This guide describes the trading concepts that are the foundation for Crypto-ML’s approach to trading.
As a customer, you do not need to select from trading strategies. That selection is handled automatically based on market conditions.
The three strategies are:
- Matic: a rules-based trading engine developed by using deep learning to uncover pivotal patterns and relationships in the market. Matic is now the foundation of Crypto-ML.
- Manipulation: an evolution of Standard ML that uses our neural network predictions, but identifies times of exceptional (aka “manipulated”) market movement as trading signals.
- Standard ML: the original Crypto-ML approach that follows our neural network predictions. This is ideally suited for normal markets.
► Learn more about the Crypto-ML Trade Strategies
Compared to Buy-and-Hold
“Buy-and-hold” is a traditional benchmark used when assessing the performance of investment strategies. This benchmark assumes you buy the asset at the start of the comparison period and then sell at the end of the comparison period.
The challenge is, you typically are unable to replicate buy-and-hold performance because it assumes you bought in the past at the start of the comparison period. As the saying goes, the best time to buy Bitcoin was yesterday.
The reality of buy-and-hold often looks like this:
“If you bought $1,000 worth of Bitcoin in 2013, you’d have $734 today because you would have panicked anyway.”
While we all wish we bought thousands of Bitcoin at $4 and had the stomach to hold it this entire time, this is a very unlikely scenario. The reality is, we want the flexibility to buy and sell at any point, regardless of the current market condition.
In fact, there are many similar “what if” investments we have all seen in the read-view mirror: if only I bought back in the early days. The challenge is these types of investments are very risky. Most of them go to zero, but some, like Bitcoin, take off.
The key worries of holders are:
- Is it too late to buy Bitcoin? (When you are not holding.)
- Is Bitcoin going to crash and cause me to lose thousands or millions in unrealized gains? (When you are holding.)
Trading gives considerable flexibility that buy-and-hold does not. With trading:
- It’s never too late to start. It doesn’t matter if Bitcoin is at $5,000 or $50,000. There will always be peaks and valleys that we can trade. All we need is volatility, which cryptocurrency has in spades.
- You can cash out at any time. Trading allows you to book real profits that you can use to grow your trading account or take as income.
- A portion of your crypto holdings should be in a long-term hold account.
- A separate portion of your crypto holdings should be in an actively managed account.
Trading fees are a critical consideration for traders. Fees are factored into our trading approach, but if you overpay fees, your results can be dramatically impacted.
This scenarios below show fees play out over time (with the help of our Crypto Trading Profit Calculator):
- Scenario 1: With an average 1% round-trip fee, this system results in a 28% loss.
- Scenario 2: Considering the same variables but with a 0.15% round-trip fee, the results switch to a 58% gain.
That is at the initial level of Binance and does not consider additional reductions that can easily be achieved.
The article linked below will give you full detail, but the highlights are:
- Choose Binance over Coinbase Pro, strictly from a fee management perspective. Though at higher tiers, Coinbase Pro can become more attractive.
- Pay your Binance trade fees with BNB.
- Consider your trading fees as a tax deduction.
You should also ensure you understand:
- Volume-based tiers.
- Maker vs taker fees.
All of these items are discussed in-depth here:
► Learn how to Reduce Crypto Trading Fees
Each Crypto-ML has a unique strategy for determining exit points, including stops and profit targets.
Despite being entirely separate systems, they all tend to converge on similar approaches to capturing profit. Namely, Crypto-ML targets fairly small gains. Our system is not looking for big 20%+ movements. Rather, it is looking to capture many small trades, likely closer to 2%.
During large rallies, you may notice Crypto-ML issues many back-to-back trades instead of staying open for the entire rally.
The key reasons are:
- Small trades reduce market exposure and length of trade. This minimizes the chances of something going wrong. Long trades may see very profitable draws, but ultimately close out too late. Crypto-ML seeks to open a trade when conditions are optimal, grab a quick profit, and then close.
- By capturing numerous small wins, the amount you trade each time grows thereby compounding your results.
Please note: exit points are not displayed on the Member Dashboard or elsewhere. This minimizes the exploitation of that data.
During a strong bull run, you will see our various trading strategies issue back-to-back trades. This is by design and determined by our ML. While it may seem to cause unnecessary fees, it reduces risk and actually improves overall performance.
Regardless of the machine learning approach we have taken, our systems have always determined small trades are the best approach. This lower-risk, lower-reward strategy pays off as trades compound over time.
Loss and Risk Management
Crypto-ML handles loss and risk in a non-standard manner. At a high-level, risk management is handled entirely behind the scenes by our models. Traditional stops are not used. This is required, in part, because of the volatile nature of cryptocurrency. It is common for large intra-day swings to occur knock out stop losses and greatly reduce performance.
Some basic components of Crypto-ML risk management are:
- Only open trades in high-probability scenarios to manage risk upfront.
- Keep profit targets small so that gains can be realized and the market can be reevaluated.
- Minimize trade length to avoid growing exposure to uncertainties.
The first bullet is the most notable. Opening a risky trade and then attempting to manage it is a poor approach. Our systems, namely Matic, look for conditions that produce winning trades.
If a trade is opened immediately prior to a sharp drop, our systems will continuously evaluate the market. If bullish conditions persist, it may hold through the drawn down and back to when the trade moves positive. This event will typically be measured in days.
Since losses reduce the capital you can invest, it makes it challenging to overcome losses. As an extreme example, if you take a 50% loss, you then must have a 100% gain just to break even.
► Learn about the Surprising Cost of Trading Losses