thetradingparrot
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VIP question: big red bag on ADA? alternatives
🕑 Added 2021-09-29 16:35:45 +0000 UTCSo one of our VIP members has the following question and I thought maybe some other members might value the answer.
"I've got a red bag of ADA, I don't want to end up selling and then price rebounds to the upside and I miss the train, but if actually takes a bit long for ADA to recover what could I do with the red bag to still gain some profits?"
To understand our options we need to look into the current BTC price action and its correlation with the price of ADA.
In the chart below you can see that ADA, like most alt coins tends to follow the price of BTC.
When BTC was struggling at 30K, ADA was around 1 USD.
And now that we are holding the line at around 40K, ADA is hovering 2 USD.
BTC can do many things but some things have "higher probability" than others. I do not say that we are going to go below 40K I just see that from the technicals that is more likely than being able to hold 40K.
BTC could correct to the 30Ks, and bounce back up.
For this all we need is a bit extra FUD and I wouldn't be surprised if it happened.
But I wouldn't be surprised either if we actually held the 40K line for a few weeks and never ever visited the 30Ks again.
We are in a 50/50 situation. Bulls are battling bears, and it's quite a big one. People sell and whales are buying constantly but also FUD keeps coming in.
So I thought we have many options but I decided to focus on two: Adding extra protection to the existing Conservative DCA bot we use for MC futures and running a grid bot during the potential upcoming accumulation period.
Using COIN-M MC futures
Use a futures COIN-M market cipher bot with ADAPERP but with an extra conservative DCA setup. One that's actually even more conservative than the conservative template we normally use.
Our VIP member has a pretty large bag of ADA and we don't want him to lose it.
In the figure below we can see the performance of the MC futures bot on ADAPERP in the past 70 days using the conservative template setup that I have been using for months, and many of you copied:
Now, this one covers a deviation of 12.5% and past performance is about 0.23% a day, not bad for a very conservative setup. Worst day it took 3 days to close a deal, not bad either.
There are many ways of making a DCA setup more conservative. One of them is covering extra max deviation. But the problem is that that might not be sufficient. If the SOs are too spread it can easily make it worst. It makes the bot slower to close deals.
In order to make more conservative a bot we need to add more SOs while ideally also creating more density of SOs and being able to increasing the max deviation. And all of this needs to be carefully backtested to confirm all the hypothesis are correct.
None of these changes will come for free, adding more SOs will increase the total amount required to run it, the collateral, etc.
So here we go, two extra conservative alternatives to the existing conservative MC DCA bot template we already had.
Extra conservative alternative: Increased SO density.
Extra SOs while keeping a similar max deviation of around 12This approach seems to be offering better returns as now the daily profit has increased to 0.24%.
It doesn't seem to help reducing the time to close the red bag though, still over 3 days.
The size of the BO and SO had to be dramatically reduced while keeping the proportion of BO:SO to compensate for the price of adding an extra SO.
2X extra conservative alternative. Increasing SOs and max deviation.
The difference here is that we are now going to add one extra SO and compress even further the separation between SOs to cause deals to close even sooner.
This seems to be the most conservative approach among all of them: the original Conservative DCA setup we've been using and the two new ones presented in this article: extra conservative and 2x extra conservative.
This main advantage of this alternative is that it closes the worst deal in less than 2 days.
The impact in performance is not as bad as I would have expected, still a decent 0.14% a day, which can provide a safe 5% a month and promises to require the least attention possible as long as the required collateral is in place.
It's important to note that only once in 70 days the last SO was required.
So if you are one of those that wouldn't mind stepping in with some manual trading, you could run it exactly as this but with one less SO which you can add manually when you feel is needed and the correct time.
Grid ADA bot
An alternative which would require USDT (or BUSD) and ADA to run is a grid.
This alternative will require you to have some ADA to be able to fund the levels above the current price. Once and if ADA exits the grid from the top it would have sold that exact amount of ADA.
If you DO NOT want to sell ANY of your ADA then lower the top limit to below the current price in which case you will only end up using USD to run it and none of your exiting bag of ADA.
An alternative is to buy more ADA to run the top area of the grid.
Let's say we wanted to use 10K USD on an ADA grid to capitalise on a potential accumulation period of ADA. As we mention there are chances that BTC could drop below 40K, which although it's not guaranteed, it's definitely more likely than going all the way down to 30K.
We can now use the BTC ADA price correlation we discussed at the top of the article. We will use the levels 2USD and 1USD as potential bottoms for ADA. We will use them independently as we might reach 2 and maybe never 1 USD, just like with BTC with 40K and 30K.
We could have a twin grid setup on ADA that reflects our expectation of price action for ADA if BTC didn't hold the line.
Conservative twin ADA grid setup
- 1 grid between 2USD y 3USD with 40% of the 10K
- 1 grid between 1USD and 3USD with the remaining 60% of the 10K
Aggressive twin ADA grid setup
- 1 grid between 2USD y 3USD with 70% of the 10K
- 1 grid between 1USD and 3USD with the remaining 30% of the 10K
As you can see the aggressive is assuming that there's less likelihood that we will go to 1 dollar and therefore it's assigning less funds to that scenario.
Notice that both grid bots are overlapping between 2 and 3 USD.
I tend to add as many levels as I can afford. And if instead of using USDT you use BUSD then you don't even care about fees any more so more levels are an even better addition.
Staking
I think staking is an alternative but only if you are willing to hold for the long term.
Shorting
Shorting ADA a bot it's very tough. In the last 70 days it's been moving all over the place. Particularly when it goes to 1USD it's almost impossible to not end up losing it all as it goes up exponentially and you will need a max deviation of over 50% to be able to exit at profit the short. And even if you do, your return would be below 0.1%
Arbitrage bot with ADA?
Not an option at least on Pionex they only support arbitrage bots using USDT.
Let me know in the comments which other alternatives you guys would recommend for a similar situation?
Comments
many thanks for the article and detailed explanation :)
