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Some learnings on how to close red bag deals using EMA and TA: setup and 2 examples
🕑 Added 2021-03-25 17:41:10 +0000 UTCClosing red deals is something that I rarely do manually.
I like to see let the bots trade by theirselves 99.9% of the time.
But there are some occasions where there might be a stronger case for exiting a deal in red.
For example, the more of these questions that you answer yes, the better idea is to consider adding funds:
- A deal that already filled all the safety orders. This by itself is not sufficient to decide to add funds. But is something that adds up to make a case for it.
- The deal uses a leverage token, margin, BULL/BEAR, UP/DOWN, etc. If I have to add funds to something, I would privilege first my funds on leverage tokens. But adding funds at the wrong time here can make significantly more damage if done at the wrong time.
- Good news and overall market trend turns positive, expected strong bounce to the upside, prospective of recovery, etc. If there's high chance of optimism and things start mobilising and we seemed to have bottomed already it might turn into a good opportunity to add funds.
How do I add funds?
There's multiple options:
- Manually adding an extra SO. You can edit the deal and increase the total SO number. This will make the deal follow the original DCA bot design: if you were using certain scale and volume it will just follow those percentages. If the price was already below those limits it will get filled immediately which makes this option pretty dangerous if you don't know what you are doing. Some people use it, I do not use this ever.
- Adding a market price order. This option allows you to add funds at the market price. You would probably use this if you think you are currently at the bottom of the price and expecting a bounce. I have never used this as I prefer to plan my exit from the red deal based on technical analysis: support resistance, EMAs, etc.
- Adding a limit order. This option is for the ones that have a plan and understanding of what they are doing. If done correctly you stand a better chance to exit. It's never guaranteed but practicing it can slowly turn you into a master. A master would exit >3 out of 4 times without making it worst.
Requirements to add funds
You need multiple things to exit a red deal that qualifies as a good candidate for adding funds.
- You need to set aside funds to do it. Many bot masters mistakenly don't leave aside funds and end up well drawn into bad deals having to wait for extra funds from other sources to exit.
- You need extra time. Sometimes I let my red bag there because I don't have time. Do I lose money? no. I might miss some trades for having those funds there sitting but with our portfolio well diversified we have always bots busy to save the day. If you exit all your bad red deals you might make some extra cash if you know what you are doing but you can go from a one or two red deals to one or two nightmare deals after adding funds too early and therefore patience will most of the times outperform bot micro managers and anxious bot masters.
- You need to be able to identify areas of support. This is something you will have to spend loads of time studying, watching videos on YT, practicing with paper trading. There's no single video or article that can turn you into a master, you will have to mess it up, hopefully with paper money, before you fully understand it. I'll provide some examples below.
- Using EMA indicators. When you are on an uptrend and the price suddenly collapses the likelihood of this price bouncing with EMAs is very high.
EMA indicators I'm using
- 20-50-200 EMA Daily (balbus).
- 2-50-200 EMA 4h (pinillaalfonso).
- EMA Ribbon (Krypt).
First of all I add all these into a trading view chart.
All 3 indicators at the same time in the chart is a huge mess so I do some fine tuning:
EMA ribbon looks already great so no changes.
4h EMAs. Keep only 20-50-200. Use similar colours to remember they are all part of the same group 4h, see example below:
Daily EMAs customisation:
Then I save all these changes as a template with a name of "red bag killer" or something that is easy to remember later. I save the template using the 1 hour timeframe.
Example 1: NAV/BTC
In the example above we see first an initial drop of over 30% which bounces with the EMA ribbon. This indicator is respecting the chart timeframe so its using 1hr. The 50 EMA acts as a first initial support before heading further down. If you were there you could have placed a limit order with the add funds in the 50 or 55 EMA of the EMA ribbon and would have exit early at profit given that it bounced back up 18%.
If it caught you sleeping or late to the crime scene, you could have used the 50EMA of the 4h which also caused a significant bounce of 30% up. That's your second chance to exit.
And if you went very conservative ( and VERY lucky) you would have placed a limit order on the 50EMA of the daily indicator. This level bounced back up 72%. Although I wasn't expecting such a dramatic drop so I personally managed to exit on the 4h 50EMA.
As I said, this is not easy and all tokens behave slightly different so I repeat: THIS IS VERY DIFFICULT and if you haven't practice this for hours and days and weeks you can make things very ugly very quick. This example is not a tutorial, it is just an example that went well.
I got another example from few days ago.
Example 2: LUNA/BTC
This is an example of area of support helping but price crashing though the EMAs without any respect.
Hourly 50EMA from the ribbon was respected but it only caused a 2% bounce. Definitely not enough. If you would have added funds here you would regret it for sure.
The 50 4h EMA was clearly crashed. Price crossed the purple line like a falling rocket.
Luckily the price found strong support in the line at 0.0002985 not just once but it gave two opportunities to exit with a bounce of 12%
In this case entering at hourly or 4hour 50EMA would have been a bad idea.
Summary
These two examples show how you can consider incorporating different alternatives to forecast a potential opportunity to exit a red deal.
Experienced traders don't aim for 100% accuracy or correctness but for a ratio that still guarantees return at the end of the month.
And this is why you should incorporate different tools that together can help you increase the ratios of win vs loss.
In our portfolio all bots are marked with the level of expertise that's required for running them. We know which ones generate red bags, which bags we care which bags we don't care and when to care more.
Now do me a favour and do not go straight to add funds to all the red deals we have without understanding what you are doing. Today is a red day, those red bags don't mean that the bots are doing something wrong. It only means that you are trading crypto which is subject to extreme scenarios and bots sometimes need a break, they can't account for every possible scenario because if they did, they wouldn't profit anything.
Comments
Top coaching delivered at the right moment in the market. Feel ok with red bags! In a former bot group without this kind of coaching I closed everything with loss!
This is exactly what a lot of people were curious about in the community. Great stuff!
