Altcoin Portfolio Management in a Bear Market
Getting rekt is fairly common when the markets turn lower.
With rare exceptions most people we not selling their altcoins at the end of 2021 they were waiting for the blow-off top that never came.
This quick guide will explain how you can leverage the CoinRotator screener to keep your portfolio balanced in a bear market.
Portfolio Allocation
It’s rare that you hear an altcoin trader talking about position size but it’s way more important than picking the right coins at the right time.
Start with the worst-case scenario and work backward.
How comfortable would you be with daily swings in your portfolio of 20–30%? What about 10%? 5%? This is what you need to be thinking of when allocating a percentage of your portfolio to one specific coin.
How Active an Altcoin Trader Are You?
Next, consider how frequently you want to be rotating your positions based on signal shifts.
Do you want to HODL until the bitter end? Arguable if that is your type of “trading” you are probably still holding DOGE and SOL and waiting for the real blowoff top 🤔.
More realistic is to follow the trend for a few days to a few weeks (when the market is really pumping there wasn’t a single bearish candle on SOL for 8 weeks.
Less Ideal Exit Strategies
Let’s say you get a bad setup. The market just doesn’t move in your direction? What to do?
- Sell half after X days of price moving against you. (a visual backtest is helpful for this scenario; how many days does a winning trade take to get into profit?
- Sell the full position when the signal moves from Buy to Sell.
- HODL and wait for break even (you’d be surprised how frequently this happens).
Build an Uncorrelated Altcoin Portfolio
Although the common understanding of crypto is its highly correlated to TradFi and for the most part this is still true. There is a real possibility of holding several altcoins at once that are uncorrelated to BTC and Stonks.
How? Using a correlation matrix of course!
How to do this is pretty simple. Take the scan on CoinRotator and feed those coins into Cryptowat.ch and build your own correlation matrix. Look for negative or low correlation and those are the ideal coins to hold. High correlation is basically a leverage position as it increases your risk if both positions move in lockstep.
Using today’s scan for low caps (these are my preferred advanced settings)
As you can see from the weekly scan none of these have a high 7-day correlation. This makes these picks an ideal basket to manage.
Position Size Allocation for a Long Only Portfolio
I keep this very simple. Let’s say I have 10k of USDT or BTC or Eth to allocate to this strategy.
Each week I will allocate no more than 25% of my portfolio to new signals.
This week I will take 2 of 7 coins on my list.
XHV $1250
CITY $1250
Current Allocation $2500
I won’t add any additional coins to this long-only portfolio until next week. I will use in profit daily bar closes as my exit signal for these types of trades. I profiled this exit strategy in a previous CoinRotator post.
In a perfect scenario, we will still be long for these two coins next week when we scan for new coins.
In that case, we can add 25% more to the portfolio using the same uncorrelated filtering strategy each time until we have a full-size 10k allocation.
Long Short Portfolio Allocation
For a Bear Market or Range bound market environment, it is ideal to have a mix of both Long and Short positions. We already covered how to build a portfolio of long-only altcoins. With a mix of short positions, we would have to reduce our average position size by half.
For example, if we took 1250 of 10,000 for each altcoin in a long-only portfolio we would take only 625 for each the first time around.
In order to select the short part of the portfolio, we’d run a weekly scan of fresh Sell signals but unlike the strategy of looking for the small-cap opportunities, we’d have to expand our search to find margin available coins.
The safest way to short a coin is to own it. This further reduces our ability to short. Luckily Binance has 1000s of coins available on margin to short which you can do with very low leverage and low fees (they are running discount fee promotions constantly to get you to begin using margin as most people lost using these strategies).
As long as you keep your leverage at 1:1 your chance of liquidation is close to zero. You will however have to sit through drawdowns to avoid losses but we've already profiled earlier how it's possible.
A quick check shows that ANC ANY and RON are available on margin at Binance while LOOKS is available on FTX futures. Easy enough to build a modest short portfolio even in the current market environment.
As you can see building a portfolio using CoinRotator is fairly straightforward and useful. In the coming posts, I’ll show how we track the accuracy of signals and some additional filters we use to put the signals even further in your favor.
Questions? Disagreements? Please come looking for me on our Discord or Twitter @coinrotatorapp. Always happy to discuss trade setups related to altcoins.
Good trading!
