Asset management in Bitcoin automatic trading "BTC TREND TRADER"

11 February 2020, 15:21
Yaeko Tsukamoto
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.Appropriate ratio of risk assets and safe assets

How much of the money you hold can be allocated to your investment?

There is no right answer because each person is different. However, as a guide, consider the method of allocating assets introduced on the website "Money Master."


Definition

We define assets whose value fluctuates, such as stocks and cryptocurrencies, as risk assets ,and assets whose value does not fluctuate, such as cash, as safe assets.

We define funds for coping with any incident as livelihood defense funds.

The livelihood defense fund and the percentage of risk assets appropriate for age vary greatly from person to person. But here we will cover the livelihood defense fund as “one year's living expenses and large expenditures planned within five years. ".

Also, based on the idea that younger people can take risks, the appropriate ratio of risk assets to total assets according to age is set to (100-age)%.


Calculating the appropriate value of risk assets

In this case, in allocating risk assets and safety assets, the best allocation is the allocation that meets the following two conditions.

The first condition is that "livelihood defense fund (living expenses for one year and large expenses planned within five years) must be risk-free assets."

The second condition is that the percentage of risk assets does not exceed the appropriate percentage of risk assets according to age (100-age)%.

In other words, the amount of risk assets that can be tolerated is the smaller of (total assets livelihood defense fund) and (total assets × (100-age)).”


An example

As an example, consider a case in which the total assets is $ 50,000, the age is 30, the cost of living is $ 2,000 per month, and the large spend within five years is $ 10,000.


total assets : $ 50,000

the age : 30

the cost of living : $ 2,000 per month

the large expenses within five years : $ 10,000


 (total assets livelihood defense fund)

livelihood defense fund : $ 2,000×12 months$ 10,000$ 34,000

risk assets :  total assets livelihood defense fund

$ 50,000 – $ 34,000 = $ 16,000


total assets×(100-age

Percentage of risk assets : 100-3070

risk assets : total assets×70

$ 50,000×70% = $35,000


Conclusion

$ 16,000 < ② $ 35,000

Up to $ 16,000 can be allocated to risk assets.


How many months of livelihood defense funding is needed, and what is the “appropriate proportion of risk assets according to age”, depends greatly on the individual situation.

Calculate the necessary livelihood defense fund and the appropriate proportion of risk assets according to age that suits you, and use those figures to calculate how much you can have risk assets please.

ReferencesMaster of Money


. Be sure to use at least two exchanges

If the exchange goes bankrupt, there is a risk that the funds deposited will not return.

In fact, Mount Gox went bankrupt due to bitcoin theft. Other exchanges faced bankruptcy due to bitcoin theft.

Don't deposit all your money on one exchange so that you don't lose everything due to the bankruptcy of the exchange.


.About allocation ratio of funds to accounts with different leverages

We recommend using 6 accounts with leverage 1x to 6x. How many funds should be allocated to each account?

Decide the allocation from the viewpoint of "how much you can withstand the decrease in funds".


Definition

Leverage n times is defined as "having a position with n times the amount of margin".

In other words, 1x leverage means having a position equal to the amount of the margin, and 6x leverage means having a position 6 times the margin.

For example, if the price of Bitcoin is $ 10,000, "entering a long position with a leverage 6x account with $ 10,000 margin" means "buying $ 60,000 bitcoin.”


Assume the maximum unrealized loss.

From the birth of Bitcoin to its first halving, BTC Trend Trader has a maximum loss of 12% and a maximum unrealized loss of 23%.

From the first half-life to the second halving of Bitcoin, BTC Trend Trader has a maximum loss of 19% and a maximum unrealized loss of 19%.

From the second halving of Bitcoin to December 2019, BTC Trend Trader has a maximum loss of 10% and a maximum unrealized loss of 14%.

No one knows the future, but here we assume a maximum unrealized loss of 14%.


Estimation of loss amount

Calculate "What percentage of unrealized loss in the worst case" for each account, and consider the fund allocation that you can endure.

Assuming a maximum future unrealized loss of 14%, we calculate the unrealized loss of each leveraged account when a 14% unrealized loss occurs.

Leverage 1x accounts have a 14% unrealized loss. (14% x 1 = 14%)

Leverage doubling accounts have a 28% unrealized loss. (14% x 2 = 28%)

An account for triple leverage has a 42% unrealized loss. (14% x 3 = 42%)

An account for quadruple leverage has a 56% unrealized loss. (14% x 4 = 56%)

Leverage 5x accounts have a 70% unrealized loss. (14% x 5 = 70%)

Leverage 6x accounts have an 84% unrealized loss. (14% x 6 = 84%)

If you evenly distribute your assets across the six accounts, you will temporarily have a 49% unrealized loss. If you have a 49% decrease in funding, can you stay calm?

In addition, if the price fluctuates more than 16.6% contrary to expectations, the margin of the account for 6 times is all lost. If the price changes by more than 20% against your expectations, you will lose all your margin for the 5x account. Never go back.

