Exponential Growth - March, 2021

Exponential Growth - March, 2021

By BitcoinGordon | BitcoinGordon | 30 Mar 2021


Hello Everyone!

 (Everyone replies... breaks sound barrier).

I like... no I LOVE the topic of exponential growth. Numbers are fun. Math is fun... can be fun. I hate greed, but I love what potential economic growth can do for an individual, for a community, for helping causes, and for my first big crypto goal- to pay off one's mortgage free 'n' clear.

All of this said, a few years ago, doing Gordon's deep dive into crypto, I started paper trading. For those new to all of this, paper trading is the same as buying and selling on a crypto exchange, but testing your buys and sells on paper instead of on the actual order book. I had very little $ that was not going directly towards bills, and early tests on market were proving to me that you simply cannot learn anything from $20-40 trades.

What I found, is that I had/have some kind of odd capability to see patterns in the market and guess the next direction with an inexplicable accuracy, and to do so quickly. I have a background in the technical and in the creative, and what I found is that many years of creating digital audio recording software translated well to understanding the visualization of market analysis... charts and indicators. I had an inkling that just watching 'coin go up, coin go down' was not a safe strategy to trade long term, so I learned about fundamental analysis and where to find real market data, research projects etc.

Also related to my technical work with audio software development, along with being a composer, recording artist, musician, the balance of creativity and numbers is vital to a talent in either field. Music is very mathematical, but the best music is also extremely emotional, rooted in passion. The best math is obviously about numbers and precise fundamentals, but the very bestest (yeah, I know lol) math is also analytical, open to interpretation, friendly to patterns, and even philosophical (theoretical physics, fractals etc.).

My journey towards exponential growth began at the realization that I have always wondered if I would be good at trading stocks... okay stonks, and the idea that patience and repeatability were much more important than guessing at big 10X gambles. I started plotting what a person could do with a modest investment, and then I tested this out. I found that the entire trick to trading by means of a system, or a process, was dependent on one huge, massively important detail: repeatability. That was the key.

So, I took the risk by taking a different approach than the "pro's". It has proven what instinct also suggested to me, which was that I wouldn't know my downfalls and the kinks that needed ironing out, until I took things out of the theoretical and into practice.

First, a comparison to keep your interest.

A lot of people are into crypto to make mad gainz, yo. Admitting the truth is the first step in living comfortably in one's skin. While it is true that I do actually take a genuine interest in the underlying tech of crypto assets, the main reason I am here, is to devote my trading skills to a personal goal to earn a living, remain consistent, and eventually change my life and the lives of family and communities around me. No matter what choices I make in life, I will have to do something to earn my stay, and the idea of exponential growth seemed not only possible, but worth the risk. I am here to make money. I am also here to study how crypto is redefining money and our understanding of underlying value.

At first, because I believed, still believe in Bitcoin's price going up, I based my concept on trading alt coins against Bitcoin, as opposed to the USD(t). As I went along, I found that it is just as important to be able to measure one's growth as it is to guess one's trades correctly. Perhaps I'll shift strategies a bit here and there, but trading top cap coins against the USD or USDT Tether has proven a better solution. Yes, every time one makes a profit, one also may wish they had more Bitcoin. But, that is also the difference between HODLing, Investing, Swing trading and Day trading.

A brief pause:

"Should I try my hand at day trading?"  you may ask yourself.

The answer is probably not. It is said that more than 90% of people who try to day trade give up after 1 year due to the intense stress that comes with it, and in most cases from losing their funds. I can understand this from personal experience.

Back to our exponential story.

What does exponential growth look like, and how does it compare to people who use a mathematical strategy of risk vs. reward with a stop loss?

Almost every true, professional trader looks at the profit they aim to earn in a trade, and measure this against a stop loss to cover the maximum they are willing to lose if they are wrong. Using technical indicators they set up a trade and are right just slightly more than 50% of the time. Since they "win" more money than they "lose" when they are wrong, they are almost guaranteed to earn a living, requiring a very large stack of capital to work with, and a strict discipline in their spending life based solely on earned profits. This is all cool, logical, and a good plan if one wishes to do anything other than HODL. But... the need for a tangible principal investment and a sense that my talents lived elsewhere, I pursued my own strategy.

Exponential growth explained.

Let's pretend that the average, more-than-apprentice-level trader wants to earn 5% on every trade (all numbers represent above fees) and their goal is to keep stacking their money until they are rich. After 20 trades, with 100% accuracy, they will have doubled their money based on their trade size. That sounds incredible. But, remember that whole thing about risk vs. reward, and how hard it is to be accurate? Yeah, I've seen people claim 80% accuracy and rarely do I believe them, because they tend to edit out things like, how long they held on to losing guesses, when things were an all-out liquidation and when they took a loss without margin/leverage etc. Accuracy beyond 60% is almost unheard of, and extremely good bots can maintain a very, very high accuracy, but the problem is that often the losses that do pile up, for the average person, are too expensive to make the high volume of correct trades maintain growth.

