Data-Driven Trading Methodology

The Dialogue Trader series invited Benson, the founder of CoinKarma, who shared in detail the changes in trading strategies during different cycles, and how CoinKarma's indicators guide trading in various market conditions.

Benson has always thought about how to construct trading structures in a non-consensual way to outperform others. Because, essentially, contract trading is a game of how to win over the majority of people.

1. About Trader Benson

1. Trading Strategy

• In a volatile market, identify positions with a higher margin of safety based on indicators to participate in the market; at the same time, pay attention to BTC's inflow and exchange CVD indicators to assess market trends.

• Allocate more than half of the majority position ( to quantitative strategies for value appreciation in terms of coin holdings, focusing mainly on holding coins; approximately 40% of the position will be in stablecoins for guerrilla tactics, participating in on-chain transactions or initial contract trades.

• The trading strategy does not seek explosive growth, but rather focuses on stability. The goal is to outperform the market index, with performance since the beginning of the year being approximately 2 to 3 times.

• For potential market hotspots, they will be held until market attention or the bull market ends; for larger market cap tokens, price trends will be assessed through technical analysis or fundamental analysis.

2. Reasons for Strategy Formation

• Initially, frequent stop losses led to significant losses due to chasing highs and cutting losses. It was realized that market fluctuations are often manipulated by major funds, especially in the futures market, where major players create volatility to harvest the liquidity of weaker retail investors.

• From 2019 to 2022, it was found that the funding rate has a significant impact on trading. When the contract open interest is high and the funding rate reaches extreme values, the market trend may reverse. By operating against market sentiment, profits were made during the bull market.

• In 2022, the Federal Reserve began raising interest rates, impacting the sensitivity of funding rates in the cryptocurrency market and rendering the existing trading system ineffective. Subsequently, research on order book data was initiated, and the CoinKarma indicator was developed to find safer trading positions.

2. Benson's Trading Indicators

1. About the Market

• Distinction between unilateral market and volatile market: The duration of a unilateral market trend is short, such as the rapid rise from the end of January 2024 to mid-March. The volatile market occupies most of the time, such as the wide fluctuations of Bitcoin between $50,000 and $70,000 over the past six months.

• Determine whether the market is trending or ranging by using indicators such as the exchange's CVD) Cumulative Trading Volume( and the net inflow of BTC ETF.

• CoinKarma's Overall LIQ) Overall Liquidity Status( Indicator: Depict the market liquidity situation and identify potential price reversal points. When the price approaches the upper or lower limit of the range determined by Overall LIQ, a reversal in the market is likely to occur.

• CVD)Cumulative Trading Volume( Indicator: Determine whether the market is in a range or a one-sided trend by observing the strength of market orders. When the order book has heavy selling pressure, the CVD strength is not high, and the market order strength is weak, it is judged to be a sideways market. When the CVD intensity is high and the market order strength is strong, a one-sided market may be expected.

2. Cycle Judgment

• Characteristics of market peaks: Many outsiders begin to pay attention to this field. For example: the peak of NFTs was in the first quarter of 2023, and many projects were linked to NFTs.

• Coinbase APP download ranking: In the last bull market, the Coinbase APP consistently ranked among the top three financial apps in North America.

• Wikipedia's Bitcoin page views: It can determine whether retail investors have signs of large-scale entry.

• Breaking through historical highs requires external capital involvement: If Bitcoin experiences a unilateral rise from January to March 2024, it will be due to strong market price buying from spot exchanges and a large influx of funds into BTC ETFs.

3. Regarding altcoins, taking Solana as an example )

• Technical perspective: Written in Rust, high development difficulty, application purity and developer skill level are higher than other chains.

• Community Value: After the FTX incident, support from external ecosystems such as Ethereum founder Vitalik and MakerDAO founder was obtained.

• Price perspective: It is one of the few Altcoins that has not entered a long-term downtrend since the last bull market in BTC trading pairs.

3. Benson's Trading Experience

1. The mindset for high win rate trading

• Understand the sources of market fluctuations, the entities that create fluctuations, and their costs and potential profits.

• Establish a unique perspective and focus on different things.

• Consider the reflexivity of trading, think about the different decisions made by most people when they see the same pattern.

• Realizing that the effectiveness of indicators can change, there is a need to seek new sources of certainty alpha.

2. Daily Trading Process

• Check the market liquidity overview in the morning to determine if action is needed.

• Check if the existing holdings of altcoins meet expectations and whether there are reasons to continue holding.

3. Avoid large losses in trading

• Avoid buying tokens as if you were buying stocks: The cryptocurrency market changes rapidly, and tool-oriented projects may collapse when the hype fades.

• Sell in a timely manner: When the project reaches expectations or there is no longer a reason to hold.

• Control leverage: The cryptocurrency market has high volatility, and high leverage can easily lead to being liquidated by the market makers.

4. Different methods of operation for different underlying assets

• For potential market hot spots: Hold until market attention or the bull market ends.

• For tokens with a larger market capitalization: determine price trends through technical analysis or fundamental analysis.

5. Methods for Continuously Sensing Market Changes

• Establish an understanding of the basic operating mechanisms of the market.

• Be aware of the risks of high-leverage trading and the mechanisms of major players harvesting.

• Monitor the changes in the effectiveness of indicators and adjust strategies in a timely manner.

• Restrict the usage range of effective indicators to protect alpha.

6. Advice for Beginners

• Understand the sources of market fluctuations and the logic of major players' operations.

• Establish a unique market perspective and avoid following the crowd.

• Continuously learn and adjust strategies to adapt to market changes.