BTC Bot Strategy and Risk Management

During these few years in the crypto space I tried every kind of approaches. I quickly discovered that my animal spirit is firmly in the position trading world. I prefer the higher time frames, focusing on FA, taking my time to analyze the technical specification, read white papers. Moreover my RL doesn’t allows me to work with faster trading styles.

However potential profits lie also on low time frames. The high volatility of crypto is too juicy to be ignored. How to capture that?

PsychoBot trading suite

Last month I decided to try to capture these low time frame profits by using a bot. There are many products on the market, I really advise to DYOR before to buy subscriptions and starting trading with them.

I decided to use the PsychoBot suite developed by AltcoinPsycho which offers two bots:

  • PsychoTrend: 12h swing bot
  • PsychoScalp: 30m scalp bot

The first one acts on 12h BTCUSD candles by using price action (PA) principles. The bot is always in a long 3x or short 3x position on Bitmex. The author added a lot of risk management code in order to accept several small losses until it can ride a good profit swing.

The second one is also a PA bot but on 30min candles. It will stay out of the market until it sees a scalp opportunity. It will then open a 10x short/long position and stay in the position for few hours. Also here same risk management is applied: cutting the losers and let the winner ride.

Note: it’s too early to review the bot performance. Another promising one is the bot developed by Crypto Fibonacci. There a lot of bots in the market, as usual: DYOR!

Piecing together the bot strategy with the portfolio

Now we have bots working for us. How do we piece together these bot with the general portfolio picture?

Risks and account sizing

The first question when trading is how much percentage of the portfolio we want to risk on every trade? I decided to risk the following:

  • 2% of my portfolio on every PsychoTrend trade
  • 2% of my portfolio on every PsychoScalp trade

The bot will try to close the position before the full loss is realized, but we have to plan for the worst.

Remember the bots are trading on leverage, we need compartmentation. Therefore every bot is trading on a dedicated bitmex account because the losses could be even further than the expected risk. The exchange could have issues with the position liquidation and liquidate the full account.

Moreover we don’t want to park a big percentage of the portfolio in the bots account, the remaining equity will be used by the other longer term position strategy

For this reason I did set the bots parameters to use a high percentage of the account equity for the trades. This gives the following worst case risk:

  • PsychoTrend: 2% risk with a 33% equity = 6% of total portfolio
  • PsychoScalp: 2% risk with 50% equity = 4% of total portfolio

The total portfolio allocated to the bots will be then 10% of my portfolio. If something really bad will happen because of bots, exchange API or exchange liquidation, I will lose max 10%. It will sucks hard but I will survive this.

Account rebalancing

A tradeoff of using a high percentage of the bot’s account equity is the need of rebalancing. If the bots goes in a long losing strike (which is totally fine and expected) the account equity could shrink considerably. Let’s simulate how the equity on the trading bot account will change because of a long losing strike.

Trading bot equity variation caused by a losing strike

If you leave the trading bot account unchanged and you use 50% of equity after just 5 full losing strikes your account will be less than 10%. For the bot it will be very difficult even to go back to breakeven!

So I would suggest to periodically top up the trading account in order to spread a 2% risk over the global portfolio and avoid to handicap too much the bot performance over time.

Mistakes to avoid

I really advise you to read this fantastic thread by @Abullbot

After 6 months working with CBH on automated trading and crypto algos, I’ve noticed patterns that cause users to blow up accounts rather than see compounding gains.

What I’ve noticed:

  1. No patience
  2. Interference
  3. No risk mgmt
  4. Recency bias
  5. Understanding their bot


My BTC bot strategy is now active and complete my overall strategy, trading for shorter time frames which are outside my core skills. I’ll keep it running for few months and then release an update on the performance.