Note: you are currently reading the second version of my Crypto trading strategy, if you would like to read the current version then please visit the main strategy page.
I am an accidental Bitcoin and Crypto trader. I fell into this at the start of the year and am now trading full time. My portfolio is +3,983% (as of 27th Dec '17) this year against just holding Bitcoin which would have been growth of +1,607% (as of 27th Dec '17).
I have setup this blog to track my progress, share what I have learned along the way and hopefully help others to trade crypto successfully.
- Warning 1: I am not the most technical, I have a growing understanding of how cryptocurrencies and the blockchain work but there are people out there who know way more.
- Warning 2: I am not an experienced stock market investor. The only time I have tried to trade stocks I lost over £20k. I have been able to use the mistakes of that experiment to be a better crypto trader.
- Warning 3: this site is not giving out financial advice. I am just sharing my journey. If you choose to be a crypto investor then you do so at your own risk. Please do not just copy me. I am yet to find out if I am smart or just another lucky investor in a raging bull market, only time will tell.
Note: This is version 2 of my strategy, you can view version 1 here.
I have built what I believe is a solid strategy which works for me and is creating value. I have been sharing this in a private Facebook group, but I now want to share it with a wider circle of people.
There are a couple of main strategies which crypto traders tend to employ:
- Hold - where traders buy and hold coins for the long term, riding out the volatile movements
- Day trading - where traders analyse the market, the charts and news to trade in and out of coins
For me, holding is not a strategy on its own and you need an exit strategy, I have written about this on my blog.
My strategy is as follows:
- Identify, buy, hold and accumulate stable growth coins for the medium to long term which I feel have growth potential
- Take punts on small and interesting coins which have significant growth opportunity.
- Rebalance my portfolio based on tiered investments, primarily investing in tier 1, long term stable growth coins supported by speculative investments on small/new growing coins which might see significant gains.
- Take money off the table, 5% for each 25% up, back in to FIAT (British Pounds), to give me an income while still benefiting from compound growth.
When rebalancing my portfolio, I do two things:
- Move into new investments based on a combination of factors such as price, news, charts and general gut feel, for example, if a coin is making a parabolic move without supporting news and I feel it is overbought, then I will sell off some and move into another coin. Equally, if I think a coin is oversold or has more room to grow, then I may increase my holding.
- Grow my currency coins over utility tokens. What I mean by this is that there are currency coins, such as Bitcoin, Dash and Monero, which primarily act as a store of value or payment mechanism. You also have utility tokens which operate primarily to support a service, such as Ripple, Siacoin and Factom. Utility tokens are speculative investments based on unproven business models, as such there is less reason to hold long term and their movements are more volatile. Also with utility tokens, there is a need for price stability for user experience and a natural mental limit to the potential market cap. Currency coins do not have any upper limit for market cap and the business case is proven. Currency coins give my portfolio stable growth where as moving in and out of high performance utility tokens accelerates my ability to buy more of them.
When I research a coin I am thinking of buying, and I do this in a number of ways, and the amount of research is dependent upon the size of the investment:
- A small £250 - £1,000 punt will be a quick look at their website, the team and the roadmap followed by a search of Reddit and Twitter. I can usually do this in around 15 minutes. I am working on a mindset of if I invest in 10, I expect at least two of them to breakout and cover the others. So far the ratio is higher than two, and some have brought in significant returns, such as Digibyte (+1,193%), Ark (+1,032%), Bitshares (+1,784%) and Lisk (+1,467%).
- A larger investment may take a few hours. I may scan the white paper, but I don't usually read it in detail, often because I don't understand it. I will though spend a lot more time searching the web, looking at the team, looking at what they are trying to do and discussing with others. It is quite easy to get a feel for what is a good project and what is a waste of time.
What I don't do:
- I don't invest money I can't afford to lose. Doing so can create panic and cause me to make emotional decisions.
- I don't panic. Crypto can be highly volatile, portfolio swings of +30% are possible in a day, individual coins can go down 50% and up +100%. It takes time, but the longer I have traded crypto, the more comfortable I have become with this. Patience is one of the most important things you can learn with Crypto.
- I don't short. I don't have any fundamental issue with shorting; I think it is a good tool within all markets for driving accurate pricing, whether stocks, Forex or cryptocurrency. I just don't do it within crypto for a couple of reasons. Firstly we are in a very long bull run, so I don't want to trade against the momentum and secondly, I find coins have a greater % upswing potential than down.
- I never margin trade. Margin trading is where an exchange will give you a multiple against your investment. Say for example you are offer *10, then as a price moves up your gain is *10, but this also works when the market moves down. Margin trading for me is investing money you don't have which is rule no.1.
- I don't chase the market. I have, and I have been burned. When a coin is making a parabolic move, and you chase it you can easily be caught as it drops back.
- I don't listen to the opinions of others. I will though use them as an opportunity to research something new but I won't blindly buy. I use Reddit all the time to follow news and opinion, but I ignore the idiots who are claiming a coin is going to the moon, or something is undervalued. Most opinions are based on what people want to happen.
My investment tiers are as follows:
- Tier 1 - Stable Growth Coins
The projects I believe will exist in 3-5 years, lead the market and demonstrate stable growth. They will usually be +$1bn and top 10 by market cap. My goal is to buy into these and accumulate more coins and tokens.
- Tier 2 - Developing Stable Growth Coins
Projects I believe have the chance of becoming tier 1 projects, they will usually be +$200m, top 25 by market cap and demonstrate stable growth. My goal is to hold onto these until either they become tier 1 projects or if they fail, trade out based on TA to accumulate more tier 1 coins and tokens.
- Tier 3 - Emerging Stable Growth Coins
These are projects which I believe have the potential to grow through the tiers; they will usually be +$50m, top 75 by market cap and demonstrate stable growth. I will trade for growth and monitor for stability.
- Tiers 4 - Volatile Short-Term Investments
These are volatile projects which I trade for margin and monitor for stability. These will be new projects with a potential upside or older volatile coins which are oversold. My goal is to trade in the short term to accumulate tier 1 coins.
- Tier 5 - Speculative Investments
These are small speculative investments in small projects. They will usually be usually -$25m and outside of the top 75 by market cap. I will look to invest early and hold long.
If you decide to become a crypto investor, then take your time and develop a strategy which works for you. Be careful with what you invest, do not get emotional and be patient. The reality is the market may crash and all of this fall apart, equally we may be on the verge of a global financial revolution where the early adopters will be rewarded with financial freedom.
Good luck to all, please shout if you have any questions. I answer all emails.