Trading - HackMD

## Trading rules (learned over time) - #tradingrules - dividends are much less tax efficient than selling after a year so just sell stock - #tradingrules #Diversification 15 - 20 stocks in the ideal portfolio - https://firebasestorage.googleapis.com/v0/b/firescript-577a2.appspot.com/o/imgs%2Fapp%2Fvenetian%2F7LM2b6mCwn.png?alt=media&token=b0535e96-1cf8-4036-a2c8-b2f626a711b2 - https://twitter.com/saxena_puru/status/1677581529613041664?s=20 - The timing and execution of a trade is just as important as the narrative, most trades won't be winners #tradingrules - #tradingjournal #tradingrules - The true believers make the biggest money but the best risk free reward is to ride they hype cycle until it's priced in then have a tight trailing stop loss - #tradingrules #tradingjournal - Yield does not compenstate for risk in lending protocols price movements outweigh yield in just about all trades - Optionality has a huge value in assets as volatile as crypto, don't lock your tokens - Hard and fast rules #tradingrules - The one big upside with crypto, is that it's liquid at almost all times. You need to take advantage of this and if a project starts doing well, keep skimming all the way up so you have more to deploy in the eventual bear market. Nothing moved down in a straight line either. - Every time you feel super excited, sell a little bit. - What is the maximum drawdown in a year I am willing to take? - 50000 or 5000 per trade - Never invest in a committee, decision making is too impaired, risk profile becomes the venn diagram of all the participants so nothing changes fast enough - #tradingrules - don't do small allocations, mid size only with a lot of research - always have an exit, you can easily be wrong - The top of the market is when the good news can't get any better. e.g Bitcoin, everyone is adopting ## Trading plan You should have a written: * **generalised trading plans** which outlines how you will trade. This might be tailored for each industry you plan on trading. * **specific trading plans** for each individual trade, where you outline the specifics for that trade. **Don’t trade without them!** ### Generalised trading plan[^12] A generalised trading plan includes: * Where, how, and why you **enter** trades * Will it be a break through resistance, a bounce off support, or a specific price, or based on indicators? You need to be specific. * Where, how, and why you **exit** trades * Stop loss, profit target, trailing stop loss, indicator, or another reason * You must either have a mental stop, a stop loss entered, a time stop alone, or a time stop with an indicator. * How you **control risk** * Position size * You determine how much you are willing to risk on any one trade before you decide how many shares to trade. How much you can risk will determine how much you can buy, based on the equities price and volatility. * Daily/weekly/monthly loss limits * Max # of positions * Max capital allowed in a single position * Never risk more than 1% of your total capital on any one trade. (2% maximum for aggressive traders who can handle bigger drawdowns.) * Hold through major events, or exit before? (earnings, news releases, etc.) * Hold overnight, over the weekend, or exit before? * Enter high probability trades where you are risking $1 to make $3, or trade a system that wins big in the long term through trend following. * How will you **find trades** * Scanner, manual search, same instrument every day, etc * The **markets you will trade**, and on what **time frames** * Trade things you are comfortable with. Swing trading range bound stocks, trend trading growth stocks, or trend following commodities or currencies. Trade what you know. * Are you a day trader, position trader, swing trader, or long term trend follower? If you are a long term trend follower, don’t get shaken out of a position in the first day by taking profits or getting scared. Know your holding period and adjust your plan accordingly. * ’Context’ or **market conditions** * Under what conditions are trades taken? * Trending, ranging, choppy, volatile, etc.? How is this determined? * Under what conditions can you exit a trade earlier than planned? * A plan for **improvement** * Review sessions/trades. When, how? * Monitor and track mistakes. (Mistake = anything not aligned with trading plan) * Regularly brainstorm how to improve on mistakes * Keep a detailed record of your wins and losses. You need to be sure that your method is working in real trading. Review this after every 20 trades. Also, if you had any issues with discipline, then make notes, learn from your mistakes, and the make necessary adjustments. * Backtesting * Do not trade any method until you reviewed charts over a few years to see how you would have done. Alternatively, utilize backtesting software to analyze historical data for your system. There are also precooked systems like CAN SLIM, The Turtles Trading System, and many Trend Following Systems. You need to begin trading knowing you have an edge. * Your **objectives and goals** for trading. This will affect things like: * Withdraw profits for income, or compound returns for longer-term growth? * Trade independently, for a firm, with a group, or as a business? * Keep a job, other income streams, or is trading going to be the sole income? * Work life balance - the hours you will trade, and when you can monitor positions * If you listen to other people’s input? Why or why not. Who? * How much will you save each month for a rainy day? * You pay taxes on trading income. How will you pay these? Plan, it can be a big bill #### Generalised trading plan template * Where, how, and why you **enter** trades * Where, how, and why you **exit** trades * How you **control risk** * How will you **find trades** * The **markets you will trade**, and on what **time frames** * ’Context’ or **market conditions** * A plan for **improvement** * Your **objectives and goals** for trading #### Crypto - short term trading plan * Where, how, and why you **enter** trades * Event driven trades - play the hype cycle around the event * Manual long and short bets using decentralised / centralised exchanges * Long * enter the trade up to a month before - this is usual before the hype has started? * Short * setup a short for after the release of the feature - this way you get both up and down. * Second order effects * Think through the second order effects of the event, and if these could also be played long/short * Possible events * development roadmaps * coin specific conferences * law suits * protocol flaws (eg Terra, or hacks) * Where, how, and why you **exit** trades * Long: sell on the release of the feature - the hype around the feature is usually larger than the results will warrant * Short: setup a short once for after the release of the feature - this way you get both up and down. * Manual closing out the position * How you **control risk** * Market risk * Hedge the bet against Ethereum, we are looking for out performance of Ethereum and the alts are correlated with Ethereum. Need to check the event schedule for Ethereum to minimise risk of uncorrelated Ethereum event. * Longs * Code changes: close position slightly before the event or very soon after - as changes in code risky due to bugs * Shorts * * Position size - no more that 5% of cash set aside for trading * How will you **find trades** * Researching possible long/medium term crypto trades on twitter and podcasts and understand their development roadmaps. Use these development timelines as events. * Calendar of crypto trade shows * The **markets you will trade**, and on what **time frames** * All of crypto * Events with fairly certain dates (eg. Development roadmaps) * 1 month - 3 months before estimated dates * Events where timing is uncertain * Longer term (3 - 6 months?) - how to do these ones? * ’Context’ or **market conditions** * Long: Probably needs to be a bull market or in the initial stages for event driving hype cycle to work (maybe fundamentals are better drivers in bear markets?) * Short: would work in both bull, bear and chop markets * A plan for **improvement** * Track trades through trade diary with review monthly - alpha is return above ethereum * Any backtesting?? Are there any back testing tools in crypto? If not, maybe this would be a business idea? * Your **objectives and goals** for trading * Create regular cash flow for use in: 1. operating expenses 2. salary 3. adding to long positions ### Specific trading plan Trading plan sequence: 1. Entry Signal 2. Set profit target 3. Determine risk/reward ratio 4. Quantify price action risk 5. Set position size 6. Set stop loss 7. Set trailing stop 8. Respect first exit signal win or lose #### Trading plan template ## References [^12]: [Steve Burns on Twitter](https://twitter.com/SJosephBurns/status/1677642673488838660?s=20)