On Being Top 99.53% Spot Trader on Binance this Month
On Being Top 99.53% Spot Trader on Binance this Month
Comments on being top 0.5% trader for the past 30 days.
👋 Hey there, Pedma here! Welcome to this free edition of Pedma’s Newsletter. Each week, I'll share with you a blend of market research, personal trading experiences, and practical strategies, all aimed at making the world of systematic trading more relatable and accessible.
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My non-traditional journey to become a profitable systematic trader
Crypto Portfolio Management: Degrossing - A Method to Deal with The Volatility Dragon
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Introduction
I was just scrolling through my Twitter, as I do every morning, to get a sense of what's happening in our space. I noticed an interesting picture showing your ranking among traders on Binance. So, with my competitive spirit, I went ahead to take a look. To my surprise, I am among the top 0.5% of traders on Binance for the past 30 days.
This performance is Spot only, which means I have used no leverage during this period to achieve these returns. I haven’t traded futures for a long time. Actually, I am lying; I have one open futures position. This is because the trade had such a strong signal. I didn’t have full allocation for it, but I didn’t want to miss out. So, I sent collateral and opened a futures trade to gain exposure to it. It’s an exception, but I still feel like I need to mention it. That trade is in decent profit, but it’s not part of these results. This is about spot trading only.
They call me a 'conservative trader', which is funny to me considering that we trade in crypto and nothing here is conservative. Even the most 'conservative' crypto asset today, Bitcoin, still has super high volatility, having given us an almost 80% drawdown from its November 2021 peak. So, nothing we do here is conservative. But I guess among all the risks we take, I might be conservative because I trade on higher timeframes, take low risks per position, and stick to spot-only trading. And that is my message for today.
I am not here to sell you dreams or to tell you that you can make millions from a small account in a month. While those numbers might be achievable, they require large amounts of time and trading. If you want to make this a career and potentially your main job, you must preserve your capital to continue playing the game and compound more effectively. We don’t know the future, and the worst drawdown is always ahead of us, but we do know that we can control risk. Yes, you will see many posts claiming that people have turned a small account into six or seven figures using leverage in a short span of time. What you don’t see are the thousands of people who followed that advice and blew up small fortunes that could have been useful for their own lives and families. These cases never show up on social media because they aren’t interesting. Only the lucky ones survive in that type of game. Think of it as a coin flip game among thousands of people and thousands of games. Some people will be the top 1, 2, or 3 coin flip winners and make all the money. Does that mean they had an edge? No! They were just the lucky ones who ended up on the right side of the distribution of a random game.
What’s My Edge in the Market?
All of us who pay attention to crypto know that this asset class has outsized levels of volatility. That's one of the reasons we like this space so much. But we must remember that volatility can go both ways. We also know that crypto tends to have high momentum when the times are right. Assets that are up today will likely continue to rise in the correct environment. So, my approach to trading is to be exposed to these momentum regimes, take appropriate risk, and let the market play out. I don’t care if the market is going up or down; I only care about the probability of a new trend emerging. If that probability is decent, then I get exposure. I will get faked out quite a bit, but that is the price we must pay to gain exposure to the next cycle.
Many people spend too much time trying to outsmart the market and pay as little as possible to be exposed to the next trend. Although this can be wise, since every business should reduce costs to operate more efficiently, this approach can lead to both complexity in the model and a failure to take advantage of what is right in front of us.
I am really happy about having a super simple system that still outperforms the majority of traders. Some days I get bored, of course; I hold trades for days and weeks at a time and do nothing related to execution in the meantime. However, this type of trading, if you're a directional trader, can yield the most results over your career. There are traders who are amazing scalpers, of course; I am not saying there is no other way, but that was never my style. I can't be stuck looking at my computer all day trying to scalp a few moves here and there. Maybe I am just too lazy, or perhaps I am too aware of my inability to deal with high volatility in a short timeframe. Either way, I do what works for me.
For example, take SEI, one of my best trades to date. I started buying SEI back in early November and December. I still hold this position to this day. Do you think most people would hold through a 300% gain or more and keep holding the trade to follow their system? That is part of my business edge: the ability to stick to a system, know what I am doing, and be patient enough to play the long game.
I’ve been in this game for six years now, and I understand what it's like to go through extreme periods of drawdowns and pain. I am acutely aware of the pain from those periods. When you start in this game, everything is so beautiful, and it seems there are no limits to what can be achieved. After a few years, you start to understand how much this game can hurt you if you don’t have the proper approach to risk. Risk is a constant thought in my mind. I barely think anymore about how much I can make; all I think about is how much I can lose at any given time.
I don’t think you should trade scared either. There’s a fine line between being an aggressive risk taker and not wanting to take any risk at all. Both can be detrimental in their own ways. I think you must find the middle ground between those two extremes and focus on what you can control, navigating the tides of the market as they come. It’s like trying to predict everything bad that might happen in your own life. Is it wise to never leave your house for fear of what might happen? No! You have to believe in your own ability to deal with the risks inherent when we leave the comfort of our house. The same applies to markets. You need to be aware of market risks, but that doesn’t mean you can’t get exposure to them.
Know What You’re Modeling For and Smooth Thy Signal
I know I repeat myself a lot regarding this, but it's one of the most valuable lessons I've learned through the practical application of these principles:
You must know what you're modeling for in the market.
Smooth Thy Signal.
All I do is take bets on the continuation of momentum in the correct regime. Here are a few examples below.
I want a strong breakout in the direction of a strong trend, and I enter a position. My assumption when I take a position is that the momentum of that trade will continue to increase and the price will continue to move in the direction of my trade. This is a good assumption given the correct environment, but in a weak environment, it obviously will not work as well. Below is a chart of momentum cycles in days for the past year. You can see that they can last a long time, and it's this 'stickiness' that I want to model for. The question is, how can I get exposure to these momentum periods with the least amount of risk and not have to endure the large drawdowns that individual assets go through.
'Smoothing the signal' comes from the idea of how you can achieve the same exposure with the least amount of trading. Trading costs money, so we must ensure that we do as little of it as possible without compromising too much on the returns of our edge. One way I found to do this, without being too complex in the model, is to simply use higher timeframes and avoid all the noise of lower timeframes. I get fewer signals, and I am still in the top 0.5% of traders for the past month. In the past, I was trading on lower timeframes, and the only thing I got was hurt when the market turned, or I was fully exposed, and many of the trades weren't the best signals. Since I got so many signals, I got allocated quite fast, and then when the really good ones presented themselves, I either had to take leveraged risks to decrease the amount of collateral used, or I didn't take them and was stuck with a bag of underperforming assets while these trades soared. So, in a game where you have to take a lot of bets, a wide fishing net as I usually call it, it's better to cast that net where the fish are plentiful. Casting that net is costly, so let's be efficient about where we cast it.
I could continue to write an extensive text explaining what I do, but the reality is that what I do is relatively simple. The edge is in how I manage risk, and that is what I will share in my newsletter with people who want to follow my journey. This can be a lonely game, and there's so much noise out there that it can be quite daunting to do it all by yourself. By sharing my experiences on a consistent basis, I hope to provide value to the readers of the newsletter. See you next time!
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