It was not as fun as Alex would’ve expected, especially at the point when he had to tackle his temper and become a more systemic trader. However, the most valuable lessons are learned through hard mistakes.
Oh no, don’t worry, he’s okay.
What’s more, we’re going to find out the answer to that eternal question: is it possible to tame your emotions and become a cool-hearted strategic trader? Alex set a goal, to make a hundred trades strictly by strategy, no matter what. Can you really do it even if the market goes so wild as it did? Let’s see!
Time to relax over a cup of coffee, reflect a bit and remember how it was. Did Alex manage to make money? Does he regret having agreed to this adventure? Let’s find out!
A good trader is a boring trader
You’ve probably heard all those stories about people holding Bitcoin for a decade and becoming billionaires. But becoming rich overnight wasn’t Alex’s goal (at least that’s what he said ). It was rather about holding on to a strategy in the long run and seeing if it works.
You might ask why someone needs a strategy when markets are raving like crazy with all this Bitcoin roller coaster. The answer is – optimizing the risks and making your profits more stable. Remember, trading is not a gamble, it’s financial expertise. And since Alex aspires to be someone as big as McKinsey rep or alike, he decided to take trading seriously. Chasing big wins and then losing them altogether was too childish for him, even though that was where he started. Instead, he decided to be smart and become a more technical trader. Because one good thing about following a strategy is that the small but steady returns bring better profits in the long run.
Turns out, the “e” constant was invented by a guy who was looking to gain interest for his money, Jacob Bernoulli. He found that a smaller percentage that is calculating more frequently eventually brings a higher return than a bigger percentage added up less often.
You can add 100% once or 12% ten times in a row. The former feels sexier but the latter gives you the better result. Small but consistent results over time do show the power of compounding interest.
OR let’s say you decided to trade with a certain strategy that would have high chances of bringing you a 12% return for each trade. Not much? Think again. You would have that 12% added again and again, on top of an already bigger sum. For example, you’ve made 10 trades using this strategy. So, by the end of this trading round, you would have $3.10 instead of $2. That’s a 200% return! And because you calculated your affordable risks and necessary gains at every step, you would have fewer chances of losing your initial investment. So eventually, your trading results would be more profitable.
To short or not to short
Alex concluded that he gained more profit through shorting. It’s when you trade with the expectation that the price of the asset would go down. There could be many reasons for shorting digital assets. Among those is the fact that prices tend to drop more suddenly and in greater value or frequency than they rise.
So, biased towards shorting, Alex earned +17% to his capital at the end of the last trading month of our experiment. That does not quite cover all the liquidations he endured before. But what is the price for knowledge and experience? And, without any false hope that positive results can be sustained into the future without serious work, Alex feels inspired.
He learned a ton. And so did we. He facepalmed themself seeing obvious mistakes in hindsight. And so did the readers of his diary. We smiled, smirked, rolled our eyes, worried. And, inevitably, recognized a little bit of Alex in us.
And, before we let Alex roam freely in the world of trading before we relieve him from this trading exhibitionism, let’s look for the last bits of his diary. And, until then – till new experiments!
As it turns out, trading can be boring. At first, I was not bored even for a second. The constant movements of the market made the heart beat faster and took a lot of my time, emotions and attention. I was lucky, and my first experience was quite positive. To make 20 +% in a month is a strong result. But I didn’t realize it right away.
For those who do not understand what is happening here – my name is Alex and I got acquainted with trading not so long ago. I combine work and trading, but like many others I dream of “living off just from the market trades”. I decided to conduct a public experiment and check whether it is possible to make money by trading according to the strategy:
At the first stage, I traded moving averages in conjunction with oscillators. Found a strategy on the internet. It seems like it works, but in practice the signals are visible after the fact they occur.
Later I’ve traded rebounds from the moving average and technical levels. And was lucky to make good money.
Then I could not cope with emotions and became arrogant, began to freak on the market thinking I am a genius trader. And the market does not like such behavior and it ended up by me leaking the account with one deal.
