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A NON-DIRECTIONAL (MARKET-NEUTRAL) CRYPTO TRADING METHODOLOGY
It has been said often and often, that rule-based discretionary traders are the best traders on this planet. For you to be a winning trader, you need to abide by the Golden Rules of trading, which ensure your lasting success in the markets.
Trading principles that work are timeless and non-market specific. Those principles ensure that you triumph no matter what the market does. And by following the principles, they make you smarter than many other traders out there, who are on the other side of your trades. Most traders on the other side are losing traders, and sincerely speaking, the losses they sustain are what translate to profits for smart traders.
In order words, for you to make profits from the markets, certain traders have to lose. One trader’s positivity is another trader’s negativity. To enjoy everlasting profitability in the markets, the trader must find ways to outsmart other market players; otherwise, the trader will run into problems.
What can you do to outperform other traders?
WHAT THE MARKET-NEUTRAL STRATEGY DOES
For those who don’t know what they are doing, and who have not mastered the art of trading, trading is one of the hardest jobs in the world. Why is trading so hard? It’s because no one knows where the price is going next. Yes, we predict, but we’re not always right.
Sometimes, the market will go as predicted, and sometimes, it won’t. Sometimes, the market will first go against you before going in your favor, and sometimes, it would first go in your favor, only to later turn against you.
In face of all the vagaries of the markets, how then will one manage to make profits? That’s where a non-directional trading methodology like the one used here is extremely useful.
The trick is to catch pips no matter what the market does. Granted, we may not have a 100% guarantee about where the market goes next, but we know that we will make profits no matter where the market goes. The aim is to generate profits regardless of what the market does, whether up or down.
We no longer care about the direction of the market once we have entered; knowing full well that we will make money whatever the market does afterward. That is the essence of this market-neutral system.
UNCERTAINTY IS OUR ALLY
The unpredictability of the market, which scares most people away, is the most important determinant of our gains. It is the factor that enables us to make profits.
What most see as a problem is a boon to us. What causes fears in other people is what brings peace of mind to us. We make profits only because we enjoy dealing with losses. We can’t predict the market with certainties, yet we make money from uncertainties, which will forever be on our side.
Once we open trades, the market can do anything they like, and we eventually make money regardless of that.
TURNING LOSS INTO PROFIT
Embracing loss to make profit is something that must be done, in order to be triumphant on the battlefield of the financial markets.
In one of his past newsletters, Dr. Van K. Tharp says:
“In any endeavor in life, you have up and down periods. Dealing with the market has many such up and down periods. To profit from the up periods, you have to tolerate or even “enjoy” the down periods.
…It turns out that one of the major problems people have in going from their current location to their desired goal is all of the walls or obstacles they continually run into each day. There is a common solution to these obstacles — make them okay. Don’t worry about getting from point A to B, just enjoy bumping into the walls.
If you’re in the market, one of the biggest obstacles you’ll face is the wall of losses. It’s fairly difficult to deal with the markets if you are not willing to lose. It’s almost impossible. It’s like wanting to be alive, but only wanting to breathe in and not breathe out.
When you want to be right, you’re not dealing with the obstacles. Instead, you’re forcing things. When you want to make a profit out of today’s trade, even though it’s a big loser, then you’re not dealing with today’s obstacle. Enjoy the obstacle, embrace it, and be willing to accept it. If the market tells you it’s time to get out at a loss, then do so.
Quite often traders take the relationship they are having with the market and transmute it by developing a different system or trading with a professional money manager. Now, the old struggle they used to have with the market—of not accepting what the market gives them—becomes a similar struggle they are having with their system or with their new advisor. Instead of giving up on the market after a string of losses, just in time to miss the really big move, they avoid their system until it is doing well. When it is showing tremendous profits, they jump on board — only to be blown away by the market. And the same thing happens when they invest with money managers. This desire to be “right” motivates them to jump to the top money manager when he’s hot, only to go through a big string of losses. It’s all the same thing.
Psychologically, if you don’t come to grips with your obstacles and embrace them, you will simply find another way to repeat them. Realize that the walls occur because they are there for you to bump into. When you accept this fact and embrace it, you’ll accept bumping into walls. And strangely enough, you hardly even notice that the walls are there. The result will be a new level of success in the markets.” (Source: Vantharp.com)
MANAGING TRADES WITH THE GOLDEN RULES
As it has been said before, trading principles that work are timeless, and we use some of them in this non-directional trading methodology.
Let us examine a few of them:
Cut your losses short:
This strategy works because we have mastered the art of cutting losses. We cut as many losses as we sustain, as we don’t give them enough breathing space. Once it is clear that a trade is not going in our direction, we truncate it. We truncate as many losses as we see. If you don’t like cutting losses, you can experience occasional wins, but you’ll end up being frustrated and your trading career won’t last long. There is no wisdom in allowing your losses to become bigger.
This is a positive expectancy system since losses are often smaller than profits. If a strategy generates losses that are bigger than profits, then that is a negative expectancy system, just like scalping strategies which usually have large SLs and tight TPs (a few losses will wipe away most or all previous numerous profits). Cutting your profits and running your losses is counter-intuitive and counter-productive.
If you can deal with losses successfully, you’ll easily garner decent gains whenever you come across them.
Over the years, I’ve studied hundreds of market wizards all over the world, and I even interacted with several of them and gotten insight into their mindset. Their core secret is that they know how to avoid big losses….
Get out of bad trades! The most important factor that will make you a permanently triumphant trader is your ability to avoid big losses; and one surest way to avoid a big loss is to cut it while it’s still small.
Ability to control losses is the greatest skill that can be used to generate an attractive account history in the long term.
Let your profits run:
Once we make profits, we give them enough leeway. Since we know that a profitable trading system is the one whose average profits are bigger than its average losses, we leave our profits in an attempt to make them bigger. The only way to stay forever victorious as traders is to make more money during winning streaks than what is lost during losing streaks.
Safe positing sizing:
That is the part of the system that tells how much to risk per trade. Our positing size is always small. If you risk big, you will eventually lose big. If you risk small, you can then go for small and consistent profits.
Never let your profit turn into loss:
That is straightforward. Once you make decent profits, you have to protect them, and never allow them to turn into losses. Breakeven and trailing stops come in handy in this aspect. However, we use only breakeven stops to make our position risk-free once we make decent profits.
EXECUTING THE STRATEGY
Although the actual entries and exits rules for this non-directional crypto trading strategy are not revealed here, the Golden Rules above are part of the rules we use to implement the strategy.
This gives us a huge edge!
Moreover, this particular method of approaching the market is not used for generating crypto signals. Rather, it is used for our private accounts management.
In part 1 of this series, we discuss the best way to discover and invest in cryptos that will perform very well in the future. In part 2, we discuss a position cum swing crypto trading strategy that enables us to find rare, high-quality opportunities and dive in. This part 3 and the final in the series, has examined ways to make money regardless of the directions of crypto markets.
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