excessive short seller traffic and some manipulation. Gold Futures are the example from history that makes this obvious.
While price is moving, I also look to other markets to spread. In this case, ETH (Ehtereum). ETH has been sold against bitcoin on the current run. This implies that a reversal will occur. However, in the near term, I see ETH moving lower against Bitcoin, so any spread would just be compounding losses. So, that left me trading XBT/USD pairs.
I expect selling at round numbers, so as price moves to $15000, I am looking for profit takers to provide volume to my BID. This is something humans do, so it can be a good place to look for a dip. Price action at round numbers also allowes me to make a couple of small scalp trades (minor size) to improve position. I use small volume in these trades because if the market looks like it will turn against me, I exit quickly (loss minimization). However, scalping this market is a challenge because those exits can be slow on a manual form trading site (I am desperate for a DOM Ladder and 1-click bitcoin trading).
After a spike lower, I realize that this move has legs. The reason for that is that a spike move lower should have sufficient momentum (legs) to break through lower levels. This should be a move of short-term traders taking profits and then starting again at lower prices (like I am doing). It should also be a place that short-sellers will enter markets to force out weak longs or those trading on margined positions. However, when such a move is bought (in this case franticly), it means that the BUY side has control and the move does not have legs. As such, in the short term I know that price is going to continue higher (move against me). So I accept that and try to get back in at a loss.
To get back in, I am cheap (every trader MUST be cheap to make a profit). I want the best re-entry price, so I place BUY orders near-market but using At-Limit orders. Inevitably, I realize that the market will move higher and I will end up having to chase price higher. Chasing price means moving my BUY entries higher as price moves higher, hoping for a brief pullback with sufficient volume to fill my orders. It is stupid, sometimes, but I often find myself chasing price when I should just re-enter At-Market.
Now, I am just waiting for the next price move from a damped harmonic oscillator (flag / hockey stick pattern). From here, it is most likely that price will move higher, given recent enthusiasm in buy orders. I am hoping for a wobble (minor dip) in price before that move happens so that I can get a fill on my orders. However, I also know that in about 20 minutes, I`ll be putting my orders in at a higher price (chasing higher, again).
This is what it is like to be a trader. You are probably better off with a Buy-And-Hold strategy in this market than trying to scalp. However, traders don`t quit we only go broke.
NB Crypto Markets
The real profits to be made in Crypto Currencies is investing in the companies providing markets. I estimate that Kraken.com (not one of the biggest sites) earned nearly $700,000 yesterday. That means that they could be pulling in 200 Million next year as volume increases. For a secondary player in this market, that is a massive profit for providing code and computers. That is where the REAL money is made, with far lower risks than trading crypto.
YOU ARE AN ADULT and must make your own decisions. ONLY YOU know what level of experience you possess. ONLY YOU know what level of risk you are willing to take. ONLY YOU know what your financial goals are, and to what lengths you are prepared to go to meet those goals. You will be the one to wear your losses, so trade with caution and do your own research.
Henry Ledyard is an independent trader. He has NO affiliations with banks, brokerages, funds, trading houses or markets. He trades for himself and posts trading ideas merely to share information. He does NOT want your money, advice or opinions. He does NOT want your unsolicited emails. If you require further financial advice, seek it elsewhere. Henry`s opinions should be considered as addled as his blog site: