Trading Cryptocurrencies — Bitcoin, Ethereum and altcoins
If you are looking at this article, you probably are already doing, or interested in “Trading Cryptocurrencies”.
In this article, I will share my method of “Long-term hold with low maintenance day trading” — step-by-step.
The method served me well so far — Hopefully it works for you!! (Oh, no guarantee of course)
Introduction (You can skip)
It’s impossible to not to hear about Cryptocurrencies related topics nowadays.
It seems everyone is already on it, or want to start but not sure where to go, or completely stay away because feels like too late in a game, or too risky.
A little bit about me. I’ve worked in the financial industry for over 10 years of my currier in New York City.
I was a part of the core development team building a new retail online trading platform at the most prestigious global financial services firm during the Lehman Shock era.
Then lead the multiple cross-region teams for the implementation of a global market platform at the US headquarters of the largest Japanese bank.
During this time, I’ve learned basics of how the trading system works.
Despite my exposure to many different trading systems and financial products, I’ve never tried any short-term / long-term tradings myself, — until the arrival of cryptocurrencies...
It was simply too tempting to miss this hype — the world phenomenon: the era of cryptocurrencies.
I was barely noticing when Crypt-trading was becoming popular among “crypt early adopters” before Mid-2017.
Bitcoin hits 4,500 USD in Aug 2017. At that time, like most people, I was rather skeptical about the whole thing.
I even missed another opportunity — when Bitcoin price jumped to 10,000 USD in Nov 2017, then skyrocketed to $19,000 USD within a couple of weeks and bounced back to $14,000 USD at the end of 2017.
— I only started mid-December 2017, which was pretty bad time to start…
How to start trading cryptocurrencies (If you don’t know how)
It’s not difficult to start trading cryptocurrencies at all.
You can google “how to trade cryptocurrency” and find sites like this one for easy reading.
Cryptocurrencies are exploding. Between January and November 2017, bitcoin (BTC) grew from $997.69/BTC to $9,718/BTC…www.finder.com
You need a credit card or bank account to put money in your crypto wallet (crypto wallet is like a checking account for cryptocurrency with a lot of volatility!!).
In my case, I first sign up on “Coinbase” like many others. Coinbase was one of the easiest and trusted place to buy your first cryptocurrencies — in my case, a fraction* of one bitcoin at the price around 14,000 USD per coin.
*don’t invest more than your can afford to lose it all, because there is a very real chance that you actually lose the most.
Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency.www.coinbase.com
After purchasing tiny amount of Bitcoin (BTC) and Ethereum (ETH). I was soon bored with the limited capabilities/options at Coinbase, so I sign up for Binance — a Chinese digital asset exchange.
Binance has more than 100 cryptocurrencies to trade with. You first need to deposit to your wallet, either Bitcoin or Ethereum to start trading with other coins. I sent Ethereum from Coinbase to Binance wallet.
Method explained — Long-term hold with Short-term value dips
My method consists of a long-term holding of multiple coins and short-term value dippings each day.
This method takes full benefits of current growing cryptocurrency market caps and requires only few minutes each day for setting up dip coins for the day (low maintenance).
It basically relays on the long-term growth of whole cryptocurrency market capitalization, but it could be more profitable and more resistant to “crush” than simple long-term hold due to the diversities, daily value dipping, and safety net.
In this method, you will have 4 categories of coins:
(1) Base Coin — either Bitcoin and/or Ethereum for purchasing other coins.
(2) Long-term Hold Coins* — Your selection of coins that has long-term values that you believe. In my case, BTC, ETH, NEO, RPX, IOTA, and TRX. More diverse the better. [*Update: Move these coins from Exchange to Personal wallet with your private key]
(3) Short-term Dip Coins — Your daily selection of coins for short-term value gain of 3%+ each. It also serves to monitor where the market is going overall since it forces you to look at many different coins and its performance.
(4) Safety net Coin/Account* — Tether (USDT), Each USDT unit is backed by a U.S Dollar held in the reserves of the Tether Limited. This is still a cryptocurrency, but it has very low day to day volatilities. [*Update: To be completely safe, deposit to your original bank account. There is a risk of putting your money in Tether]
You start with (1) Base Coin, then buy (2) Long-term Hold Coins and hold on to them through its good (ups) and bad (downs) time.
Each day you buy small portions of (3) Short-term Dip Coins and sell for quick profits and re-invest the profits to all categories. Repeat.
