2021-03-30 08:12:23
CRYPTO WEEKLY MARKET UPDATE A few folks have been asking why we've recently been using lower leverage than we have in the past. For those who have been with us for a year or more, you can remember a time when we sometimes used leverage as high as 125x with our signals. These days, it's much lower, and we think this is a rather neat learning opportunity, so we wanted to explain the thinking here, and how we are adapting our trading strategy based on evolving market conditions.
We often use an ATR indicator to help us determine appropriate leverage for a position. In a nutshell, ATR is a simple way to see how much volatility an asset is currently experiencing. Basically, for us - how likely is BTC to swing wildly up or down during the period of a signal? Investopedia has a good explainer article on ATR, for those who want more detail.
https://www.tradingview.com/x/beUvAEF2/
As we can see at the bottom of this chart, the ATR indicator shows us just how much more volatile BTC has been recently, compared to last year. Throughout most of 2020, volatility of BTC typically stayed in the $500 to $1000 range per day. However, in the new year, this volatility has jumped to over $3000 per day on average (sometimes even more than $4000). Think of it this way - relative to the size of our position, BTC's natural fluctuations are much larger than they used to be. To counter this, we're trending toward larger SL ranges. However, larger SL ranges mean greater opportunity for loss on a particular signal, and those of you who've been with us for a long time know that our mantra is that staying in the game is the only really path to riches in this business. So to counter the larger loss potential, we're also trending toward lower leverage positions. You've probably heard the advice "when markets are volatile, decrease risk"? This is a simplified explanation of why.
Perhaps you've been following the trend recently where other signal providers, who have not adapted to this market reality, have rapidly wiped out years of returns for their subscribers. We're quite proud that we've maintained healthy returns for our subscribers these last couple of months. But as day traders ourselves, we're constantly looking for ways to adapt and improve our returns.
You're going to see us start employing a novel, but simple, strategy. We will set a low leverage - sometimes as low as 1x - when we start a signal position. Then we will change to a higher leverage once the trend/direction is showing that it clearly is with us. This will reduce returns of positive signals somewhat, but should reduce volatility-driven downside risk by more, so the overal expected value of this strategy is positive.
Again, staying in the game is the fastest path to success in trading. Those who aim for overnight riches, who bring a gambling mentality to the game, tend to be short-lived participants. We love you, our customers, and together we must respect our capitals, so while this approach may seem a bit conservative, in the long run it is going to give us another advantage. And when relative volatility subsides - which it will - you'll see us take more aggressive leverage stances.
Thanks again for being such an amazing trading community. The support you've always shown is incredibly appreciated! As always, we value your thoughts and feedback more than you can know. Every comment that you give to our sales and support team makes its way to our trading team.
Happy trading!
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