The Number One Rule in Day Trading

Day Trading 101 is a great introduction into the world of financial trading.

Trading requires a different mindset—one of getting in and getting out at the right times instead of holding until fundamentals change. Since the goal is so different than investing the rules are different. The book makes it very clear that the number one rule in trading is capital preservation.

DayTrading101

The book is designed for people without any investing knowledge but is certainly easier to read if you already understand a bit about investing. There are chapters about interdependencies of currency markets, reading candlestick charts, derivatives and futures, commodities, an explanation of support and resistance, and building trade pyramids to minimize risk. All of these topics are approached in a light and easy to comprehend style, though if you really want to get into trading you’ll likely have to do additional reading to begin.

My interest in day trading is really about trading cryptocurrencies based on data, and this book makes no mention of the cryptocurrency market. However, the insights about capital preservation have been critical in our new trading bot. The safety-oriented model built into the bot largely avoided last week’s carnage in the Bitcoin market. ($11,600 on March 5, 2018 to $7331 on 3/18).

If you have any interest in trading and speculation over investing, you should definitely give Day Trading 101 a quick read.

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An Attempt to Short Bitcoin

It makes me cringe when I hear people talk about investing in cryptocurrency.

I have been successfully investing for 25+ years. This involves understanding fundamentals, having a general awareness of the economy while committing to a lot of safe principles like asset allocation, dollar cost averaging, long term perspectives and, most importantly, a disciplined selling strategy.

In short, I am an investor, not a trader.

Bitcoin
Bitcoin’s recent tumble is largely related to regulatory concerns and Google’s ban on advertising.

I view cryptocurrencies as a massive social experiment with the fundamental value propositions still developing. Clearly there is tremendous hype. Beyond the hype, there are stories of people in high-inflation countries exchanging their local fiat currency for crypto as quickly as possible to preserve value. In a geopolitical culture of growing mistrust of governments and institutions, the immutable and pseudonymous transparency of the blockchain, unable to be stopped by a single entity, is compelling.

Bitcoin, presently, is useless as a currency. Why would someone want to spend $30,000 on a car today when that same car could be worth $50,000, or $17,000, tomorrow? Currencies need stability and trust to be useful. Most cryptocurrencies have neither right now.

However, I do like data, big data, AI, and algorithms. The massive price swings, the changes in sentiment, the lack of fundamentals, the 24×7 trading platform and the involvement of tech all make cryptocurrencies compelling to my inner engineer. There is a tremendous amount of raw data available. It all has to be organized and mined.

BTC 1 Year Through March 2018
The euphoria and incredible volatility create a perfect environment for quants trading.

I decided to programmatically trade in the most reputable cryptocurrencies. The first problem was choosing an exchange, and did I want to hold long positions only, or also short positions and do margin trading?

The reputable cryptocurrency exchanges in the U.S. are all regulated, and, thankfully, that means there is some difficulty in shorting Bitcoin.

Most platforms for margin trading, shorting, and derivative trading of cryptocurrencies are not readily available to U.S. investors. Avatrade, BitMEX, IQ Option and Plus500 appear the be the most reputable, but a foreign bank account is required to trade on these platforms and that’s well beyond the effort level that most people desire.

In the U.S., cryptocurrency margin trading can be done at Bitfinix and LedgerX, though you must be an accredited investor to do so. If you don’t know what that means, you aren’t.

The two safest options for trading cryptocurrency in the U.S. appear to be Coinbase’s GDAX and Kraken. GDAX suspended all margin trading for non-grandfathered accounts in late 2017. Kraken appears to be the only platform in the U.S. for regular people to trade cryptocurrency on margin and has a reputation for excellence along with security, though was plagued with technical problems during Bitcoin’s astronomical December rise (possibly now resolved).

For safety and clear and obvious compliance with U.S regulators, I’ve chosen to stay with GDAX, and forego margin trading until the market stabilizes.

If you are still interested in shorting Bitcoin, check out: