A baseball team faced a challenge.
They had a modest budget relative to their rivals and a desire to be competitive. Rather than use the tried and true methods of expertise, they used sabermetrics.
Using data, they determined that the traditional approach to drafting new players was risky.
The traditional method was to select players right from high school. But they discovered that this approach produced fewer professional players than the alternative. Drafting more seasoned college players cost a bit more but had much better outcomes.
That’s how the Oakland A’s used data and their modest payroll to reach the playoffs for two years running in the early 2000s.
The approach attracted the attention of every other major baseball organization.
And in recent years, these analytical approaches have found their way into the world’s biggest soccer teams.
As a crypto trader, your business is data-driven as well. Every trade provides information about the market and your decision-making. It’s a map of where to make adjustments and where to add capital.
The number in your account only tells you the result of your activities, not how you got there.
Figuring out how that number occurred and whether it’s repeatable is the difference between luck and skill.
Are you a lucky or skilled crypto trader?
Now, there’s nothing wrong with luck. Every old trader that gets lucky on a trade laughs and says: It’s better to be lucky than good.
But luck isn’t consistent or knowable in advance. Unlike a skill, it can’t be developed.
Luck is something you accept. It’s passive.
However, skill is the active process of developing an aptitude.
By working on the skill, you stay in the game and set yourself up to accept more luck. And your skill will help you with the other kind of luck.
One of the benefits of trading is the data. And the more abundant your data are, the more information you have on what you do well and poorly.
Analyze your crypto trading records
You should be keeping details of your trading activities for taxes. And these same records will come in handy for your performance analysis. If you rely on the transaction records at the exchange, download your transaction history from your Bitvo account. (You can also request a summary from Bitvo’s support team.)
There are several areas you can focus on. These include:
* Trading frequency for winners and losers
* The market conditions during trading frequency
* The duration of winning and losing trades
* The details of your biggest wins and losses
As you explore your results, you will start to see patterns of behaviour.
You may discover that you trade too much when the market is less suited for trading opportunities.
Or you might find that you trade too often in trending markets.
You may become aware that you have certain trading tendencies that are hurting your profitability.
You may be letting your losers punish you because you need to be right.
By taking the time to look at your trading details, you may uncover the sources of your profitability and the places where you can reduce unnecessary losses.
When you are profitable, it’s a lot easier to ignore the process of looking at what you’re doing to make money.
But ignoring this exercise might mean leaving significant money on the table.
Are you day trading crypto when you think you’re a swing trader?
Take a look at your trading frequency. Is your trading frequency consistent with market conditions and your perceived trading style?
You may think you’re a swing trader but, you may be acting like a day trading scalper instead.
Ask yourself if you are overtrading during periods when the crypto asset you trade is trending.
You may be doing a lot of shorter-term scalping in Bitcoin and consuming lots of energy. Scalping can result in missing big parts of profitable moves.
If you traded less frequently during these periods, what would the results look like?
Would you have made similar gains, more or less?
If the answer is the same or more, why are you overtrading?
Perhaps you haven’t developed a rough trading plan that helps you think through where things are going. Maybe your initial positions are too large.
Or do you have some other distraction that keeps you from sticking with your plan?
Are you flat on the year when you should be up?
Now in another scenario, your trading might reflect lots of small losses but few or no big gains.
Looking at your trades, you may discover that you aren’t taking into account the current volatility. Your stops may be too tight, or your trading too big for the conditions.
Maybe your strategy conflicts with your intestinal fortitude.
Periods of overtrading occurs during flat markets where the trader is trying to make things happen.
Or, in another scenario, when a trader is losing, overtrading becomes a symptom of trying to “make it back.” This version of overtrading, the needy version, can be financially lethal.
Trading to “make it back” in any market is like smoking next to a gas pump.
The antidote here is to develop a way to recognize changing market conditions. Have a plan to scale back when they become flat and choppy. That means less size and or fewer transactions and maybe a wider volatility tolerance.
How long are you holding your Ether, Bitcoin or XRP?
How about the duration of your gains and losses. What does the holding period of your trades tell you?
For example, you might discover that you hold losses past your stop levels frequently. This may be because your stops are way too tight, given the volatility. It may be because of a mental issue like needing to be right.
Fighting the market because you need to be right is a tough way to make a living.
Now, if you set reasonable stops and honour them, how much mental energy and capital could you save?
Maybe you have been trading with a negative bias, which is trading “not to lose.” This is characterized by taking your gains too quickly and continuously scrabbling to get back in.
In this case, your trading plan might need an update, assuming you are using one.
Respecting stops and cutting losses quickly saves financial and emotional capital.
When your trade is working, adjust your stops higher. You can also plan out scaling your sales to help you take more of the upside with less work.
Or if you have to trade around a position, keep half and work with the other half.
A few adjustments can help you capture more profit with less energy and fewer transactions.
Trading account pots of gold and dumpster fires
Now let’s look at your biggest gains and losses.
Do you notice anything in terms of your process that led to your most significant gains?
What did you do well in terms of execution, position size, stops and volatility parameters?
Were the same characteristics present in all of these gains? Or were some of them a result of unexpected market moves that would be impossible to replicate through your process?
This is critical information. Results from the application of skill should never be confused with results of unanticipated events.
If you start to believe that your process was good when you were lucky, you’re setting yourself up for failure. So keep notes of what you did well and where circumstances intervened.
If you don’t have any big gains, that deserves some thought as well.
What about your losers?
What happened in each case, and is there a pattern?
Did you defer to prayer as a trading strategy in any of these instances?
The trading gods don’t always answer, as I’m sure you discovered.
As in the case of your gains, carefully consider instances where unanticipated market moves caught you offside. You may have done everything right, but the size of the loss may point to some risk management adjustments that could be made for future trades.
More crypto trading gains with a few tweaks?
Your ability to expand your trading, increase trade size and continue to grow depends on taking the time for self-evaluation.
If you have a trading journal, you are doing this daily to some extent. However, it’s always good to step back and look at your performance and behaviour trends over longer periods.
Based on your performance, you may find a series of adjustments are required.
You already may have a track record and have been mostly successful. In that case, big changes can be challenging and can make your trading worse.
Radical adjustments to your trading process are disruptive to your psyche.
Start with one change or iteration at a time, then move onto the next one.
When it comes to your crypto trading results, there are no feelings, bias or favouritism.
There are only data and how these data points were achieved. So be ruthless but kind to yourself.
You should know how you got your results. It’s your secret sauce.
The question is: is your secret trading sauce any good, or is it killing the cook?
Bitvo is a cryptocurrency trading platform for Canadians.
You can buy, sell and trade bitcoin, ether and several other digital assets on Bitvo’s fast, secure and easy to use platform.
To sign up, click the orange button below and fill out the form.