Trade AltCoins Zignaly

Altcoins Spot Markets Copy Trading

Part 3 — ALTCOINS / USDt Binance Spot Markets via Zignaly

CryptoLivermore

Jul 11, 2020·10 min read

“Go on take the money and run” — The Steve Miller Band

Traditional market structure of any asset ever — especially Altcoins

Intro

While in Part 1 I have introduced you to some basic concepts related to the systems that I use, and in Part 2 I have provided quite a detailed analysis of the BTC Perpetual Futures Copy Trading service, in this third and last part I will analyze what is currently the second copy trading service offered, the one for Altcoins Spot Markets.

This second system is conceptually similar to the previous one (BTC Perpetual Futures) but optimized for Alts trading and long-only, as we are trading spot markets.

There are at least 3 good reasons why we are going to trade the USDt pairs instead of the BTC ones:

  • The increased amount of offer in terms of markets available to trade; today trading these pairs doesn’t mean limiting the number of markets one can deal in anymore, as they are becoming more and more widespread ( over 100 only on the Binance exchange) to the point that sometimes exchanges list them before the BTC pair.
  • USDt pairs are now by far the favorite by the market and this is proved by the fact that they have on average double the volume if compared to the equivalent BTC pair.
  • Our accounting will be way easier as we deal with a stable base currency.

Because of the type of markets that we are trading (spot) and because of their characteristic nature (Alts), the activity will tend to be quite seasonal, alternating very intense periods with completely dull ones, and even shutdown phases.

Performance and Stats

We are indeed going to be very selective with our trading relatively to these markets, keeping in mind that our objective is never activity for its own sake (as some other traders providing similar services would do to justify the fee that you are paying to them), and our only purpose is to grow our capital, so we will achieve this goal by only playing when our edge (the system’s edge that is) is at play. This normally translates in very different results for this system compared to the BTC Perpetual Futures one in terms of how the balance curve looks like, as it tends to have a much higher winning rate and a much steeper shape, alternated by inactivity periods, as you can see here:

Image for post
Alts system’s performance from July 2017 to June 2020 (shut-down phase started on 12/05/2018). The balance in this chart is expressed in BTC (starting from 1 BTC) because that is how it was traded back then.

This system is based on Binance, hence why the performance tracking starts July 2017 (Binance inception), but rest assured that it would have caught all the fun from 2016 and 2017 as well.
The numbers below are related to when the system was applied to Alts/BTC, because that’s how it was traded back in 2017 and 2018, but I have translated the results in USD value where relevant.

As mentioned before, this strategy alternates very busy periods with totally inactive ones (you can see one of these inactivity periods between February and April in the chart above), and in this past market cycle it would have shut down trading activities on the 12th of May 2018 (coming from an active period of over 2 years, starting on January 2016).

As you can see from the chart below, the Altcoins Marketcap has proceeded to go through a -81.87% (in USD) bear market since that day, so it wouldn’t have been a bad time to stop trading a long-only strategy.

Image for post
After the strategy shutdown, the overall Alts market has proceeded to drop -81.87%, followed by a very dull sideways period. Note that this is a USD based chart.

Obviously there might have been a few good opportunities in the Alts market during the shutdown period, but these would have largely been outweighed by the overall very bad conditions and increased risk/opportunity cost. Moreover, there would have been much better and more efficient ways to invest your money in the meantime (i.e. the BTC Perpetual Futures system, which was up > 150% in that same period).

Because of the variety of assets considered in this case, and because it is unlikely that you would have been holding every single coin included in the Index, is very difficult to represent a strategy vs. buy-and-hold comparison as precise as the one made for the BTC Perpetual Futures system, however, as a reference, I have included the Alts/BTC Index performance for the same period, plus some stats and simulations:

Image for post
During the period considered, the strategy has experienced a 54.09% winning rate and an Average R — Multiple of 6.2¹
Image for post
Please note that the period here considered for the Alts/BTC Index Performance goes from July 2017 to the Strategy’s shutdown day (12/05/2018). In fact, the Alts/BTC Index’s performance from July 2017 until June 2020 would have actually been negative and with a larger and longer drawdown.

Keep in mind that these tabs refer to the Alts/BTC markets during a period when BTC was really strong, therefore if translated in USDt the performances would have been much higher. In fact, assuming that you had bought BTC (for USDt)on the Binance opening day, and had sold your BTC (that is the BTC derived from the strategy’s profits) on the day the strategy shut down (12/05/2018), your profit in USDt would have been 1,139.08%.

So since we are now going to trade Alts Vs. USDt, we will likely get higher performance in % terms compared to the equivalent Alts/BTC pairs, but also deeper drawdowns.

Here is the Monte Carlo simulation² for this strategy:

Image for post
Monte Carlo simulations of the Altcoins/USDt System performance projected on 500 trades³

As you can see, the curves are even narrower and more upward compared to the BTC Perpetual Futures, implying an extremely high success rate for this strategy.

What you need to understand and keep in mind

As said, this strategy has a quite high success rate combined with a very high average R — Multiple, however, the money management embedded within the strategy works in such a way that makes it heavily skewed towards limiting the risk; this is because, in terms of volatility and other parameters, Alts markets are already equivalent to high leverage trading, so here we prefer to lean towards limiting the risk, while at the same time allowing profits to take care of themself. So even if at some point going all-in your favorite coin would have made you more paper profits for a short while, remember the difference is that you are actually going to KEEP your profits, and not just looking them retrace -90% as the average hodler does.