I returned with the aim of making 100 transactions according to the strategy, which the employee of the prop company shared with me (the essence of the strategy was described earlier). You need to make a hundred perfect trades according to the strategy without mistakes.
In December, I made only 45 trades and family business and holidays began.
Now the time has come to bring the matter to the end and see if it is possible to make money by trading according to a strategy with a positive mathematical expectation of profit or the market is a “fairy tale for the poor”
I haven’t made a single trade in the last 20 days. Working on strategy was boring. The risk per trade is small and there is no fear of loss. Trades have protective orders (stop and take profit), so there is no need to monitor the chart. I hold no more than one long and one short at a time. Loss limit per day 5% of the original deposit. Further, I will describe in more detail the developed rules of money management.
The main sensations are as follows: there is no drive, emotions, sleepless nights, I do not fall asleep with my phone BUT! There is a profit. Quite stable results appeared. At least for now they are stable))
My goal is to finish the experiment, see the possible achievable result. In addition, I want to test myself: will I be able to avoid making a mistake, not go crazy and not waste money.
Opened the first pair of trades. The countdown begins. There are 53 trades left. Current result + 9.5% to the deposit.
There were a lot of events on the market this week, but in terms of my trading, everything is calm and quiet. I feel that I missed a lot of opportunities because everything has been growing for the last week. Just open the ETH chart that has set the historical maximum. Just trade with the trend and earn money. And XRP….
And the worst thing is that it was all as obvious and predictable as possible. My logic: at the beginning, XRP rose wildly, then the SEC and deep fall. I assumed that this whole story will be used by Ripple for marketing and attention. In any case, the situation with the lawsuit would have ended and then XRP would have grown. I predicted this, but did not bet on it and, accordingly, did not earn anything. Great movements were also on TRX, XLM, ZRX, ADA markets. Wherever you look everywhere is growth. While Bitcoin move sideways, traders try to benefit from altcoins.
But I have a strategy and I need to follow it . There were few deals, the beginning of the week was extremely unfortunate. I lost 5% of my equity in two days. You’ll see it on the screenshot. Stop orders have followed stop orders. But I was calm . The fact is that I already have some statistics of my trades . I haven’t had more than 7 losing trades in a row yet. I understand that this streak can easily change, but for now it works. Accordingly, there is no need to worry. If there are 8 losing trades in a row, then I will worry.
In the second half of my trading week, my strategy helped me to get profitable trades. And here is one VERY important thing: it is necessary to have a 1 to 2 ratio of potential loss and potential profit. This means that if you lose 1% of your equity in one trade, then you should earn at least 2% in case of a profitable trade.
We never know where the market will go, nobody knows. Traders work with probabilities and predictions. Therefore, there is simply no point in closing a speculative position ahead of schedule, without waiting for the required profit. If the asset has already moved in your direction, then you shouldn’t interfere with bringing you money. This is what I figured out by analyzing my previous trades.
Strategy is like a wife. She needs to be loved, she should be with her to make you and her better. Only in this case, it will give you a profit. Love your strategy and don’t waste money on stupid trades.
There are 41 deals left to make. Current result + 19% to the deposit. Moving on.
Everything continues growing. Really everything. It is very easy to make money during such periods because it is enough just to buy and wait for the take profit order execution. The main thing is not to be greedy and fix the result at least partially . After all, this euphoria will end sooner or later. And then it will be clear who controlled the risk and how.
After analyzing my trades for a week, I understand that a simple buy & hold strategy would bring me much better results than what I got. I have a minus for this week. I had 25 trades. The largest amount in one week. There were great deals, but they are one-off. I closed a few trades at breakeven, as I moved the stop order. Most of the deals were fixed in negative territory.
