No automated trading strategy is ever perfect, as a result one can expect to give back some profits given enough time. It's the handling of these drawdowns that can make or break a trader…
And let me tell you a brave newbie it is not remotely fun watching your algos give back profit!
As discussed in previous posts I knew that automated trading would be the route for me based on the 24/7/365 uptime of the crypto markets and my week emotional constitution. I figured that once I tested and proved my strategies in back testing, I would have zero issues pulling the trigger and letting things play out naturally. Oh boy was I wrong. As part of my trading plan I set that I would evaluate and decide to turn a strategy on and off once a quarter barring any emergencies such as bugs in the code that drives them. Needless to say, this recent downturn in the crypto markets has really put me through my passes.
As one might be able to discern from my quarterly report April, May and June went quiet well for me and for the crypto market as a whole. Though I was hoping for this trend to continue I knew that at some point things would turn the other way, and in July they did. I began to make second guesses regarding the validity of some of my strategies. I began back testing and rebracketing thinking I had missed something and when I didn’t find an issue with my logic, I decided to decrease my already conservative position size to help stem the slow bleeding of my account. What to take a gander at what happened next? The strategy had a large winning streak across multiple assets that would have resulted in making up a considerable amount of my losses. However due to my lowered position size it did not.
I can’t say this is the first mistake I’ve made while progressing over my trading journey, but I can say I will strive not to make the same mistake ever again! The trick, for me at the very least, is to live and to learn and make sure you never risk so much that you can’t keep on learning.
That being said July and august have been rough months for a long only crypto trader such as myself. We saw the price drop nearly 25% and erratic swings all over the place. For me this meant some larger losses on the trend following side and a small losing streak on the mean reversion side. I will say though that the mean reversion strategies have been good at hedging my positions and slowing the fall of my portfolio as they often continue to win after the trend following bots bail. This diversification is what helped me hit the lowest point at around -7% of my portfolio value from the all-time-high. Now that may seem awful but considering that I was up nearly 30% from when I started, I am super happy with the results so far
As August comes to a close, I can say that the bots have begun to battle back their losses and are now about -5.5% from my accounts ATH. Still a long way to go but it’s a start. I have made some adjustments to my personalized software package, Overlord, and have the tools I need to start developing short side strategies. Hopefully this will help further diversify my portfolio.
If you like what you see here please follow @DownToCrypto and wait for more content coming soon. My 9-5 has been eating away at my life lately but I have several articles planned for September so stay tuned.
Thank you and remember to trade responsibly.