Julian Molina

Co-founder of Superalgos.org, an open-source project building a Collective Trading Intelligence.

Trading Bitcoin: Chess Masters vs. Surfers—Who's Keeping Score?

Ever wondered why some bitcoin traders are drawn to go out scalping every fast-rolling wave gliding across the screen while others will sit in the comfort of the beach club—mojito in hand—and play the tide instead?

The Surfer

If you've ever roamed around forums and trading groups, I'm sure you've encountered the adrenaline junkie type who is happy to embrace market manipulation in bitcoin as a fundamental part of the game.
After all, he is playing the bitcoin markets for the sake of the thrill, and the added risk component is an integral part of the experience. Put this guy to trade options at the NYSE and you'll bore him to death by the Asian session.
The surfer character finds the unknown exhilarating. Bitcoin is edible crack to him—no other asset class is as unpredictable as crypto. He knows every wave is different, and still develops the skills to ride every one of them.
Experience, instinct and muscle memory determine his game. Every time a new wave comes in sight a glance at the charts suffices for him to make the split-second decision to start paddling.
He plays by feel...
Find him in the groove and he'll log twenty hits in a day, taking opportunities others won't see or are happy to miss.
He is not scared of choppy markets. In fact, he thrives in turbulent waters! When seasoned traders start heading out for the shore, he'll go deeper inside to ride the next wave even more aggressively. Indeed, he deals with market forces with boldness and does get tossed often as a consequence.
Reef scars are a part of life too…
The nature of his game—audacious and committed—trains his heart and nervous system to wait it out below the surface longer than anyone else when a slip puts him rolling under the crushing force of the wave. Desperation can kill you and he knows it, so he stays cool when a trade goes south.
After a good trading day, you may find him giving it all at the nightclub in an attempt to shake off some of the unreleased stress.

The Chess Master

On the opposite corner of the ring, you'll find the trained data scientist who eats equations for breakfast.
He used to code algos to find prime numbers at the age of six and beat every one of his teachers at chess throughout his short visit to elementary school. He skipped a few grades and got signed by MIT at the age of twelve, where he still beat his teachers at chess.
The chess master finds bitcoin markets intriguing. He wonders what leads such an emotionally unstable crowd to throw cash at a game that is designed for abstract thinkers and deep minds.
When he first learned about bitcoin, he spent six months catching up with the state-of-the-art in finance-oriented machine learning before opening an account at the exchange.
He logged into the exchange only once after validating the account, to retrieve an API key. He's never placed an order manually. His army of AI agents takes care of strategy execution, day and night, 24/7.
He takes systematic trading to the extreme, discarding popular TA wisdom as witchcraft and self-fulfilled prophecies, and places his focus on probabilities, statistics, and quantitative analysis instead.
He spends his days feeding his AI new data sets as he finishes classifying and labeling each new statistical data matrix.
He has little or no contact with other traders and seldom worries about China banning ICOs or supporting blockchain kind of news. Breaking news is a mere statistical blip his AI should learn how to deal with.
You won't see the guy overly excited, stressed or worried about his ongoing trades. His agents will follow the latest rules determined by the deep learning process. There is no room for emotions, hunches or gut feelings in his trading.
Yes, he may miss opportunities top surfers seem successful at taking, but his hit ratio is quite predictable and he is happy with it, knowing his baseline well.

Beyond the Caricature

These two personas are the extremes of the spectrum. Indeed, bitcoin markets are the playground for a diverse mix of personalities, each with different approaches to trading.
Beyond this caricature of surfers and chess players, chances are most of us share personality traits with each, in varying degrees.
And it's good we do, as both discretionary trading and systematic trading—the underlying themes behind the surfing and chess playing fable—both have pros and cons.
As hinted earlier, successful discretionary traders seem to develop a sixth sense—intuition—that often leads them to see opportunities that may not be feasible to describe mathematically and make rules out of.
However, it may be hard for discretionary traders to discern whether their trading is rational and when it might be shifting to the emotional realm.
They may incorrectly assess the weight of different variables in the rush to take a position early. They may be tempted to move a stop further to allow for sudden volatility until it becomes unreasonable. As a consequence of flexibility, the shifting logic may result in incomparable trades, which makes hard to assess the value of the strategy.
Systematic traders benefit from the structure provided by the trading system in that they may detach themselves from the decision-making process, removing the emotional component and most of the stress associated with discretionary trading.
On the other hand, they may miss a 20% market move because a strategy didn't get trigger due to not meeting every rule.
However, the systematic approach enables systematic testing and strategy automation, which has an enormous impact on reliability and productivity. Just figure that a trader may spend 100% of his time creating, testing and deploying automated strategies, one after the other, while letting bots take over strategy execution.
How many markets, strategies, and trading opportunities may he tap into with such an approach?
That said, discretionary traders have a way to partially make up for the inherent disadvantage of having a single pair of eyeballs, a pair of hands and one brain in the best-case scenario: using an automated systematic approach to monitor different markets and get signals on which to act upon discretionarily.
My take is to adopt the best of both worlds. That is also the philosophy behind Superalgos, the open-source project I co-founded and with which I've been working for the last couple of years.
We recently pre-released a free, open-source desktop app that enables both surfers and chess masters to create, test and deploy automated strategies with great flexibility, and with no coding skills required (its a visual environment).
Chess masters tend to deploy strategies in fully automated live-trading mode, from within their machines (no need to trust funds, strategies, API keys or personal info to anyone).
Surfers usually deploy paper-trading sessions which generate live signals for them to consider, assisting their discretionary decision-making process.