Image for post
Do you wanna be this guy…

If the main difficulty in following the BTC Perpetual Futures strategy could lay in putting up with the drawdowns, I believe that the main challenge with this strategy could lay in not FOMOing when some random coin is pumping and you wish you had bought more of it, remembering that in the long run, your performance will be much better than the one of any random “shitcoin” pumping and dumping.

Image for post
…or this guy?

Another important note related to the copy trading service itself, is that this strategy takes advantage of the market’s moves, and the only way for you to profit from them is to connect to the Provider, sit there and wait. If you think you can only join when the strategy starts producing profits, you will have likely lost that momentum and will have to wait for the next one to come (and will look like the guy in the second GIF). This is also true for the BTC Perpetual Futures strategy, but particularly for the Altcoins Spot Market one.

Service Fees

Zignaly offers two types of services, the monthly subscription, and the profit-sharing model. I have chosen the profit-sharing one for this (and most of my others) copy trading providers as I find it to be the fairest for the copier, in fact, it is completely FREE to join, and I only get paid if you are making profits, plus I also find it particularly suitable for my strategy, as no one will get stressed by a monthly fee if we happen not to make profits for a few weeks.

The profit-sharing on Zignaly works accordingly to the High Watermark Benchmark, which in layman’s terms simply means that the success fees⁴ are paid to the trader only once a new trade is closed reaching a new profit high, and that the success fee will only be taken from the difference between the last high and the new one. In other words, you will only pay fees on your net profits, and never pay anything if your account is breaking even or losing.
For a more detailed description of how this system works, check the original Zignaly’s release.

Image for post
Graphic representation of the High Watermark Benchmark

Personally, I really like the profit-sharing model as it is an effective way to align the trader’s and the copier’s incentives, while eventually encouraging a longer term relationship between the two parties involved, as the copiers are now only paying when their accounts are growing, instead of an arbitrary monthly fee.

Adopting exclusively a profit-sharing kind of model (instead of offering a monthly subscription too) is yet another way of putting my money where my mouth is, in fact with this approach the trader will make more fees only if more profits are made by the copiers, and I think this also proves the level of confidence that I have in my systems.

Finally, as mentioned, the Altcoins Spot System will occasionally be subject to dull periods with a low trading activity (when not in a shutdown phase) that can sometimes last 1 or 2 months, as these are an integral part of the system workings and there is no way to know if they are going to last 1 week or more until they actually happen. This characteristic makes the profit-sharing model particularly suitable for the Altcoins Spot Provider, because during periods of dull markets the copiers won’t be charged at all.

How to Access the Service

Accessing the Altcoins Spot copy trading service is very simple and can be done entirely through Zignaly (no need to create a Binance account and connect APIs). If you still don’t have a Zignaly account, you can create one here.

Once on the platform, the next step consists of creating a Zignaly Exchange Account (this is done on Zignaly directly), and you can do it by following these simple instructions. Make sure that when asked for the account Type you select Spot and USDt as base currency.

You now just need to connect this newly created Futures Exchange Account to the Altcoins Spot— Profit Sharing Provider (direct link)Here you will find an extensive explanation about how to complete this last step.

If you need to find the Provider from a list, just filter them by USDt base quote plus Profit-Sharing type, and find CryptoLivermore — Altcoins Spot — Profit Sharing.

If at any step you need help with this process, feel free to contact me or the Zignaly team on their official Discord, plus here is a full platform guide where you will find indications on how everything works on Zignaly in general.

Final Considerations

The system just described here integrates very well with the BTC Perpetual Futures Copy Trading service for several reasons. First of all, as mentioned the Altcoins system is a seasonal one that won’t be traded at all time (even though these periods usually last years and the system has just recently fired up, so that a new shutdown phase is likely very far away), while the BTC Perpetual will be traded continuously; plus they will give you exposure to both BTC and Alts while keeping your account base currency in stable coins (USDt), so if Alts outperform BTC you will still get that upside, and the same will happen when BTC outperform Alts.
You could even decide to rebalance your accounts between the two systems while we are still trading both, but that’s entirely up to you.

Congratulations if you have made it this far!
I hope you will enjoy the service and if you have any questions do not hesitate to contact me on Twitter or on the Telegram Group, where I will also share all the news related to the service and trading related thoughts.

Disclaimer (Terms and Conditions)

Please follow the following link to access to the full Disclaimer and Terms and Conditions that you need to accept in order to access this service: https://crypto-livermore.medium.com/disclaimer-terms-and-conditions-3468ac3a5aab

By accessing or using any of the services here described you confirm that you have read, understood, and accepted the Terms and Conditions (Disclaimer) and that you agree to comply with them. If you do not agree to the Terms and Conditions (Disclaimer) described in the link above (https://crypto-livermore.medium.com/disclaimer-terms-and-conditions-3468ac3a5aab), please do not use or access (or continue to use or access) any of the services here described.

Footnotes

[1]: https://www.vantharp.com/trading/wp-content/uploads/2018/06/A_Short_Lesson_on_R_and_R-multiple.pdf

[2]:https://towardsdatascience.com/the-house-always-wins-monte-carlo-simulation-eb82787da2a3#:~:text=Monte%20Carlo%20simulation%20is%20a,the%20risk%20of%20a%20decision.

[3]: Source https://edgewonk.com/. This software can not take into account in the simulation the compounding effect, as it is only possible to input absolute values and not percentages. For this reason, the values in the chart are relatively low, however, what matters here are the curves.

[4] Please note that service fees are not refundable and that service cannot be paused. You are free to stop accessing the service at any time, by simply disconnecting your account.