Bulletin #1
ⓘ This bulletin was sent to set subscribers on 2020/05/22. You can also read it on Medium!
Times are pretty tough for many strategies and 100 Waves ETH/USD is no exception: all trend following strategies suffer and take losses when market displays no clear trend and is choppy. It looks like we’re selling at the bottom and then buying at the top, to sell at the bottom again.
Trend following strategies have long history of success, but are hard to trade sometimes. It’s quite common for them to have more losing than winning trades. As long as those winning trades are larger than losing trades this is not a problem, however, it’s a psychological challenge to endure more loses than wins. What we’re see here right now is taking a lot of small, painful loses, hoping that big wins will make up for this. Of course there’s no guarantee that this will happen, if this choppy market will continue forever, the loses will compound and may lead to strategy failure. That said, the history of cryptocurrency markets tells us that once upon a time huge wave happens, and price can change even 10x or more (in both directions). We’ll ride this wave and make profits.
I’d like to share some details about how 100 Waves strategies work and explain concept of buy/sell zones. Let’s use ETH/USD as an example. As you probably know, it consists of 100 sub strategies. Typical strategy designed in non-ensemble style (eg. roboset), has, at any given moment, some price level at which it will switch to buy (if the current status is “sell”) or to sell (if the current status is “buy”). 100 Waves has zones instead. If price is in the buy zone, some sub strategies will buy ETH. The deeper it goes into zone, the more strategies buy. Finally if price is above buy zone, all sub strategies will be invested in ETH. Same goes about sell zone.
Here you can see those zones on the chart (area between green lines is a buy zone, red lines delimit sell zone). You can also see the differences (and some similarities) between what’s going on now and how strategy traded in January, February and March. While April was a clear up month for ETH, the price moved with very frequent pullbacks. Are we currently in consolidation and the trend will continue? Or it’s the first signal of a change? The strategy takes defensive position each time price drops. In February this approach paid off a big time.
Most of the time, buy zone is above sell zone, though sometimes they overlap. For example right now the buy zone is 208.45–218.15, and sell zone is 197.56–208.18. As you can see there’s a very small gap between those zones (neutral zone). Of course those numbers change every time ETH/USD price changes, but those changes are not very large during a day.
Entering buy or sell zone does not always mean the strategy will buy or sell more ETH. Sometimes strategy is 100% ETH, then goes back to buy zone, or even lower, to neutral zone between those two. Then it can enter buy zone again, but of course it cannot be more than 100% invested in ETH.
The breadth of those zones depends on recent price action and volatility. It’s very variable, sometimes it’s 10% of price, sometimes even more than 50%.
Let’s go back to current situation. 100 Waves ETH/USD went recently into the buy zone, and increased allocation to 69%. Then, a sudden drop occurred. For some time price was even below whole sell zone (bottom of which was at 197.58 as of May 21), but ended up inside it, at 198.75. 60 out of 9 sub strategies generated sell signal. As I’m writing this, price creeps up slowly towards buy zone again. Will the whole story repeat again? It’s possible. On the positive side, sell zone is getting thinner so amplitude of this whipsaw will be smaller.
If you have any questions, please hit me up on Discord or Telegram (reuptaken). Have a nice sunny weekend!