Earlier today we saw Bitcoin surpass $ 50.000,- for the first time in its history. This means that investors are diving in unknown waters again. The question rises how to invest in Bitcoin in unknown circumstances. Martin Green, CEO of Cambrian Asset Management shares his insights.
Before sharing the insights of Mr. Green we take a look at why circumstances for Bitcoin (BTC) are uncertain at the moment.
This is why the market for Bitcoin is uncertain despite positive press
Since the history of Bitcoin is only just more than 10 years old and the price of the coin has never been this high before it’s sure that circumstances are uncertain. When following the day-to-day news the conclusion might be that there is a lot of trust in the future of the largest cryptocoin, but to often these conclusions are based on emotion or even wishful thinking. Therefor it is always advisable to do your own research. These tips to trade in crypto (in this case Bitcoin) in uncertain circumstances can be a resource by performing such an investigation.
These are the tips to trade in crypto (in this case Bitcoin) in uncertain circumstances.
The first tip to trade more successful is to rule out emotion.
1. Install your models manually, but then follow the models
As mr. Green explains each investment model has to be built by humans. Once you have built your model, you have to trust in what you built and let the model do the work. If the outcome of your model concludes ‘sell’ or ‘buy’ at a given moment you must force yourself not to provide a human judgement but just do as the model tells you. By the way, a model doesn’t have to be complicated. If you decided that you use the exponential moving average as criterium, that can be a model in itself.
2. Avoid copy-pasting of models that work in other markets
Of course there are many trading models that have proven to be successful in other markets like commodities or regular shares. However, just copying these models to trade in crypto like Bitcoin has proven to be the wrong strategy. Therefore you must take the unique aspects of the cryptomarket in consideration and use them to adjust the existing ‘traditional’ models.
These are the main influential factors that make ‘traditional’ models unstable:
- Limited time frames: Since the cryptomarket has been active just a bit longer than 10 years, there is only 10 years of timeframes to conclude upon, this is way shorter than the decades of trading data that are available for other investing markets.
- quality of data: usually price and volume data are the most reliable factors on which you can base a model. However in crypto there has been a lot of manipulation with this data due to exchanges adding fake trading data to blockchains in order to make them look larger than they are. However since the media attention for the corruption of data of coinmarketcap.com the quality of data has improved.
3. Anticipate on human behaviour of other traders
Other traders might still trade in crypto (partly) based on emotion. In general that means that their behaviour will be predictable. For instance, when volatility rises (prices move fast) they tend to under-react at first and overreact in a later stadium of a market cyclus. If you want to spot a change in the market sentiment at the right moment, you can use On-chain metrics. For instance Intotheblock shows you a live update of changed buying pressure or selling pressure so you can adjust your rational strategy.
4. Volatility of Bitcoin is much faster
Prices of Bitcoin ar much more volatile than prices of traditional assets. Therefore the effect of under-reacting and overreacting is multiplied compared to this affect in a regular asset market. When you’re able to anticipate on this behaviour chances of investing with maximum profit increase.
5. Relate your trading models to a fixed investment horizon
In order to maximize the efficiency of models you best attach them to your fixed investment horizon. When you’re aiming for a stable profit in a 3-years term, your model can be less offensive than when you’re using the model to make daily profits as a day trader.
How to make your own functioning Bitcoin trading model?
Usually quant trading and automatic trading are resources used by institutional investors. However, you can automate your trading as well. One of the most popular ways of doing so is to use Cryptohopper. Cryptohopper provides you with the opportunity to design your own trading automatization and is connected to several renounced exchanges, such as Bitvavo exchange, to perform transactions automatically.
Source: The scoop podcast