The Trading Plan

Hello poker fellows,

My ongoing poker challenge will continue (be sure about that), but right now the crypto and financial markets are much more interesting than poker. Before I get into trading, below you can find a link of my poker challenge.
The Bitcoin Challenge

Since we are in the middle of this raging bull market, I want to take a chance and use this thread as my trading journal. From now on, along with my regular poker updates, I will post each Friday-Sunday a trading-related post, which hopefully will reflect my personal thoughts and opinions about the markets. It's the first time ever I try to do something like a trading journal, so excuse me if it is chaotic at first. It will be much more valuable for me than for anybody else, I guess.

In this trading journal, I will keep track of my trading process and my current trading positions.

Core Beliefs About Trading

• Don't Predict. It's All About Risk/Reward.
  “Take care of the downside, and the upside will take care of itself.”
  
  
• The Market is Always Right; It's a Discounting Mechanism.
  "Your opinion doesn’t matter; price does."
  
  
• Capital Preservation Comes First.
  "The first rule of trading is to stay in the game.”
  
  
• Patience is a Superpower.
  “The money is made in the waiting, not the trading.”
  
  
• Losses Are Part of the Game. Embrace Uncertainty.
  “Good traders know how to lose well.”
  
  
• Consistency Beats Perfection.
  "Consistency in execution leads to long-term success, not trying to predict every move perfectly."
  
  
• An Edge Is Essential.
  “If you don’t know your edge, you don’t have one.”
  

My Trading Algo Description
The strategy aligns more closely with a trend-following style. The trades attempt to capture extended price movements by entering at moments of trend confirmation and exiting when the trend shows signs of weakening or reversing.

Holding Period:
The strategy holds positions for varying lengths of time, but in several cases, the holding period aligns with price moving along a sustained trend. Average holding period is 30 to 60days.

---------------------------------Trade Execution-------------------------------
Ideal Market State to Trade a Trend-Following System:

• Trade when the trend is not overcrowded. (COT positioning and sentiment)
  
• Trade when there is enough liquidity in the system. (Liquidity index)
  
• Trade when there is not much leverage in the system. (30-day funding rates)
  
• Trade when price is in a strong uptrend and not overextended. (Algo rules)
  

-------------------------------Analysis of Market Conditions: )-------------------------
Below I try to find the best possible market state for trend following strategies using some tools.

1.COT Index (Positioning and Sentiment):
The COT is a weekly report published every Friday by the Commodity Futures Trading Commission (CFTC). The data reflects market participation as of the previous Tuesday’s close. It contains three main participants: Commercials, Large Speculators, and Small Speculators. Total positions sum up to zero where Commercial positions equal the inverse total of Large and Small Speculators combined.

COT Index States:

• LONG: COMMERCIALS > 80, LARGE < 20.
  
• SHORT: COMMERCIALS < 30, LARGE > 70.
  
• NEUTRAL: All other combinations.
  

2.Liquidity Index:
A custom indicator assesses liquidity conditions for BTC and Altcoins. This index returns a score from 0 to 10, where 0 indicates no liquidity and 10 indicates maximum liquidity.

Liquidity Index States:
LONG: Score ≥ 5. (Green)
SHORT: Score < 5. (Red)

3.Leverage of Market Participants (De-Leveraging Events):
The 30-day average BTC funding rate and liquidations data are used to assess market leverage. Extreme funding rates or sudden liquidations signal de-leveraging opportunities.

Leverage Index States:
LONG:
FundingRate-30day-avg < 0.05%.
Liquidations > $250M.
OI drops >5% WoW.

NEUTRAL:
FundingRate-30day-avg < 0.05%.
OI is flat or rising slightly.

SHORT:
FundingRate-30day-avg > 0.05%.

[Note: Instead of using a fixed $250M liquidation threshold, consider tracking weekly liquidations vs. a 4-week average. Spikes above average indicate better LONG signals.]

-----------------------------------Risk Management--------------------------------------
Core Belief:
All open trades are treated as one due to the high correlation between cryptocurrencies. The combined risk is tracked using the sum of stop losses (SUM_SL), which is updated weekly.

Risk Rules:

• Maximum Risk: SUM_SL ≤ 1% of AUM at any point.
  
• AUM includes cash USD positions and long-term holdings in BTC and ETH (no other cryptocurrencies).
  
• Risk is distributed across assets proportionally to their reliability and liquidity.
  

----------------------------------Markets for Trading-----------------------------------------------

• BTC: COT, Liquidity, and Leverage indices.
  
• ETH: COT, Liquidity, and Leverage indices.
  
• SOL: Liquidity and Leverage indices.
  
• Altcoins: Liquidity and Leverage indices.
  

-------------------------------Trading Process (Weekly Updates on Friday)---------------
1.If No Trades Are Open During the Week:

• Set Previous SUM_SL = 0.
  
• Update Current Stop Loss: SUM_SL = AUM * 1%.
  
• Update COT, Liquidity, and Leverage indices.
  

Decision Rules:

• If COT index = LONG: Allocate SUM_SL.
  
• If COT index = SHORT: No trades allowed.
  
• If COT index = NEUTRAL AND Liquidity index = BULL AND Leverage index = NEUTRAL: Allocate SUM_SL.
  
• If COT index = NEUTRAL AND Liquidity index = BULL AND Leverage index = SHORT: No trades allowed.
  

2.If Trades Are Open During the Week:

• Update Current Stop Loss: SUM_SL = AUM * 1%.
  
• Update COT, Liquidity, and Leverage indices.
  
• Record closed trades and calculate remaining SL for new trades:
  
• Remaining_SL = Current SUM_SL - Closed trades SL.
  

Decision Rules:

• If COT index = LONG: Allocate Remaining_SL to new trades.
  
• If COT index = SHORT: Exit all trades immediately.
  
• If COT index = NEUTRAL AND Liquidity index = BULL AND Leverage index = NEUTRAL: Allocate Remaining_SL to new trades.
  
• If COT index = NEUTRAL AND Liquidity index = BULL AND Leverage index = SHORT: No new trades; use discretion for partial exits or tighter stops.
  

3.Intraweek Emergency Entries:
If Leverage Index = LONG (Liquidations > $250M): Allocate 0.5% of AUM to new trades if other filters allow trading.

------------------------------Entries Soft Rule Playbook (use discretion)---------------------------
A.Volatility Compression:

• ATR (20-day) < 365-day average.
  
• BBW Squeeze (Daily or Weekly).
  
• Long-term bands squeezing.
  

B.Proposed Framework for Re-Entries (Retest):
If price is:
Within 1.5x ATR of ATR Line: Enter with normal position size.
Beyond 1.5x ATR of ATR Line: Skip the trade or wait for a pullback.

*Overextended Price (Avoid Entries):
20 EMA Extension > 10%.
RSI > 70.

P.S.I ll get back with my current thoughts on the markets and my open trading positions (pls don't use it for copy trading since I wont make live updates on the positions)