A strategy for altcoins position trading

Introduction

Altcoins trading has a potential for incredible profits. Every crypto trader is inevitably attracted to that. Unfortunately trading altcoins unlocks the potential for losses, both in BTC or USD.

Trading altcoins is like a 3D chess. Altcoins price movements are correlated together between themselves and also to BTC, especially when BTC is dumping. Combining together all these elements can be tricky and confusing, particularly at high timeframes where emotional aspects of trading are very strong.

Crypto 3D Chess is puzzling

It’s imperative to have a strategy that helps to navigate these uncharted territories, by considering that: “History doesn’t repeat itself but it often rhymes”. The strategy I expose here fits in the position trading category and it is suitable for normal guys with a regular life. Decisions are taken at daily levels. 5–10 minutes per days should be enough to check the indicator and act accordingly if needed.

Let’s start to explain the indicators we are using.

Buy Market Percentage Indicator

The core of the strategy is based on an indicator developed by TurtleBC, the Buy Market Percentage (BMP).

BMP graph

TurtleBC calculates high timeframes trend following signals for every altcoin pair. The graph shows the percentage of coins that are a “buy”.

We will use this graph to buy the fear (when BMP is low) and sell the greed (when BMP is high).

Hull Moving Averages Indicator

The BMP indicator performance is then augmented by using a strategy based on Hull Moving Average (HMA). Hull Moving Average reduces lag compared to other moving averages (like SMA and EMA) by giving more weight to latest price movements.

İsmail developed a strategy using two signals (HMA55 and 80) applied to daily graphs. It works on BTC and alts aggregate marketcap (which can be visualized on CoinSignals).

The strategy is very simple, you just need to check the daily close of the price compare to the two HMA signals. Rules are the following:

Short signal: if the daily candle closes convincily under the HMA55 trend line a short signal is generated.

Long signal: if the daily candle closes convincily over the HMA80 trend line a long signal is generated.

HMA strategy example

The Strategy

The strategy distinguishes five specific phases:

1. ACC — Accumulate alts

The ACC phase occurs when the BMP is under 10%. This is the right moment to accumulate alts using your hard-earned BTC and USD. In this phase alts are over-sold, people are desperate and they capitulated on their bags. This phase offers the best risk/reward. You basically want to buy the fear.

But how to accumulate alts?

Performing a single all-in with market buys is never an effective strategy for alts, especially the ones with paper thin order book.

In last three years the median duration of ACC phase was around 23 days. An effective strategy should be to accumulate by dollar-cost averaging (DCA). Every day you buy alts using 5% of your allocated funds. This reduces the risk to buy a local top.

2. HOLD — Hold alts

After you accumulated the alts you will start the HOLD phase when BMP is over 10%. During HOLD you just need to do nothing and wait.

Seems easy? Wrong, it is is very difficult. In the HOLD phase the hype will increase and you will be tempted to enter new bags and trade more frequently. Don’t do that. Resist the temptation because in the HOLD phase the risk/reward for new bags is already less optimal than ACC.

Note: after HOLD phase you could go back to ACC. In this case don’t sell your portfolio. If you have additional USD and BTC you can try to average down the more promising alts in this second ACC phase.

3. TRIG — Hold alts and get ready to sell

After the HOLD phase you will reach the TRIG phase when BMP is over 75%. Usually the hype on alts is reaching the maximum level, everybody believes his coins will flip BTC and will talk about lambos, moon, etc. In this phase you still don’t need to anything, but you need to mentally prepare to sell your alts portfolio. This is also hard, there is a high risk you got attached to your altcoin. It’s crucial you get mentally ready to sell.

4. USD — Sell to fiat & 5. BTC — Sell to BTC

In this phase you will sell your altcoins directly to fiat or BTC. The sell signal is given when BMP is under 25% or when the HMA on alts is short.

It is vital that the selling action is promptly performed. In your mind these signals should be interpreted as a “get the fuck out” signals. When alts start dumping is usually a savage move.

You will then use the HMA strategy on BTC to decide if to sell to fiat or BTC. You will sell to fiat if HMA BTC is short or to BTC if HMA BTC is long.

Sometimes it is better to sell to fiat because the alt dumping is triggered by falling price of BTC. Remember: BTC is the king.

You will then switch between phase 4 and 5 until the conditions are met to reaccumulate the altcoins and start again the cycle.

The workflow is condensed in this diagram:

Strategy workflow

 

As an example the strategy applied to 2018 market gives the following phases:

Strategy example on 2018 crypto market

Backtesting

You are probably wondering if this strategy effective. Me too.

Let’s perform a backtesting on 2017 and 2018 data. You can see the identified phases and the USD returns for every phase. From March ’17 the strategy returns a 470x of the initial USD allocation.

Alt strategy backtesting

For comparison purpose I added a backtesting of the HMA55/80 BTC strategy. By just swinging between BTC and USD according to HMAs you can get a fair 19x in USD.

BTC strategy backtesting

The pure BTC strategy is less risky but the alt strategy shows a USD 25x higher performance.

By knowing these facts you can then decide which portion of the portfolio to allocate to high risk/reward alts strategy and which one to a less risky BTC strategy.

Bonus strategy: Portfolio rebalancing

During HOLD phase you can further increase your portfolio performance by taking advantage of the bull trend volatility.

My advice is to use Shrimpy, an automatic rebalancing tool. Shrimpy will automatically sell and buy tiny portions of your alts in order to keep them at a prefixed value. Accordingly to their research the optimal performance is achieved by having a 20+ alts portfolio which is rebalanced every hour. This technique should outperform 2–3x a simple HODL of your alts during the HOLD phase.

Hourly rebalancing of a 20 coins basket gives enhanced performance. (source: Shrimpy)

Conclusions

This strategy is using high time frames. You will never catch bottoms and tops but you should be able to follow it with minimal daily time investment.

To track the performance I opened a 1 BTC position on a 20 coins basket at the beginning of September ’18 and I’m regularly posting the results on Twitter.


I would like to thank the following accounts, their macro thinking and indicators helped me significantly on my work:

https://twitter.com/ismailtarim977
https://twitter.com/turtle_bc
https://twitter.com/WhoCrypto
https://twitter.com/jiucrypto
https://twitter.com/cryptic_monk
https://twitter.com/cryptorae
https://twitter.com/woonomic


Additional in-depth articles

Research twitter thread

https://twitter.com/EtherSchtroumpf/status/1034158343626088448

HMA Strategy

BTC Swing Strategy
Alts Swing Strategy

Portfolio rebalancing

Rebalance vs HODL
Portfolio Diversification Performance Analysis