Execution Step 1 — Initial Setup
Let’s get into the action. Assuming you already have some Base Coin wallets setup (in my case, Ethereum) at some crypto exchange (in my case Binance).
You open the trade screen and start picking and purchasing the coins you want to hold for a long-term. The current price doesn’t really matter since you hold them long enough (although, it is definitely better to buy when it is cheaper of course).
Depending on your confidence level, you can put more portion of your total asset into each Long-term hold coins. In any case, you should always start small and continue research on the coins you hold.
You want to be sensitive to the future value of these coins. You may subscribe to cryptocurrency related news. I use Crypto Pro iOS app for reading news.
My selections of these long-term hold coins at the time of Mid-December 2017 were ETH, BTC, NEO, RPX, and TRX in order of confidence.
If I start fresh now, maybe I will pick something else, but I still want ETH to be my “Go-To” coin.
Execution Step 2 — Daily Value Dip
You are looking for a short-term gain, not necessarily long-term value of the coin for the purpose. You will be looking at few characteristics of the coin for the selection.
I am gonna state the obvious here — You make a profit when you sell higher than what you paid for.
I have couple of suggestions for picking the right (higher probability of short-term gain) coins.
(1) look at the coins that lost values last 24 hours — Sort by % changes
(2) look at 24 hr High/Low and Current Value to see if it’s closer to Low side
(3) look at the yellow line and if the current price is below the line
(4) look at the Buy(green)/Sell(red) turned for Buy(green bar) side
If you picked coins that meet all or some of these criteria, chances are much higher than random pick.
If you don’t see the coins fits this criteria. Just try at other time of the day.
Do not buy a lot, just buy little at a time. When you buy, use Limit* order, don’t buy at Market price. This way you have more control.
*You may have more sophisticated options depending on the trading platform
To further improve your pick and confidence level, there are few more things you can check before you invest more.
Check the trend by looking at the different timescale (longer than couple of hours).
The image (above) shows “MDA/ETH” in different timescale graph (“Mutl-Invl”).
If you just look at time scale less than 1 mins interval (“Time” interval), you may pick this product as there was a recent value drop from the yellow line.
However, if you look at the lifetime value of this product (“1d” interval), you notice that this product have never exceeded the initial value in this exchange. So you may avoid this product, as you can’t determine the peak value of this product.
Another consideration is, a trade volume. If you look at 24h volume, this product was not traded much. More trade volume is better for the short-term gain purpose.
One more example, the image (above) shows “PIVX/ETH” trade and notice this product just came to this exchange. You may avoid trading till the price settle for this product.
After you buy, set up Sell Limit order with 3%+(enough to make profit after transaction fees if any) higher value and leave it there for a day or longer.
You will pick other coins, and repeat the same process.
When you do this every day, it shouldn’t take more than couple of minutes. If you are not sure the picks for the day, then don’t buy or buy very small for a test run.
Next day, you look at the open orders if any of these are filled, you made a quick profit, you can re-invest it to other categories.
if some or many of the open orders are not filled yet (most likely), don’t worry. Just let it sit there, till they clear (there is an advance topic on this, but may be next time).
Pick another few coins, set up Sell “Limit” repeat.
You shouldn’t exceed investing more than 25% of your total asset into this category.
Short-term trading is by nature, a gamble. but if you play it right (by the rule), you will have a higher chance of winning, just like a Black Jake and Poker.
Another important aspect of this daily dipping is — it works as a daily check point of assessing what you hold and where the market is heading to.
Through the bad time, and good time.
The market sometimes crashes for a very little or no reason, which happens all the time.
If you sense the market is going south through your trusted sources (regulatory news etc.), you move a higher portion of your total assets to Safety Net. However, chances are, when you notice the decline, you are too late — in that case, just hold tight. They usually recover at some point.
The market also sometimes goes up — It’s funny, people don’t usually look for reasons why the price went up ;-)
You feel pretty good looking at coins reporting all +10x% in green, then — you get greedy… soon after this, usually the price swings back, so when you see the green, take the profit in Safety Net.
It is important to recover your initial investment as soon as you make profits — once you paid off, then you can truly enjoy the growth of your crypto-asset from the pure profits.
Last but not least — Taxation
I haven’t quite figure out how to report recognize gain or loss.
According to this article, it looks like we all need to track every single transactions for the calculation. Both Coinbase and Binance can download historical transaction records.
I have a vested interest in BlockChain technology in conjunction with IoT (Internet of Things). I will write something next time!
Meanwhile, let me know what you think about this method.
Love to hear your opinions/suggestions!
See you next time,