Long Ethereum Thesis - (Part 3) Managing Active Trading

5:39 AM

This thesis a super long term play and I am thinking of getting involved in this via Brick and Motor mining so this is a big play for me.

On the eToro network, here is how I will be playing this by drawing inspiration from some of the most successful trend followers.


The Value of Ethereum is currently linked to an extremely positive sentiment.


One of my recent readings was titled "Extraordinary Popular Delusions and the Madness of Crowds" and it covered financial bubbles. While I do see Cryptos as potentially being a bubble it does form an interesting topic of conversation in terms of how it is likely to react to an open market situation.

A study by Meb Faber titled "What if (Sir Issac) Newton was a Trendfollower?" shows that even during periods of Bubbles, the use of Trend following strategies provides for a better returns with lower drawdowns than buy-and-hold strategies.

So which trend following strategy is best used?

I don't have a good frame of refence given the short nature of Cryptos but we do know they are an

- upward moving
- unlikely to return to reviously known lows
- possibly fueled by credit in the future

These are characteristics where perhaps the turtles provide the best frame of reference.

Looking forward by looking back

The turtles for those who do not know is a bunch of famous traders who used a leveraged strategy to bring profits back in the day. They had the distinct advantage of having a market somewhat similar to what the Cryptos are.

I believe we can use their framework. Taking from the book "Following the Trend" we will take a modified long only approach as i did notice for instruments such as bonds, it has been unfavourable to trade both long and short due to the single tradrectory. Also modifactions were neccessary due to using CFDs as opposed to Futures contracts, hence the calculation of vol and risk is different.

I will employ a short only on BTC, and only selectively.

• Long entries are only allowed if the 50-day moving average is above the 100-day moving average.
• If today’s closing price is the highest close in the past 50 days, 
• Position sizing is volatility adjusted according to the ATR-based formula. Risk per trade will be 0.5%-1%
• A long position is closed when it has moved three ATR units down from its highest closing price since the position was opened.

Accuracy is expected to be low, around 30-40% but returns if the call is correct will be much larger than risk capital taken.

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