How to use predictors

How good are crypto predictors?

In my experience, not very good. For example, simetri can claim to have made gains of 655% in January 2020 on $100 investments on one or two new cryptos each month since July 2019. But drop the first two selected, and the return was only 3%, and the first choice (up 1569%) was down 25% in January.*

But that doesn't mean you can't use them to your advantage.

* The outlier was ONE, the August 2019 choice, with 6922% gains since then..

General principles

Decide a risk-reward ratio

The fundamental strategy often recommended is to spread your investment over several coins, usually each the same amount, and count on selling out at smaller losses than your wins, so that the gains more than compensate for your losses. This is the risk-reward ratio. There are some calculations you can make to vary your investment according to, say, volatility, technical formula, but they are more or less guesswork.

Allocating your investment

There are other trusted ways of distributing your investments than in equal allotments, but with cryptos no-one seems to have a foolproof system of devising how to much invest in what. I use a common alternative: invest according to the coin's share of the market, with the top 20 or top 30 being the coins I chose. You could get bigger returns by investing lower down in the listings, but the chances of losing more also go up. You want to devise a strategy that keeps you in the market unless you make a lot of mistakes.

Profit-taking, cashing out losses

My profit-taking starts at 2.49%, though I continue holding if it is still rising, and my stop-loss sale point is set at a 0.7%: that is a risk to reward ratio of 3.5.

The aim is to ensure my losses are not large on any one coin during the day. Many day traders will allow their coins to fall even further before cutting their losses. At 0.7% I can theoretically make well over 100 bad trades before losing all my money.

The 2.49% figure is a matter of choice. I also specify that when the price is going up, I let it, once it reaches 2%, until it drops back by 0.5%, which means that my gains from a rising price should be no less than 1.5%, i.e. each gain covers at least two losses.

I still have to watch the prices, since in a scared market many more than two coins I hold will go down, and I can lose a lot more in the day (up to 3.76% in losses to judge from 20-23 January's record for 2021: -0.16%, -1.02%, -0.28%, -2.30%.

In the case of a crash...

In theory, on a really bad day for cryptos, I could lose 7, 14 or 21% of my investment (10, 20 or 30 coins all losing .7%), and possibly more if they are going down so fast I can't sell them according to the stop-loss percentage immediately.

That's why I keep tracking the results. I could simply halt the investment if I thought coins would keep going down after a crash.

Investment diary (from 1 January 2021) : Latest entry