So, lets just say that things are REALLY good for mister 5%. They are trading $1000 per trade and have $20,000 to trade with. After 20 trades, all 100% correct, they have earned $1000 on their $1000. They can technically use the principle of exponential growth to attempt the same thing with their gains added in. They can now, for simplicity sake, do another 20 trades, this time with $2000, except for one issue; they are limited by the size of their stack. They only doubled a single trade, but they need to be correct 20 times in a row before they double the money. The only way for them to jump into exponential growth, technically, is to have twice as much money as the trade size requires to achieve their goal. Therefore, they have to balance out their rate of growth between trades. Perhaps they can make every trade $50 larger than the amount they began with, where $1000 profit divided by 20 trades is $50. So, a trade size of $1050 will yield a slightly larger profit the second time around.

Exponential growth, in a linear fashion, would mean that with infinite principal available, a person could go from:

$1000 x 20 trades @ 5% = $2000

$2000 x 20 trades @ 5% = $4000

$4000 = $8000

If this were the reality, and a person had enough funds, eventually, they would find that the growth of their trade size could support 100% growth of their entire principal investment, which takes Warren Buffet nearly 5 years under his best decision-making. If you can beat that in 5 years, you're a champ!

But, it doesn't work like that, and growing a $1000 trade size by a distribution of $50 feels like a snail's crawl.

But also, that is the nature of exponential growth. It absolutely, totally, without exception, sucks... until one day when it doesn't.

I decided to try the above with a few tweaks, and I started accurately measuring it with full-on accounting, at a $100 trade.

My system actually requires a person to follow 2 important rules: The rule of fifths and the principle of thirds.

The rule of fifths divides a person's total investment into the number of evenly-sized trades they should use, breaking the trades down according to their purpose. My system only works for a person who can trade with a minimum of 80% accuracy, which means I knew it was flawed, and would require some kind of radical hacking skills to increase the rate of growth. It also meant going for a small profit percentage. Why? Two main things, and a third thrown in for good measure. 1) because rate of growth is just as important as size of profit in that growth. 2) Repetition matters more than size of profit 3) if you don't have a massive pile of cash, it is very hard to outgrow the earliest stages of growth.

Without going too far into detail, I arrived at the belief that with a specific small profit margin, a person should circulate 125 equally-sized trades, so that they can continue to grow the size of trades exponentially without any great pauses waiting on their unintentional HODL's to clear. One has to balance that with whether to eventually take a loss on an early trade, once the exponential growth starts to support larger trades.

This complex machinery works together to provide reliable growth through tedious constant effort, but if done almost perfectly, outperforms the market even with Bitcoin's rise and alt season. At first, it feels like you're doing thousands of hours of work for pennies, because it's true. But, when you start seeing those pennies turn into dimes, and then even dollars, the blessing is clear: exponential growth does actually work in real life.

Here's an example of how this looks, and again, forget the part of trying to quantify stop loss and HODL's.

A $100 trade at a tiny 0.3% profit over fees, done over and over again, will only earn you $0.30 each trade. After 232 trades, a person will only earn $69. How many people do you know who are willing to trade more than 200 times, with the goal of guessing them all correctly, just to earn $70? Not many.

But, here's the fun:

Doing the same thing, but adding every $0.30 profit into the following trade, after 232 trades, you will earn 100% profit, turning the trade from $100 into $200. Again, a far cry from the 20 it takes at 5%, but how often do you think you can master a 5% profit without ever getting stuck? It is not easy, unless you are willing to take a rather large proportional stop loss and the end result will be probably 4X the number of 5% trades to balance out losses. Reducing risk and repeating a process that works are efficient, but require tireless effort.

And now, the bigger picture. Again, here we have someone with an unending principal stack to trade with.

Doing the exact same process, starting with a $100 trade, and repeating it 10 times more often than the first example, after 2320 trades (yes, two thousand three hundred and 20 trades) at 0.3%, a person will have earned $696.

Doing the same thing identical process, but adding those $0.3 profits and whatever they accrue to every trade, the same 2320 trades will yield $104,271!

So, exponential growth looks like a crappy $0.30 on your first trade, which is enough to discourage most people. But, at the last trade in this cycle, that profit will become $311 per trade! It is a lot easier to stomach earning $300 on 0.3% of a trade, than when the person began!

The question for me was not whether the effort was worth it, but rather did the theory work in real life. This came down to a strict set of rules I plotted out for myself, test, re-test, and the truth is, the math does not lie.

Exponential growth is real, it works, and it is the hardest thing a person can ever try to do. If you do not have an interest or talent in day trading, or even more, if it does not fit your personality, do not try it. You will lose by exhaustion, frustration, depression, or just plain bad guesswork. But, if you are already a trader and want to step up your game, learning to compound growth is going to score you much bigger than trying to chase big profits in few trades. I promise; consistency is the magic bullet to success.

And for now, Crypto Gordon Freeman, a super hero desperately in need of a few weeks of sleep... out.

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BitcoinGordon
BitcoinGordon

Hi! I'm Gordon Freeman (I hear they made a likeness of me in some video game... totally unrelated... or...).


BitcoinGordon
BitcoinGordon

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