A lot of people have been left with huge losses in crypto after the latest boom/bust sequence that played out at the end of 2017 in to 2018. Buy and holders experienced massive euphoric gains followed by devastating losses. How can traders stay safe during these crazy crypto events?
One way is to use a simple 20-10 trend following trading system. Trend following was developed and popularized in the 1970’s and 1980’s by some of the original Market Wizards. Back in those days commodity futures had huge tends because of runaway inflation. The markets were also younger back then, so trends persisted for longer.
The crypto markets today have a lot of similarity to the old commodity markets. Huge emotional trends develop because the traders participating in crypto are not very sophisticated.
Here are the trading rules for the 20-10 system.
Longs
Enter: If 20 day SMA is greater than 50 day SMA and new 20 day high
Initial Stop: 2*ATR
Exit at new 10 day low
Shorts
Enter: If 20 day SMA is less than 50 day SMA and new 20 day low
Initial Stop” 2*ATR
Exit at new 10 day high
Using this system on bitcoin and ethereum over the last year did much better than buy and hold. Bitcoin had 4.7R worth of winners to the long side and 1.9R worth of losers to the short side for a net gain of 2.8R. Ethereum did even better. It had 3.19R worth of winners to the long side and 5.8R of winners on the short side for a net gain of 9R units.
Most crypto traders got absolutely demolished over the last year. Those that came to the market prepared with rules used by professional traders made a killing. To succeed in trading you need a fully thought out plan that outlines entry conditions and exit conditions. This simple 20-10 system is a great place to start.
To learn more, make sure you watch the video above!
And as always, stay Fallible out there investors!
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***All content, opinions, and commentary by Fallible is intended for general information and educational purposes only, NOT INVESTMENT ADVICE.
