A technique from Ernest P. Chan’s book “Quantative Trading. How to build your own algoritmic business».
The essence of the technique is that you are constantly in the market, acting according to the following algorithm:
1. Divide the trading capital into 5-10 parts.
2. Enter the market in the first part.
3. If the price went up by 2%, sell 20% of the position.
4. If the price went down by 2%, buy 20% of the position.
5. If the position is completely exhausted, enter again.
6. The authors recommend hedging drawdowns.
This technique makes sense for conventional instruments where there are predicted drawdowns, i.e. no more than 20% per year. This technique is not suitable for trading in the cryptocurrency market, due to the use of martingale and high volatility.
For the cryptocurrency market, you can offer a modified version of this technique:
1. Divide the trading capital into 5-10 parts.
2. We enter the market at the current price in one part.
3. If the price increases by 10%, we sell 20% of the position.
4. If the price drops by 10%, we buy 20% of the position.
5. In case of strong drawdowns, you can use the remaining capital to increase the margin.
6. Since the price of 10% can fall only 10 times (up to 0 100%), our capital divided into parts should be enough to sit out in any scenario.