Below are the answers to 10 questions I was recently asked, following on from my first Ask Me Anything a couple of months back.
1. Is it time to get out the fiat under the mattress & average down on alts yet or are we in for another year of the bear?
I believe so. Perhaps not throwing the entire cash reserve at alts just yet, but scaling into positions has seemed wise for a couple of weeks now. In my opinion, we’ve seen the worst (at least in ALT/BTC). I can’t imagine another nine months like we’ve experienced so far this year; the alt market is already ~80% from its all-time highs and has retraced almost the entire bubble from summer 2017.
2. How do you decide beforehand when to take profit and by how much?
I have three main exit strategies that I utilise:
- I use historically-significant support and resistance levels, setting alarms at those intervals and allocating a fixed % of the position to be sold at each level; usually 10% at five different levels, totalling half of the entire position to be exited in this manner. (Of course, this is just hypothetical, and I don’t stick to this formula rigidly – sometimes I can miss price alerts; sometimes it takes too long to transfer to exchanges from cold storage etc.)
- I use a volume-based approach, wherein I allocate maybe 15-25% of the position to be exited when the given altcoin reaches a certain volume threshold. For example, if an alt hit 100BTC 24-hour volume on Cryptopia, that would be rather significant. It would be far less significant if that volume was reached on Bittrex. Each exchange has certain average volumes, and I monitor these and use them to identify when an alt is hitting an abnormal amount within a 24-hour period. Peaks in volume usually precede peaks in price, also.
- I use market caps and fundamental analysis to exit. If an altcoin reaches a market cap equal to one of its peers, I use that as a signal to exit part of a position. The vast majority of alts are not one-of-a-kind, and, as such, there are many similar alts out there that one can take cues from regarding potential under-and-overvaluation.
I talk more about these exit strategies in my book, if you’d like to dig in deeper.
3. How do you spot fake volume & fake social activity when scanning for coins to invest in?
Fake social activity is usually pretty obvious. Most bots are overtly bot-like in social channels, so their presence is easily detectable. I tend to sweep through BTCTalk threads, Telegram/Slack/Discord channels and Twitter to figure out if there is genuine conversation and discussion occuring or just spam.
As for fake volume, that requires monitoring the orderbook of an alt, as well as checking 24-hour volume against market cap. If 24-hour volume is greater than market cap, this can indicate one of two things: either, there is very heavy, unsubtle accumulation occuring, which can be verified using rich-list analysis; or, fake volume is being spun to entice inexperienced traders. If the former isn’t the case, it is always the latter. This especially occurs on lower-volume exchanges.
4. Do you have any good strategies/advice for trading through a bear market? Do you utilize any of your coin strategies in the traditional markets?
I don’t actively trade much anymore, with most of my speculation taking place over several months rather than intra-week. In bear markets, I adopt the same approach as in bull markets, only more cautious with my capital and more stringent and thorough in my research. I tend to look towards unusual volume patterns and scouring rich-lists in order to figure out good areas for entry, supplementing this with long-term support levels on the chart. The best advice for bear markets is simply to be patient, scale into new positions slowly, and risk even less capital per position than you would in a bull market. I tend to try to go more cash-heavy when I see signs that a bull market is turning, so that I can accumulate heavily during periods like that which we are currently experiencing.
I did actively trade traditional markets for a while, though focusing almost exclusively on TA. I do however utilise a similar approach for stock investments: I begin by filtering for specific parameters to whittle down the list to fewer than 100 stocks (as I do with altcoins) > I further whittle the list down using charts to find the most attractive opportunities > I go deep on fundamental analysis to end up with a handful of the best possible stocks > I use weekly and daily charts to find a good entry. As for how effective this is for stocks; I couldn’t give you an accurate answer, as I’ve only recently (~6 months) diversified my capital into them. Plus, the time-frame I’m looking at is a lot longer than any altcoin I’ve ever been in.
5. How to report and pay taxes on your earnings when cashing out – ever had legal problems? Any particular methods that banks etc. tend to question more or less than others?
Use a tax advisor. Alternatively, consult @cryptocountant for better advice. One thing I will say is that my bank (Monzo) doesn’t have any issues with crypto. Finding a forward-thinking digital bank was very helpful.
6. When the market has low liquidity do you lower your requirements for micro and small caps daily volume?
Not really, because there are so many other opportunities available. My general requirement is 1% for 24-hour volume:market cap.
7. What would you do with a coin that has no block explorer or one without a rich-list?
I wouldn’t pay any attention to it, unless I could determine that information another way (distribution tabs on exchanges or orderbook reading – for example, I look for abnormally large orders in the sell side that point to large holders).
8. If you constructed a portfolio in a way that you no longer believe optimal; where do you stand on rebalancing at a loss, versus continuing with your original thesis?
I think you answered your own question. If you have sufficient reason to believe that your original thesis is severely flawed, it makes zero sense to continue with such an approach, regardless of PNL. It might be painful to realise your losses, but the approach that begot such losses won’t be the one to rescue you from them.
9. What are your thoughts on the huge increase in the number of coins last year? Is this the top or this is just the beginning and there’s still room for more projects?
If you mean is this a top regarding the number of projects in existence, I am almost 100% certain it isn’t. The very nature of crypto makes it incredibly easy for new projects to be created. I don’t think that’ll stop anytime soon. Also, most of the biggest Internet companies were formed after the first dot-com bubble. I think we’ll see more genuinely unique and fundamentally-sound projects created over the next 24 months than we did in 2017.
As for the market (inclusive of prices, market caps and innovation), I don’t think the January bubble was the biggest. Crypto has yet to taste a trillion-dollar bubble (we peaked in January ~$800bn). It’ll come.
10. How do you balance crypto trading and investing? Is it possible to do both simultaneously?
As I mentioned earlier in the post, I’m not actively trading anymore and haven’t been for over a year now. The shortest time-frame I tend to look at for positions is a month; most are several months if not multiple market cycles. I made the decision to stop actively trading primarily because it eats up so much more time and requires intense focus and attention to be paid to your computer. I’m not really the sort of person who likes to sit at a desk staring at charts all day, so I adopted a longer-term approach as my mainstay.
I think it is definitely possible to do both, however, but it’s heavily dependent on your current lifestyle. If you work a 9-5, it doesn’t make sense to actively trade. If you are less restricted in your schedule; you can absolutely spend 6-8 hours doing the required work to trade; you can also reserve some time and capital for research and accumulation of longer-term investments. For me, it just didn’t make sense to do that. I get better returns on longer-term positions, whilst having more time in the day to focus on other interests.
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