After getting more confident with the trading thing, I wonder if I could make a bigger profit if I do trading with more pairs. However, during my readings on the Internet and chatting with other traders in forums I found that it is not recommendable to trade against all pairs the Exchange offers. For example, Poloniex offers 80 different pairs (most in the Bitcoin market).
Of course, as a newbie, I decided to ignore that advice and I traded with all available pairs as possible. Here it comes the problem: dust. Although it was making a profit, in the end, I had a lot of dust. Dust is the balance that is not tradable, for example, Poloniex will not allow any trading that is less than 0.0001 in any market (after fees); any balance equivalent less than 0.0001 BTC (for Bitcoin market) is considered to be dust.
Here it is my solution to this problem while I try to answer the question: What pairs should I trade?
As many of you may know, I have been working in a smart trading boot (a.k.a. Trademinator). And I have been thinking about this idea to prioritize the trading pairs.
Among the many available metrics, there is the TR and the ATR. Wich they both measure the range of variation. As I was explaining to a friend, it gives you the amplitude of the wave (maximum-minimum). If you read more about the ATR, you will realize that ATR by itself is not able to help you, you can not compare ETH against DOGE. Therefore, we need to normalize it. I do normalization by dividing the value by its close value. This way you get an adimensional metric, ready to use.
The other line of thinking is the management of the spread and the percent wise (PW). Spread is the difference between the lowest ask (selling price) and highest bid (buying price). The Percent Wise is the relative difference of the spread, expressed in percent, therefore adimensional as well.
Finally, let's not forget about the Volume. Volume, as defined is the number of trading operation in the last 24 hours. It is not a good idea to check each second on a pair whose volume is the last, and it is a bad idea as well forgetting about a pair that is in the top 10. The Relative Market Share (RMS) is a metric I did myself (as I haven't found any similar in my readings) that works per market XXX. In my own words, I define the Relative Market Share as the factor of each pair XXX_YYY volume against the maximum volume in the same XXX market. As an observation of this metric, you can not compare the RMS(USDT_ETH) against RMS(BTC_ETH), but you can compare RMS(USDT_ETH) against RMS(USDT_ZEC).
So, I can declare the following formula:
Priority(XXX,YYY) = (ATRXXX_YYY(14) * RMS(XXX_YYY)) / (Close(XXX_YYY) * PW(XXX_YYY))
So far, at this point, we can have a list of pairs with a priority using only public information. There are more factors that could change the order of the final list. Some of them are:
Some of these factors are private, and they customize the list depending on your trading health.
I will write about this later. Do not forget to give a look to Trademinator, because the better trading days are coming.
Good luck!blog comments powered by Disqus