BTC Trend Trader is an expert advisor with a very high win rate in the long run. Nevertheless, if you are scared and stop on the way, you will miss the chance that you should get.

Those who can withstand this are fine, but those who cannot withstand should allocate more to low leverage accounts.


Excel file

We have prepared an Excel file called "About Asset Management" to consider the allocation of funds between accounts with different leverages. There are two sheets, "Fund Allocation Ratio" and "Compound Interest Management". Please download and use.

Please open the "Fund Allocation Ratio" sheet. As you type in the orange cells, the values ​​are automatically displayed in the uncolored cells. First, enter the amount of funds you want to invest in the funds cell. Enter the expected loss in the profit / loss cell. Enter various numbers in the allocation ratio cell, and search for an allocation ratio where the overall profit / loss is acceptable.

 

An example

As an example, we simulated a case where a person with $ 60,000 in funding distributed funds evenly between 1x and 6x leverage accounts, resulting in a 14% loss. Overall leverage is 3.5 times and overall funding is down 49% to $ 30,600. Those who don't want to take too much risk will feel that their funds are too low.

If you change the allocation ratio and change the 1x account to 25%, the 2x account to 25%, the 3x account to 20%, and the 4x account to 10%, and the 5x account to 10%, and the 6x account to 10%, the overall leverage will be 2.9x. Overall profit / loss can be reduced to 40%.

In this way, put various figures in the allocation ratio and look for the allocation ratio where the overall profit / loss is within the allowable range.


Ⅳ. Leverage has a large influence when Compound interest management are used.


Consider how the leverage will affect the results when Compound interest management are used,

 

Definition

Compound interest management is defined as "to incorporate the profits from a trade into the funds for the next trade. To subtract the losses incurred from the trade from the funds for the next trade.”

Suppose you make a profit. Suppose you have $ 10,000 margin in your leverage 6x account as margin. You received a long entry email when the price of Bitcoin was $ 10,000 and you bought $ 60,000 worth of Bitcoin. ($ 10,000 x 6 = $ 60,000). The price rose 20% to $ 12,000 and sold Bitcoin.

With a profit of $ 12,000 ($ 10,000 x 20% x 6 = $ 12,000), the margin was $ 24,000 ($ 10,000 + 12,000 = $ 24,000).

A month later, you received a long entry email when Bitcoin cost $ 12,000. At this time, you will buy $ 144,000 worth of bitcoin in a 6x account. (24000 * 6 = $ 144,000)

Let's consider the case of loss. Suppose you have $ 10,000 margin in your leverage 6x account. When the price of Bitcoin is $ 10,000, you receive a long entry email and you get 60,000

I bought dollar bitcoin ($ 10,000 x 6 = $ 60,000). The price fell 5% to $ 9,500 and sold Bitcoin. There was a $ 3,000 loss ($ 10,000 x 5% x 6 = $ 3,000) and the margin was $ 7,000 ($ 10,000 $3,000 = $ 7,000).

A month later, I received a long entry email when Bitcoin was $ 9,000. At this time, you will buy $ 42,000 worth of bitcoin with a 6x account ($ 7,000 x 6 = $ 42,000).


leverage

Here is one question. If the overall leverage is the same, will the result be the same even if the allocation of funds to the six accounts is different?

Suppose you want to start asset management with 3.5 times the overall leverage. Let's compare the case of distributing the funds evenly, and distributing 50% to the 1x account and 50% to the 6x account.

The total amount of funds after the first trade will be the same. However, if you do not transfer funds between accounts, the total amount of funds after the second time will not be the same.


Excel file

An Excel file called "About Cash Management" has been prepared for this calculation. There are two sheets, "Fund Allocation Ratio" and "Compound Interest Management". Please download and use.

Please open the "Compound Interest Management" sheet. If you type in an orange cell, the value will be automatically displayed in the uncolored cell. Please enter the amount of funds you want to invest in the cell of funds. Enter the profit in the profit / loss cell. Enter various numerical values ​​in the cell of the allocation ratio and check how much the total amount of funds after the 10th trade will be.

 

An example

Suppose you have $ 60,000 in margin before the first trade, trade without transferring funds between accounts with different leverages and make 10% profit 10 consecutive times. Calculate how much the total amount of funds after the 10th trade will be in when distributing funds equally and when distributing 50% to 1x account and 50% to 6x account.

The total amount of funds after the tenth trade is $ 2,191,100 if the funds are evenly distributed. If you allocate 50% to a 1x account and 50% to a 6x account, you get $ 3,376,300.

In other words, if you run compound interest without transferring funds, even if the initial overall leverage is the same, the more funds you have in the higher leveraged account, the larger the final overall fund will be.However, this only applies if there is no loss that will cause you to lose all your account margin. Invest thinking the balance between risk and return.


Ⅴ. Please download BTC Trend Trader from the market page. Please download the demo version for free backtesting.

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