Conversation with Trader Amanda: How to Develop Investment Strategies to Outperform BTC in a Bull Market?

The following text is compiled from the series Twitter Space #对话交易员, hosted by FC, Founding Partner of SevenX Ventures, Twitter @FC_0X 0

Guest of this issue: Amanda, Chainup Investment CIO, Twitter @WuWei_BeWater

About Amanda

Amanda, the personal options trading BTC base yield rate in February this year is 10 times, nearly 5 times this month, and the annual US stock market return is twice that of Nasdaq.

Who is this legendary her?

Currently the CIO of Chainup Investment, he built a fear index options trading model on Wall Street; joined Guotou Capital in 2011, engaged in primary market investment and secondary market trading, and led the listing of Anxin Securities.

Entering the cryptocurrency circle in 2017, she accumulated investment concepts and trading experience from the traditional financial market, making her clear on how to make money in various financial sub-sectors. After her own thinking and adjustments, she summarized the investment and trading methodology suitable for the cryptocurrency industry in traditional financial capital markets and selflessly shared it.

How to develop your own investment strategy?

First, ask yourself a few questions from two perspectives.

The first is to consider 5 aspects from a personal perspective:

1. Total investable asset size, premise: not subject to loan repayment, time liquidity restrictions
2. Investment objectives and expected returns: If it’s 6%, just leverage to buy US Treasury bonds (credit bonds); if it’s 20%, quantitative arbitrage is enough; if you want higher, look for high growth.
3. Risk preference and tolerance: What is the maximum loss/volatility you can bear? If you can only tolerate a 20% volatility for this asset, do not add more than 5 times leverage.
4. Investment Time: When will I need this money? When I retire? Next year?
5. Liquidity arrangement: Treat yourself as a company to calculate the balance sheet and income statement, considering personal life arrangements and bill payments.

The second is from the market perspective, pay attention to two aspects:

1. Market Cycle: When in the middle of the market cycle, it is important to consider whether it aligns with my investment timing and position control.
2. Position Control: Do not deliberately pursue diversification, but see where the risk exposure comes from, and then diversify assets. Otherwise, you will find in the end that although the asset names are different, the risk sources are of the same category.

What kind of strategy can outperform BTC?

Outperforming btc is mainly about timing and selecting coins.

First, let’s talk about how to choose the currency

BTC has narrowed its volatility compared to before, and it seems to be in a stable development in the middle and late stages. And small currencies that have the potential to cause trouble have stronger growth potential than BTC.

So how do we define the growth indicators of the project? Amanda: "When I choose assets, I usually choose assets that have growth logic, the ability to make money, and the ability to tell stories and do things. ”

• Growth: Based on different protocols and the functions of Dapps, they have different indicators to determine their growth, such as: TVL, number of Token Holders, transaction volume, storage, and other quantitative growth indicators. Based on this, it is a pioneering choice to use such quantitative growth indicators, combined with the circulating market value of the currency, similar to the PEG indicator in stocks, to calculate the relative valuation of a project, monitor it in the long term, and compare it with similar projects, selecting assets with more growth potential and cost-effectiveness. Also, monitoring supply and demand, factors that affect supply and demand include halving, staking, and staking rewards;
• Earning ability: such as protocol revenue, profit analysis, and on-chain transaction analysis.
• In Fisher’s “How to Pick Growth Stocks”, he mentions that public opinion should not only have connotation but also comprehensive extension ability, so public opinion is the embodiment of extension.

How to deliberately practice and train your ability to select coins?

One simple way to train your coin selection ability is to pay attention to the relative exchange rate of small currencies to BTC. You will form a matrix with two coordinates, one representing rise and fall, and the other representing outperforming and underperforming. This will form four quadrants: outperforming BTC when rising, underperforming BTC when rising, outperforming BTC when falling (less loss), and underperforming BTC when falling (more loss).

There is a type of asset that can outperform BTC when it rises and lose less when it falls, which is the best asset choice, but it is unstable.

So what you need to practice is to monitor and judge this statistical relationship in the long term in order to find assets with high growth potential, good quality, and market attention, and possibly outperform BTC. The encryption market is not considered a weak efficient market, so technical analysis can still achieve excess returns.

How to choose the timing of BTC

Buy when no one cares, sell when there is a buzz. Amanda bought BTC all in at $16800 on December 26, 2022, while ensuring good liquidity. I knew that it was an acceptable normal fluctuation when it dropped to $15K later.

There are short-term event-driven transactions in between, such as when BTC suddenly rises during a banking crisis, short positions are reduced on the day of the listing of the BTC spot ETF in January 2024, including options trading. So, up until now, the amount of coins has increased, which can be said to have outperformed BTC.

• Long-term periodical selling of configured assets

To outperform BTC means to choose the right timing and coins. If you’re not capable of choosing coins, then focus on timing and long-term allocation. Buy near the 200-week moving average, and regularly sell after the halving in around 12-18 months. This way, you can capture the majority of market gains.

Do not underestimate scheduled selling, which has also been compared in the ‘Turtle Trading Rules’ with various different exit strategies, and regular selling turns out to be the best performer. What’s the most difficult point? Everyone is very impatient. If the focus is on short-term gains, the resulting profits are bound to be very limited.

When is a good selling point?