The most annoying thing is that the price always went in my direction, but did not reach the take profit. The price turned around and reached the stop. The worst situation was with UNI. I opened a short position and the price immediately went in my direction. Take Profit did not work because I did not take into account the spread. I think everyone has come across the fact that the chart seems to reach a limit order or take profit, but it did not work. This is all due to the spread or due to the lack of the required volume in the market at this price. Well, in general, I understand that this is a normal situation, literally a few cents were not enough to close in plus.
This week it was two days that I started trading and stopped trading by lunchtime, as I reached my personal loss limit. There was a wild desire to make a comeback, punish this asset and make it move in the direction I needed. But I managed to control myself.
For simplicity of calculations, I decided to count all losses and profits as a percentage of the initial deposit. Since my deposit is $1,000, a 5% daily loss means $50. And this figure does not change even if the equity has grown by 19%. If I lost 5% in a day, then in order to return what I lost I need to earn 6% to take into account the commission.
My result for the week is -7% . And all that thanks to my dear Litecoin. It’s hatecoin for me right now. Doesn’t let me live. Excluded it from my list of traded instruments.
There are 16 deals left to complete. Current result + 12%. The good news is that in any case I will close the month with a plus. Why? Because I do not allow myself to lose more than 7% in a week . But it will be very disappointing if the next week is over with a minus. I will not admit it!
Week 4 (The last one)
Finish. I have completed 100 trades!! Made 102 trades to be precise. What an incredible experience. Like learning a foreign language.
Mark Douglas, in his book “The Disciplined Trader”, recommended doing that to every trader. This is great for self-control, emotional management, discipline, and responsibility! And when I have completed 100 trades following one strategy, I can confirm that this is indeed the case.
I keep a diary, my personal diary, in which I describe my deals, feelings, remarks, and insights every day . While analyzing the diary, I noticed that I became less emotional in terms of trading, more confident. I have fewer and fewer thoughts like: “I had to take more, I had to move take profit, I had to not put a stop”. Now I sleep better!
At first, I had doubts that I would be able to complete 100 trades following the strategy without mistakes. Although there were a few ones, I had two limit orders that I forgot to cancel. I reviewed ALL my trades with my wife. She was a regulator. It took a long time, but I am sure that such reflection is helpful. There were no mistakes on entry points within the strategy. But there was something with risks. My risk per trade was 0.75%, together with commissions and spreads, the maximum should have been 1%. But there were a few trades with a 1.5% loss, the maximum was 1.9%. Volume calculation mistake. And I still don’t know how to solve this problem. It seems that everything is correct, but in fact it turns out that sometimes is wrong.
I finished the last 16 trades quickly over the weekend. The volatility was wild, deals were closed rapidly. I had a cool ride on the ETH long several times, caught XTZ short. Some stop losses for XRP. During the week, I managed to increase the equity by 5%. I think this is a great result. And then I worked on statistics. Checked trades, calculated metrics.
Shorts brought me the largest profit. I’m not cheating on my bear style. The mathematical expectation of profit 1.81. If we take the ratio of average profit to average loss, we get 1.3. I have not figured out exactly how it can be. It seems like it should have been 2 because my stop is half the profit. Assumption: maybe because of closing at breakeven that distorted the value.
The final result is $1,176, that is, +17% for 100 trades. Currently, this result can only surprise bond investors. Because I would earn much more if I just bought any asset on CEX.IO Broker and held it for two months. But the main goal was not to make money but to make 100 transactions within the strategy. The result is a secondary goal. Sounds like an excuse.
Conclusion: systematic trading works. Trading within the strategy is calmer, more predictable, and takes a little fewer nerves. One month’s results do not guarantee similar returns in the future, but I will keep checking. I’m wondering how much the indicators and statistics will change with the next 100 trades. It was an invaluable experience that I recommend everyone to have .
Experiment 2.0: Day 10-21 https://blog.cex.io/cex-io-broker/the-experiment-2-0-day-10-21-23441
Experiment 2.0: Day 22-33 https://blog.cex.io/cex-io-broker/the-experiment-2-0-day-22-33-23532
Experiment in Telegram: https://t.me/CEXIOBRoker