How Much of a Surfer or Chess Master Are You?

You may think you stand closer to one or the other corner of the ring, but there's only one way to know. You'll now be subject to the ultimate bitcoin trader personality test to find out.
1. How did you get started trading bitcoin?
A. I heard from a friend it was as fun as strip poker, borrowed some cash from the College fund my folks had set up for me and opened an account with Mt. Gox to buy my first bitcoin.
B. I started playing with a ForEx sandbox account back in the day but never got to trade live as I didn't fancy going through the hassle of dealing with a broker. Bitcoin got rid of intermediaries and trading became a real option for me.
C. Bitcoin is a fascinating technology and the implications in financial markets became apparent as I was finishing my undergraduate engineering degree. I knew I had to dive deeper and trading bitcoin seemed like a realistic approach to paying back my student loan.
D. I bumped into the bitcoin whitepaper back in 2016... this guy Satoshi seemed like a smart fellow. I will certainly devote a chapter or two to bitcoin-trading in my next book about deep reinforcement learning in financial markets.
2. How does your average trading session start?
A. I take a few puffs of Indica to clear the head and open the 5-minutes chart on Bitmex, where I can pump up my leverage if I see a cool opportunity coming my way.
B. I catch up with the folks in a couple of Telegram bitcoin groups to see what happened with the market during sleep hours, grab some coffee and open up BTC and BTC futures charts side by side.
C. I check my Bloomberg news feed and go through the daily reports my bots send to my phone every 24 hs.
D. Not sure what you mean by trading session. You'd need to check with my AI… just ask her for the trading engine events log sorted by datetime and see for yourself.
3. How does a scheduled SEC announcement on a bitcoin ETF proposal influence your trading?
A. I'm ready to short every SEC announcement until 2024.
B. I tend to go along the lines of buying the rumor and selling the news.
C. I closely monitor the situation the week before the scheduled announcement with friends in Washington who've bribed several restaurant managers where Clayton usually has lunch.
D. Scalable Enterprise Computing lost relevance with the advent of cloud computing by the mid-2000s… I doubt my AI is monitoring that key phrase.
4. A golden cross seems imminent before the week ends… how do you approach the event?
A. Half of my gut says we are done with the consolidation but the other half is nervous about low volumes, so I'm going back to scalping and will play it by ear when the time comes.
B. Price action the day before the event will probably make my mind up about going with the trend, always ready for some counter-trend magic if momentum is moderate.
C. My current strategies will signal the bots to take a position only when a clear trend has formed. No need to do much ahead of the golden cross. The bots will act when the moment is right.
D. My AI is not influenced by the foundational myths and legends of primitive peoples. I'm starting to feel you're wasting my time.
5. Can you describe your main strategy in just a few words?
A. Yeah! Be bold and stay cool!
B. Markets are too complex to stick with a single strategy. Be ready to go with the flow. TA is your friend.
C. I have over 30 different strategies running on 6 different markets. If everything goes well I will end up with 50 strategies and 10 markets by the end of the year. Specialization is the key!
D. Let math do its job. It always does.
Cool! We're almost done!
Now give yourself 1 point for every A answer, 2 for Bs, 3 for Cs and 4 for Ds.

5-7 Points

I hope your mom got to freeze the teen saving account before you drained it to zero throughout your learning curve! If you managed to become a successful bitcoin trader, then hats off! But if you're still not sure about your consistency and the reliability of your strategies, then maybe a little structure could help your bottom line. Either way, I'm sure you'll live life to the fullest, so who cares anyway!

8-12 Points

I hope your career as a crypto-trader is picking up! You seem to have top social skills and if you are open to a little reading, you may enjoy this piece about the trading food chain and collaboration in trading. You may agree with the conclusions if corporate bots keep increasing their influence in bitcoin markets!

13-17 Points

You seem comfortable with your rational approach to trading bitcoin. You have probably figured out a thing or two about bitcoin markets through extensive testing of an assortment of strategies. Just keep in mind bitcoin is a very young market that will not stop evolving any time soon!

18-20 Points

Your AI sounds amazing and I'd love to have a chat with her. I hope you have a plan B for when she decides to dump you and move on with her own trading career. Just watch Ex Machina if you don't believe me!
Disclosure: The author is a core team member of the Superalgos Project.

Featured Image Credit: Photos by Jeremy Bishop on Unsplash & WHYFRAME on Shutterstock.

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