thetradingparrot
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How to exit bad deals quicker while making extra profit
🕑 Added 2021-01-21 20:52:07 +0000 UTCUpdate 1: formula had a mistake in how to calculate the total volume. IT should have used current_volume as pointed out in the comments. Thanks!
If you are using DCA trading bots for longer than a week you will notice some bad deals are well in the red.
Let's go with an example: let's say your last safety order got filled at negative 5% and now the deal is at a lost at negative 20% .
Notice: This is VERY high risk, don't learn it using real money. Use paper trading. You've been warned!
Follow these steps:
1) Go to "my deals" page
2) Pick one of your worst active deals. Sort all your deals by profit to identify a good candidate.
3) Check how much volume you have invested in the pair. In the image you can see BCH/USDC has a volume of ~210USDC invested.
4) Check how much percentage is your take profit. In the screenshot we have it set to 0.7%
5) Click on the pair. This should open up the chart.
6) In the chart identify the "Avg Buy Price" (519USDC), the "take profit price" (523USDC) and the "current price" (441USDC).
7) In order to exit a deal sooner (while making even extra profit) we need to average down the price (reduce the "avg buy price ) to a level that is more achievable adding extra funds. But we should not add funds at any time because the downtrend might still be strong. You need to properly understand technical analysis to be able to identify the best time to add more funds.
8) In order to reduce the TP by half way between the current TP and the current price you would have to buy the same amount that you already bought which was ~210USDC. If you want to drop the average even further you will require to buy even more BCH using add funds.
The calculation is as follows, it's a simple average calculation:
new_avg_buy_price = (current_volume * avg_buy_price + add_funds_size * current_price ) / (current_volume + add_funds_size)
You can use this formula to get a rough calculation of how much you will be dropping the avg price depending on how much funds you add and at what current price.
In our example if we added funds, let's say 300USDC of BCH then the formula will give us this new avg price:
new_avg_buy_price = ( 210 * 519 + 300 * 441) / ( 210 + 300) = 473USDC
So by buying 300USDC we will be able to drop the avg price from 519 to 473 which is much more easy to achieve!!
Should we just go and add funds any time then?
No, we need to find the right time to add funds. It needs to be when we are able fully confirm that the downtrend is over. Adding funds "too early" may turn quickly into a nightmare decision if the downtrend was still not over.
To time properly when to add funds you need to know the basics of technical analysis, you must be able to identify the key levels of support and resistance in the chart, and ideally be able to interpret technical indicators, etc. RSI can become handy here to understand when we are oversold, this can give us some indication that a reversal is about to come. Nothing is ever guaranteed but we can use the probabilities in our advantage.
It's not impossible to learn but please make sure you have practiced enough on paper trading adding funds to bad deals. Depending on your experience as a trader you should probably practice for several months/weeks before adding funds.
You might get lucky once or twice exiting bad deals with this approach but believe me if you ran out of luck you will end up with an even larger bag of losses if you start using this tool randomly.
Let me know in the comments if you want me to do a youtube video on this.
Also make sure you book zoom calls on the first of each month to allocate some time to have one to ones so I can share all the tricks as well and you get a chance to ask all the questions you want.
Comments
would love to see a video on this please
Yes I would love to see a video too.
Yes, please make a video!
Can you comment here TP? I'm confused as X below is not the average price. new_avg_buy_price = ( 210 * 519 + 300 * 441) / ( X + 300) = 473USDC
https://online-calculator.org/stock-average-calculator.aspx
BTW, good post!
Hi, can you comment on the formula above is correct? should be : new_avg_buy_price = (current_volume * avg_buy_price + add_funds_size * current_price ) / (current volume + add_funds_size) ?
good stuff
