bitcoin trading plan

DIY Investor - bitcoin trading plan

October has been a brutal month for stocks but thankfully we have sidestepped most of the carnage by taking our stops and not initiating new positions in this environment.  Since it looks like we are going to close the month out without a new 821x trade idea, I decided to briefly share my current bitcoin trading plan.  But first, a little background:

Last year, bitcoin skyrocketed from less than $800 to nearly $20,000 and made a lot of people very rich.  Many of these folks have recently taken up residence in Puerto Rico for the same reason I did over 3 years ago; to take advantage of the generous tax incentives available here.  Lately, I’ve even started seeing some of these crypto-traders moving into my neck of the woods, here in far western Puerto Rico.  They are passionate about crypto-currencies and want to position themselves to take full advantage of a potential round two of profits.

Although I participated in some of the move in bitcoin last year via the Bitcoin Investment Trust (ticker GBTC), I ultimately found GBTC to be less than ideal.  It can trade at a hefty premium over the underlying price of bitcoin when bitcoin is rising and then have all the premium quickly evaporate when the price is falling.  This makes it difficult to capture your profits when you get a sell signal.

My dissatisfaction with GBTC along with seeing these newly rich crypto-traders moving to town prompted me to finally go ahead and open up an account at Coinbase.  Now that I can trade bitcoin and other crypto-currencies properly, it was time to come up with a plan.

bitcoin trading plan

Although, I keep an eye on all of the crypto-currencies supported by Coinbase Pro, my focus is currently on bitcoin which is the most established crypto with the most trading volume.  Although bitcoin is downright stable compared to some of the tiny alt-coins out there, it’s still MUCH more volatile than most stocks are.  Remember that while we all know that trading cryptos holds tremendous potential rewards, it is extremely high risk.  Frankly, you shouldn’t invest any more than you are willing to lose.  I think a good guideline is a tenth of your investible assets.  So if you have a trading account of $100,000, maybe transfer $10,000 to Coinbase for crypto.

Now, you could just apply the 821x trading system to bitcoin and get in and out based on standard buy and sell signals.  However, I think this approach would likely grind your account steadily down by forcing you to repeatedly sell at a loss because of the whipsaw moves bitcoin is prone to.  Instead, what I suggest is to reduce your buy size to a tenth of your of your overall crypto trading capital on every 821x buy signal and plan to never sell, unless your position is profitable.  In the example account above the buy size would be $1,000.

DIY Investor - bitcoin trading plan
four 821x buy signals so far this year and building energy for a move one way or another…

As far as sell size, again, if I see an 821x sell signal and am NOT profitable (the price is not higher than my cost basis), then the sell size is 0.  As I said before, you should be willing to see any money invested in crypto go to zero.  That’s why we have to be extra conservative with position size.

However, if I see a sell signal and am profitable, I plan to sell half of my position to book gains.  This way, I’m never completely out of bitcoin in case it suddenly goes vertical, which it has been known to do in the past.

So that is my current bitcoin trading plan in a nutshell.  If you are a crypto-trader, we would love to hear your trading plan in the comments!

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