First of all happy new year to you all 😃
As pointed out in my last blog post currently all trading servers are paused due to discovered risks when entering new positions. Portfolio protection is the most important task not profits. A loss of 50% requires a gain of 100% to break-even. A loss of 90% requires a gain of 900% to break-even. And we need money to make money. If you chase profits without proper risk management in place, there's a good chance in the future you'll likely kill your portfolio, due to reinforcements of bad habits.
I can't guarantee anything 100% of course, but from the way I work and design the strategies, risk management always plays a prominent role.
We have one strategy, JW_V4 a risk managed first strategy, low frequency, and aiming for the big winners which accepts a slightly higher drawdown for staying longer in winning trades. However, for some it's bit unsettling and it takes a long time to see it's actual worth. Our strategy is designed with an open ended upside. Some traders set a predetermined take profit and stop loss before entering a trade. This is good practice but if we want to go big, we need an open ended upside. We can pre-determine the stop loss but the profit taking should be open ended. This increases risk obviously but I know that any portfolio with big wins will outperform smaller profit taking trades with magnitudes. 100%.
I'm working now on JW_V5 a mid-frequency, risk managed first strategy, which should show results shorter term, accepts lower drawdowns but is less profitable in backtests compared to V4. Due to the increased trading frequency and taking profits quicker, it's easier to stomach for the ones who are more involved in short term price action. We have no business for monitoring price action on a daily or even weekly basis based on V4, it's too slow and you will stress yourself out. And because it's slow, and trades are rare, we tend to put a lot faith in these trades. Getting our hopes up and squashed if it doesn't end up in a nice profit. V4 will do a lot of things probably you (and me too) don't agree with. V5 is a bit easier to agree with and gives a bit more peace of mind in these situations. Never thought letting a bot run the trades invokes different sets of emotions lol.
V5 will trade more frequently, roughly doubling the trades compared to V4. V5 is NOT better than V4, it's just a different way to approach the market. I recommend to start out with V5, get a feel of how our systems work, and if you are 100% confident and can accept to basically not look at prices anymore, switch to V4. V4 is designed for people who want to be in Bitcoin/crypto, don't want to miss out on a possibly disruptive technology, but want to limit their risk of exposure as compared to holding. The reason you are holding is because you have no trading experience and/or have no time or interest to do so. That's who the V4 strategy is designed for.
V5 is for the ones who are semi-regularly or regularly checking prices/positions and feel stressed out by V4's positions. You will pay some "potential future profit" to reduce this feeling of stress. If you are feeling stressed out on positions, it might also be you are over-invested in your portfolio. In that case I suggest to decrease the size of your portfolio until you're more confident and the strategy has earned your trust. It's not worth it being stressed out all the time and I can never guarantee anything, so a possible loss of portfolio is always a scenario.
V5 will also not trade in a mid-bear market. I tried, it's not worth it. However once the mid-bear market clears out, the trading frequency will kick it up a notch. It will take profits quicker and re-enter quicker if the market is (still) going up. This limits our drawdown risk as usually the prices retraces when it pumps.
V5 is not able to catch bottoms or tops like V4. I use some of V4's lagging indicators and some new one's but I always use lagging indicators. However sometimes it's able to catch tops if there's decent volatility.
Due to the increased trading frequency we will pay more fees as I'm more looking into market orders instead of limit orders. I include fees and slippage in backtests though. The results of V4 are roughly 60% better compared to V5 both in before a bull run as after a bull run. But can I say mentally it's 50% easier to handle V5 than V4? 🤪 It's hard to choose a strategy you're comfortable with based on backtests. Backtests do not hold emotion as results are instant and we tend to look at the end numbers only.
However in real life this is not the case. Even though one might be way more profitable in backtests (mind you, historical performance are no indication of future performance), it's not as black and white when you see nice pending profits turn into a losing trade. It would be nice if we could secure this profit at a (small) cost of long term profits. This is just how the mental model of humans work and why it's so hard to you trade yourself, or having a bot do it for you. It's NEVER easy...
Here are some examples of trades between V4 and V5. More thorough comparisons will be uploaded later once it's launched.
As you can see in V5 we make more trades, in this example of July to August 2018. The red arrows show downwards price movements which we less frequently experience with V5 during a trade. It does not eliminate it, but it occurs less often. If you are sensitive to negative pending profits, it's easier to handle V5. The green dots is when we enter a position, and red dots are when we sell the position. V5 exposure, running the backtest from November 2017 to December 2018, is about 10% compared to V4's 18%. And 84 trades vs 36 trades for V4. The net compounded profit of V4 over this period is 197% vs 133% for V5.
As said, more detailed comparisons once we launch V5.
This is not a rewrite I talked about in my last post. It is my focus now to get us back on the trading server asap. However V5 does decrease some of the risks pointed out in my last blog post and will be launched with slightly better crash protection, less exposure, and some other sharper exit methods. V4 will be updated with some additional protections after launch of V5.
By next mid- to end- next week V5 will be launched with an updated V4. From that moment on you have the option to choose and switch between these 2 strategies on the fly. I recommend starting out with V5.
New informational pages specific to each strategy containing backtests and info will be shared along this update. These will include screenshots of trades that V4 for example will not trade but V5 will. This gives you better judgement on which strategy to choose you are most comfortable with.
As always, both strategies are continuously developed based on market changes, new ideas, and new tests that improve performance or decrease risks.
There will also be some changes in pricing due to regulatory concerns. I'm getting off the commission model and switching back to a monthly subscription model. The commission model was chosen so you could be 100% certain my goals were aligned with yours but this comes with heaps of regulatory crap that I'm not willing to navigate through. At least not at this moment. More info will follow by launch of V5.
I started development for the new Binance strategy in December but couldn't find time to progress due to the V4 bug and holidays. More on this later in January once I start to pick up development again.
V4 and V5 however, will also be made available to trade on Binance for the ones who aren't able to use CoinBase. The strategy would sell into a stable coin of choice in that case.
A lot of things coming up and being worked on. So stay tuned.