Recently, there have been signs of topping out in many technical indicators. Indeed, historical data is a good reference, but I don’t think every cycle is the same as the last one. The apprentice buys, and the master sells.

From a quantitative perspective, in calculus we know that the second derivative can be used to find extreme values, and when the second derivative = 0, it is a local maximum. It is a concept of rate itself, in other words, the growth rate gradually slows down, which means it is approaching the top.

• In the currency circle, the theory of reflexivity is fully demonstrated. In “Financial Alchemy”, it is mentioned that in the theory of reflexivity, the market fluctuation from the beginning to the inability to sustain is actually the inability of everyone’s ideas from expectation to realization to sustain positive feedback, which has reached the market top.

From a qualitative perspective, the market rises and falls for the same reasons.

• During the bull market of 2016-2017, the cryptocurrency community was envisioning Wall Street institutions entering the crypto market and the sentiment was high. However, when CME launched Bitcoin futures in December 2017, the reaction was quite the opposite, with the perception that Wall Street was shorting Bitcoin, causing panic in the market.
• In the last bull market in 20 years, after the outbreak of COVID, the massive QE brought about liquidity overflow, causing all risk assets to rise. Therefore, after the Fed announced the cessation of interest rate cuts in November 21, that round reached the high point.
• In this round of the market, from a big cycle perspective, the real starting point for the volatility is the expectation for ETFs. On January 10, when it went online, the price began to fall, and the selling pressure came from Grayscale’s large amount of GBTC selling, resulting in net outflows of ETFs. If you simply look at the positive impact of the Trump election landing, the recent growth rate has indeed slowed down, which meets some signals of the cycle peak. However, my judgment on the market cycle is that this rate cut is slow, and the massive adoption of large institutions is gradually pushing up the adoption rate, so there will inevitably be a slow bull trend in this market.

What is the driving force of the market? - Crustal Theory

The cryptocurrency market is unpredictable, but the volatility remains constant. To capture the desired volatility, a framework is needed to understand the underlying emotional drivers. Like the core of the earth, emotions are the starting point of energy and the driving force behind the market. It can be fear, greed, or confusion at times.

Stacking up, the project’s fundamentals and price performance, a short-term event-driven, is the mantle.

Then, the prices displayed during that period, together, reflect the prosperity of the market, which is the surface.

So the crustal theory is a profound insight into the changes in a market, what it is based on? Based on what ends? What level of sentiment is the market at.

The most fundamental market momentum must come from emotions. This is the core of crustal theory, just like an earthquake. The energy changes occur from the Earth’s core, and then manifest in the movement of tectonic plates, finally resulting in severe fluctuations on the earth’s surface. It progresses layer by layer. You need to perceive where the market emotions start, iterate, and then develop to a point where they cannot continue.

How to judge emotions, what indicators are there?

Simple indicators, such as the panic greed indicator. For example, when it is below 20, it is unlikely to make a wrong purchase, and when it is above 90, selling it would not be too wrong. However, behind it, there may be opening positions (Opening positions: refers to positions in the futures or options market that have not been closed, and the commodities are still waiting for trading in the market, which are still affected by market price changes).

There are many ways to judge emotions:

First of all, ETF deposit is a typical emotional change;

In addition, there are continuous price changes outside the US stock trading hours, to feel the pulse of market sentiment, through looking at hourly and minute charts, market opening interest, perpetual premium, funding rate.

A general conclusion is that the market is still very positive and optimistic. In other words, the market is willing to invest real money, demonstrating strong bullish sentiment.

How to continue discovering new Alphas?

First, consciously and actively accept and understand these new things, rather than being very afraid. Soros told his disciples to invest first, analyze later, and then see if it can continue.

Secondly, you cannot confine yourself to the small range of the cryptocurrency circle. To solve current problems, you must adopt a broader perspective and interdisciplinary thinking, as well as consciously understand various categories of assets.

Third, invest with a mindset of being curious about the gossip of the world. Price movements often reflect forces that drive them, and there are always traces to be found. By following the price and exploring what lies behind it, you can uncover new stories.

Recommended Book for Traders’ Self-Growth and Personal Transformation?

Amanda: Every year I can read 1-2 books that discover a lot of room for improvement in the past. I read the Dao De Jing twice again in 22, read Sun Tzu’s Art of War in 23, and then I finally read Mr. Munger’s Poor Charlie’s Almanack, which shocked me.

If we’re talking about trading specifically, it would be ‘Reminiscences of a Stock Operator’ and ‘The Alchemy of Finance’.

Every day, I have been iterating on my personal version, such as 1.01, 1.11, 2.11, which is a continuous process of improving my own cognition. And you never know when it will be realized in your trading, because only by seeing yourself and the whole world can you understand the truth of the market and gain long-term, stable, and certain returns in the market.

Finally, also welcome everyone to follow my podcast - Crypto Cubed

• Cosmos

• Spotify

• Youtube

At the end

It’s not necessary to outperform BTC. If you find a trading strategy that suits you, and then practice deliberately and continuously improve, the joy brought by this growth is actually the most core motivation that can support every trader’s progress, which is more important than monetary returns. This is why I think it is important to do ‘Dialogue Traders’, and I hope everyone can find their own trading strategy as soon as possible, and feel the sense of closed-loop growth every day.