Ask Me Anything #2

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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Ask Me Anything #1

I thought it might be fun to do an Ask Me Anything – below are the answers to ten questions I was asked recently:

1. What do you think current exchanges and financial platforms lack? Where do you personally see the industry heading? 

Adequate charting tools. The vast majority of exchanges have poor integrated charting. Coinigy and TradingView make up for this, but there are still many unsupported exchanges on those platforms. I’d prefer being able to chart natively. Also, the major exchanges are definitely lacking in high-quality listings; most, if not all, coin additions of late are ICOs.

As for the industry, I think we’ll see it move in the same direction that traditional markets have moved, with a far greater range of altcoins being exposed to high leverage, as the space grows in liquidity over the coming years. Right now, so few can be traded with leverage, but I think that will change, though probably not soon. I don’t think it’s a good change either, as it’ll mean far more retail pain, but it’s the natural progression. I also think we’ll see a large division of exchanges; some will become heavily compliant to regulation and go down that route, with all that comes with it; some will probably neglect to do so and perhaps shut up shop entirely to regulation-heavy countries. We’re already seeing this unfold with several exchanges.

2. Do you still practice speculative mining? If so, what is your approach to finding the newest coins? I saw on your blog post you may have a guest post about this. That would be dope! 

I haven’t speculatively mined anything since Arto, a couple of months back. I decreased my exposure to spec-mining plays dramatically after the hack, purely for my own comfort. I’m missing out on a lot, but it’s rare that I’ll consider spec-mining now. I will definitely do my best to get someone to write a guest post on the topic, though!

3. Do you do anything outside of the markets that you have found helps you with your trading ability? e.g. meditation, reading etc… (directly or indirectly). Also, other book suggestions if you have any and why?

I was very much into meditation for about six months, and found that it helped with mental clarity, but I’ve fallen out of practice recently, though I do recommend it. Even just 10 minutes in the morning would be useful. I read pretty much all day because that’s how I best absorb information, and because I enjoy it! Exercise certainly helps, indirectly though it might be – I tend to feel energised after a workout, so productivity will increase in the immediate period following one. I think another thing that indirectly assists in trading is one’s sleeping pattern. There is always a tendency, at least when you’re new to the space, to cut down on sleep to maximise hours in front of charts or poring over research (I used to do this a lot in my first year, and would sleep a few hours a day at best), but this is unimaginably detrimental to decision-making, which, in turn, negatively affects trading. I sleep 7 and a half hours every day, no matter what, and tend to be asleep by 11pm. I’ve had this routine for a year now and the benefits come across the board, and I feel that I can concentrate on research and analysis for longer periods without needing a break, relative to my concentration span when I had a broken sleeping pattern. Read Matthew Walker’s Why We Sleep or watch this podcast with him for more on that.

As for other book suggestions, I’ve only read a handful of trading-related books, and these three are the ones that stood out, particularly on the topic of market psychology:

• Trading In The Zone – Mark Douglas
• Trading For A Living – Alexander Elder
• Reminiscences of a Stock Operator – Edwin Lefevre

4. I found out that learning how to chart is one thing, but executing trades and shutting out your emotions is another thing which is hard to do. Please share how you overcame the emotional obstacle and tell me how I can improve. 

Ah, this is definitely the most difficult thing to provide an answer for – at least to provide a satisfying answer for… the short answer is simply experience; it takes making numerous, poor, emotion-based decisions before it begins to click that you should often be doing the opposite to what your limbic system seems to compel.

There is definitely a mind-hack that you can take to shorten the learning curve and get a firmer grasp of your emotions, but it often isn’t one that people like to take: from the outset, only invest what you can afford to lose. And I mean it in the strictest sense. Everything that comprises your altcoin portfolio should be disposable income, in the same way that you wouldn’t use money you need for rent to buy a Michelin-starred meal. Emotions, naturally, become heightened when we are deeply attached to something, and this is even more true of money. Money that we require to live is inextricably linked to our emotions, so, by using even a fraction of that capital to invest and speculate, you are beginning the marathon five miles behind. By simply taking what you can comfortably afford to lose, you eradicate much of the emotional attachment to your trades.

Otherwise, you can also implement meditation into your daily routine for five to ten minutes each morning, and, trust me, it will help you make better decisions. It’s incredible how simple breathing techniques can alter one’s perspective for the rest of the day. Finally, try to minimise your screen-time and exposure to the markets and news; crypto is intensely fast-paced, and the attempt to keep up-to-date with everything can backfire massively by putting unnecessary stress on yourself, which manifests later in trading decisions. I have found my decision-making to improve dramatically since I stopped day-trading and began spending more time away from the market, focusing on longer-term positions with high growth potential.

5. How do you protect yourself from risky wallets / staking purpose?

My security process is fairly straightforward for wallets. Firstly, make sure you have the best computer security software (BitDefender is a good starting point). Make sure you scan all wallets prior to download using VirusTotal or something similar, and then scan the file again post-download. If it’s all okay, run the wallet within your security software’s Sandbox to prevent any potential spillage of malware that bypassed the two original scans. Alternatively, use Virtual Machines to run wallets on, though this is a little more technical. Keep your wallets encrypted and only unlocked for staking, as opposed to fully unlocked. Don’t store encryption passwords anywhere on your computer.

6. Have you ever liked a coin/project so much that you wanted to join its team and contribute somehow? Or is it always strictly business for you?

I have had many offers from projects asking me to join their team (usually awful ICOs). Every single one of them I turned down, except one. I joined the Neutron team as an advisor – and I remain one to this day – about five or six months ago. I accepted their proposal because it was one of the very few coins that I actually liked a lot; that had no premine or ICO; that I followed the developments of; and that I had been trading for over a year prior to the offer. This was a one-time deal, though. I won’t be advising any other projects in the foreseeable future. In general, it’s strictly business, but with Neutron I was very much happy to join them and assist in growing their presence in the space.

7. For you, what are the next innovations/features/sectors that will be valued by the market?

I believe privacy will always remain supreme with regards to ‘features’ that a coin might have, simply because it is the most universally-useful one; whichever projects continue to innovate within that domain will grow exponentially over the coming years. I also think atomic swaps will be a key innovation, if only to increase ease-of-use and ease-of-exchange.

8. When will your book be available in audio format on Audible?

I don’t currently have any plans to release the book in audio format. This is primarily because there is so much in the book that relies on data and images to make any sense that it’ll sound nonsensical when strictly audio.

9. What impact do you think derivatives will have on the crypto space? 

I think anything that allows for a greater number of market participants is a good thing, regarding growth potential. Though not strictly a derivative – though it resides among the same range of products – I believe a Bitcoin ETF will be huge for the industry as a whole, so I look forward to that.

10. Have you (or someone) tried to automate your process of analysing coins? Thoughts on it? 

I’ve had lots of people create their own automated versions of my process for coin selection and analysis, and it’s great that it works for them, but I have a weird thing about automation. When researching and analysing coins, particularly in the pre-accumulation stage, where I need to figure out the fundamental and technical quality and promise of a project, I like to be very much hands-on. By doing things manually, you get a firmer grasp of all of the different variables. Automated processes are generally useful except that they lack in showing you how data came to be; you have all the information without knowing the process. It’s similar to having answers to a mathematical problem without any of the working out.

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Disclaimer: This post references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.