My Plan for Trading Crypto
First, I’m not a money manager or Registered Investment Advisor. I do not make recommendations about what percentage of your overall portfolio should be allocated to different asset classes. I do know that cryptos should be considered part of your riskiest assets and therefore they should represent only a small portion of your overall portfolio.
I am fortunate to have gotten involved early on (2013) so I have taken all my initial capital (plus profits) out of this group. I will continue to manage risk as if each dollar is the first one I put in.
To me, it is scarier to short the major cryptos (BTC, ETH, LTC) than it is to hold them long. Therefore, my trades are focused on either being long or in cash (US Dollars.)
My trade strategy is twofold.
For approximately 61.8% of my crypto risk account, I want to trade with trends which last up to a couple of months. Here is how I plan on doing that;
- Wait patiently for low risk, high probability trades to present themselves to me on the charts.
- Know my initial acceptable loss, sell if the initial stop is violated and then objectively reassess.
- Piece out ¼ positions on quick ramps higher (10% or more.)
- Raise mental stops on balances.
- The goal would be to hold these until the technical conditions no longer show an uptrend and then move back to cash and repeat the process.
For the remaining 38.2% of my crypto risk account, I want to take advantage of quick selloffs.
I will make “blind faith purchases” based on key technical levels when the market plummets more than (not at) 10% in a 24-72-hour period.
- This “riskier” risk strategy involves up to three different purchases.
- These purchases might occur during the middle of the night while I am sleeping.
- The resting buy orders will mainly be placed at; key moving averages, Fibonacci retracement levels and prior resistance levels.
- For an idea of sizing on these buy orders, let’s say you have $10,000 allocated to cryptos. This portion of the account would be $3,820.
- These purchases will be entered at 3 different levels.
- The first purchase would be for approximately $600 (3 units) and then orders 2 (6 units) and 3 for $1220 and $2000 (10 units,) essentially doubling and tripling down on the initial purchase.
- Orders to purchase lots 2 & 3 will be placed much lower price than the first pullback order, buying greater quantity at lower prices.
- I will sell approximately 1/3 of whatever portion is bought if the market experiences a quick bounce of 10% or more and then rely on technical levels to manage the rest of the position.
- If a true intermediate term bottom is found with these purchases, then I will consider holding onto these purchases with a longer-term mentality and will only begin to sell those if the overall account becomes 100% long.
- If full purchases are made and no bounce occurs then I will still have 68.2% cash position to deploy if the charts recover.
- If the cryptos no longer exist then I will accept the loss and move on.
It is not my intention to tell anyone what to do. I will not give specific advice. You must do what is right for you. I will not tell you my specific holdings, just as I wouldn’t dare pry into your personal finances. I will point out key levels where I am considering taking action and then let you decide if it is right for you.
Some questions you may have.
1- Where do we trade these cryptos?
I don’t trust any of the “exchanges” but, from what I have read Gemini and Coinbase are the most stable and reputable. I have accounts at both.
2- How long do trades take to settle?
Settlement times vary but the most important thing you can do is to deposit cash and wait for it to settle in the account before you place a trade. If you place a trade on day one of opening an account you may not be able to trade out of the position for up to ten days!
3- Why not just buy and hold?
Because I’m a trader, this is an opportunity to make trading profits. I will leave it up to greater minds to change the world.
Should you trade Cryptos?
- Increasing Liquidity
- 24 hour market means no gaps
- Unregulated (keep big brothers hands off)
- Trade well technically
- It's just a trade!
- No central exchange (fragmented liquidity)
- 24 hour market makes for lost sleep during volatile times
- Unregulated leaves them vulnerable to manipulation
- Backed by nothing tangible
- Exchanges go down often
- Expensive trading fees
Risk Management is Job #1
Trader, Educator, and Founder of Alphatrends