How can the same strategy lead to totally different results? Why do returns differ so much between traders for the same market conditions? Why are some traders more successful than others in automated trading? one word: Settings.

 

One of the most FAQ amongst the crypto-trading community is: what are your settings? The configuration of your bot is not only the rudimentary process of setting up a stop-loss, take profit and shutting down your laptop. Configuring your bot accurately is a key process that will make your bot make the right decisions and, more importantly, avoid the bad ones.

First of all, before configuring the bot, we have to ask ourselves what are our objectives. We have to pinpoint the type of trader we want to become before we get lost in the immense and complex jungle of trading strategies. No doubt, this is the first step to take before you start tweaking the brain of the bot: its settings.

But, why should we even think about it? Well, a big part of the crypto-traders configure their settings according to bits of advice they saw on certain social media channels or based on pure faith. Being an investor that prefers to make medium/long term investments would commonly have totally different settings than a day trader. Other factors like the risk appetite will strongly influence the way the settings should be.

In order to analyze the different type of traders and the settings that are commonly used along with those trading styles, we will separate them into three categories; Day traders, Swing traders or Position traders (short, medium and long term respectively).

 

Day Trader

Day traders are typically known for making several or even a high volume of trades per day. Daily volatility is not enough for making double digits percentages of returns per trade, so these strategies aim for returns ranging between 0.5 to 4%. This, for example, already gives us hints on which values some of our settings should have.

We will explore some of the most common settings that every automated strategy should take into account:

  • Take profit → As argued before, day trading consists of a larger volume of trades per day which, unless the volatility is constantly very high, will give trades within a range of +-5%. Which suggests having take-profits around those levels that could be reached by the price.
  • Stop-loss → The duration of these trades and its return are low. On the other hand, having a low profit target, to some extent, recommends us to set a rather tight stop-loss in order to have a ratio profit/loss 1:1 (What you lose in the negative trades is equal to your average positive trade).
  • Selected coins → Normally, having a big volume of trades per day requires a lot of buy signals from your strategy. By selecting very few coins this scenario will hardly take place. Then, being a day trader requires having a wide range of coins/assets to trade.
  • Trade size → Even Warren Buffet would have to lower its trade size if we would make more investments. The money in his wallet is limited and so is ours. So, if as a day trader you aim for a high volume of trades, these will have a lower size which can also be due to diversification purposes.
  • Trailing stop-loss → It has the same reasoning as the take profit. If your trades normally aim to an average of 2% per trade, a reasonable TP would be one that triggers slightly before that average percentage.
  • Max open time Buy/Sell → In the wild west, even the smallest delay in a shootout could cost you your life. A delay in trading won’t kill you but will evaporate your returns, which is almost as painful. Max open time Buy/Sell is the minutes that a limit order is going to be pending. After this amount of time, the order is canceled. For quick in and out trades, long delays in opening the positions might make you buy at the peak, which might convert your potentially positive trades into negatives. So Max open times should be rather low.

 

Position Trader

Position traders or long-term traders. Same as “Holder”? No. A position trader has a very specified buy and sell strategy, he doesn't  simply hold certain coins and base his decisions entirely on faith that the price will go up.

Then, what makes this type of strategy long-term? Mostly, these strategies aim for a very high return, which will take time to be reached. For example, it isn’t very likely that your strategy will make more than 20% in a couple of days. This type of returns are made foreseeing long-term trends of an asset, therefore the price will take some time to reach those high levels of return.

Having said this, if you identify yourself as a position trader, the settings of your automated strategy should act according to this trading style:

  • Take profit → As described before, one of the main characteristics of long-term strategies is aiming for a high return. Take profit takes an essential role in it and therefore should be carefully set according to our TA analysis and typically above levels close to 20% or even more.
  • Stop-loss → The duration of these positions is long until they reach our objective. Because of this, we have to let the price swing up and downwards widely enough until the take profit is triggered. This implies having a very low Stop-loss, but still maintaining a good ratio profit/loss, at least 1:2.
  • Selected coins → Contrarily to a Day trader, long-term traders don’t need to focus on a high amount of assets. It is preferable to identify and analyze a small group of coins in depth and take larger positions on them.
  • Trade size → This type of strategy commonly requires a high volume of resources in every trade, meaning that few positions are open and its trade size is quite often large.
  • Trailing stop-loss → Since it is considered a way to close positive trades, normally it would be set around halfway to the profit target and with a wide enough TSL percentage, to let the price continue on its way.
  • Max open time Buy/Sell → If we are aiming for the moon, the moon will not move too much within  one hour of trying to take off. But, if you wait too long, the daylight might make the moon disappear! Same with long-term trade orders. It isn’t very important to open a position 30 minutes or even one hour later, but waiting too long will reduce your potential profit.

 

Swing Trader

Swing traders can be categorized as medium term traders. If we would carry out the same analysis with them, all the settings would be halfway between long-term traders and day traders.

An approximation of accurate settings for this kind of strategy are the followings:

  • Take profit → Normally, these strategies set their take profit per position in a level around 6 to 20%.
  • Stop-loss → This mostly depends on the average return of your positive positions. Having a clear insight of this value will give you a good idea of where to set the stop-loss percentage in order to have a good profit/loss ratio.
  • Selected coins → Having discussed the number of selected coins for a short and long term strategy, we can get an idea of a good amount of coins selected for a swing trading strategy. However, a high number of coins is also sometimes used for this strategy.
  • Trade size → Commonly, this strategy maintains a high trade size in comparison to the day trader, but not as big as a position trader position.
  • Trailing stop-loss → As argued before, TSL depends on the objective (average profit per position) you have set. Its value will have a positive correlation with your Take profit level and will depend on how soon you would like to secure your positive positions.
  • Max open time Buy/Sell → Since it is a medium-term strategy, you could set a moderate time span for this. However, it should be somewhat lower than in a long-term trade.

 

Defining which type of trader you want to become is so essential that it is recommended to know it even before you create your strategy. A combination of a good analysis of yourself as a trader and a very backtested strategy will increase the probabilities of  successfully riding any kind of market condition for the most volatile market in the world.

 

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