Top one mistake in Crypto Trading

Can you make 3% profit every day without fail?

The straight answer is no, it is just simple math.

Firstly let’s break the sentence to 2 parts:

• make 3% profit

• every day without fail

There is absolutely no problem for the 1st part, the problem is the 2nd part. If you ever had some personal loan or home loan with yearly interest rate of 3%, you would find in your bank statement a small amount of interest calculated weekly / monthly added back to the principal, then you ended up paying more than just 3%. This is the same as trading plan above, which is just a simple mathematical formula

$$Amount = Principal * (1 + Rate)^n$$

(P.S. n is the number of times interest is compounded)

Assume you have $2000 as your initial fund for trading, and you keep winning 3% every day for 2 years, so it would be $2000 x (1 + 0.03)^(365 x 2) = $4,701,149,155,219.254 , so in 2 years you can buy out Apple, Google and Facebook and still have money left that you can not spend up in the rest of your life.

So what would be a realistic target? Let’s park that and look at another thing which is probably more important.

The 1st thing to learn

For many beginners, the first thing they learn is stop-loss, “Cut Your Losses and Let Your Profits Run” gives them some kind of epiphany which shouts out one golden principle --

Don’t Be Greedy!

After that, things start getting worse, because they set up stop-loss to 1%, 2%, 4% ... for all their trades, in a super volatile market like Crypto, the trades are quickly taken out, and they get in again and get taken out again, soon it’s becoming like a tall man with no short-term memory tries to get out of a room but keeps banging his head against door frame and falls repeatedly.

So what’s the rationale behind these 1%, 2%, 4% stop-loss, it seems random, but it actually follows the principle of “Don’t Be Greedy”, this is how they quickly cut their losses.

“Don’t Be Greedy” is not a wrong principle, it is just not actionable, good advice should be always actionable.

If you find the price is ranging within 10% in the past 2 weeks, and you set stop-loss to 2%, it is highly likely you hit it soon. Setting it to 10% would make more sense, actually setting it to 12% would give your trade more leeway. And then you’ll need to think about the “Don’t Be Greedy” principle again, if 12% is the stop-loss, how much dollar amount you can afford to lose, assume you can take a loss of $200, then you probably should put no more than $1600 into your trade.

Moving Average, ATR, Standard Deviation

There is a reason why trading can be a profession but not gambling, because there are patterns to follow. The fact is it does require learning to understand these patterns which means time, patience and experiment.

For the stop-loss we talked above, there are many well-established patterns to follow already, Moving Average, ATR, Standard Deviation would be some good ones.

Here at Coinfinda, we have a smart feature that helps your trading bot to adjust stop-loss / take-profit dynamically on a regular basis according to the current market situation, it actually utilises ATR which is a popular technical analysis indicator invented about 40 years ago. In a nutshell, ATR measures the price distance between 2 periods and passes the result to next period to do the same calculation, so the recent prices take more weight in the measurement. For how it works in Confinda, you can find more about it here.