Daytrading Bitcoin and Cryptocurrency

For the past 6 weeks, I’ve been playing with Bitcoin and Litecoin.

The bitcoin logo

The bitcoin logo (Photo credit: Wikipedia)

I can hear you from across the internet.   You’re asking, “What the hell is Bitcoin?”

I’m glad you asked.  It’s a cryptocurrency.

And now you know as much as you did before.

Cryptocurrencies are anonymous internet-based money.   You spend it just like money, though granted, there are fewer places that accept cryptocurrency.

The big name in cryptocurrency is Bitcoin.   In second place, trying to play silver to Bitcoin’s gold, is Litecoin.

So what do I mean by “playing with” Bitcoin and Litecoin?

I’ve been daytrading, which is generally a horrible idea…when you’re doing it with stocks.   Daytrading is gambling.  It’s the art of doing short-term flips on a stock.  You buy it today to sell tomorrow, hoping it goes up.   With stocks, I play a long game.  I buy and hold.   I buy a stock that I believe has long-term value, and I hold it for months or years.

That’s not the game I play with BTC and LTC.    I play a short game, rarely longer than a week.  When the coins are at a low price, I buy, then I immediately sell when they price is higher.   When it’s high, I short the coin, essentially selling coins I don’t own to trade back when the dollar-price is lower.   When I’m paying attention, I make money as the coins go up and I make money when the coins go down.

Why is this a good strategy for cryptocoins?

Because they are extremely volatile.   As I’m writing this, Litecoin has had a 10% swing today, from $4.03 at midnight, to a current price of $4.16, with a peak of $4.36.  On Thursday, it was floating around $4.60 all day.   In the last 30 days, it’s been as high as $8.65 and as low as $3.18.  Go back to May and the low is $1.29.

Traditional wisdom says that volatile investments are bad.   In traditional investments, that’s true.  But when a stock is this volatile, nearly every bet is a good one, as long as you’re patient.   If I buy LTC at $4.20 and it drops to $3.90, that’s bad.  I lost money.   But, if I wait a couple of days, it’s almost definitely going to climb back up.   Except for large-scale sell-offs, it’s usually going to bounce 10% in a given day.     You can buy in the dips and sell at the peaks all day long, turning 5-10% profits with each time.   If you’re brave or stupid, you can short at the peaks and make 5-10% on every downturn, too.

For example, today started at $4.03.  Buy.  Today’s peak was at 7:15AM at $4.36.   When the graphs start swinging down, sell short.   Two hours later, it bottomed out at $4.20 for a 4% return.   Then, buy while it’s low.  Ninety minutes later, it was at $4.31, another 3% return.  Short it again, then close the position at 7PM for $4.13.

Let’s walk through this.

Buy $10 worth of Litecoin at midnight, sell at 7:15AM.    You have $10.81.

Turn around and short the same amount until 9AM.   You have $11.22.

Buy that same amount to sell at 10:30AM.   You have $11.51.

Short it again before closing out at 7PM and going to bed.  You have 12.01.   That’s almost a 12% return in 12 hours, assuming you guessed all of the major swings right.  If you guessed some wrong, you’d just have to wait until the next time it swung your way, and it will.   Did I do that well?  No.  I bought in at $4.008 yesterday and sold today-once-for $4.32.   I will not complain at an 8% return over 12 hours.

The only exception to that is during major buying and selling streaks.  On July 5th, a major buying run started.  By July 8th, the price was run up to $8.65.   A huge sell-off happened then, dropping the price to $4.36 on July 9th.

If you bought at $8.65 you’d be hosed.

The lesson there is, don’t buy at the peak.   I’ve had a number of trades that could have been huge scores if I would have held onto them longer, but I’m a wimp.   I sell as soon as I’ve gotten enough money to make me smile, then I refuse to regret the decision.   That also prevents me from holding on to my positions too long.  I avoid all of the crashes that way.  That giant buy-in happened while I was on vacation, so I wasn’t paying attention.  When I’m not paying attention, I leave my money in US dollars, so there’s no risk…and also no reward.

Also, an important caveat:  while I am learning the cryptocurrency ropes, I’m playing with a non-critical amount of money.  I put $75 into the exchange in June.   Not enough to cry over losing, but enough I can play with all of the different investment options.  As I said, I’m a wimp, although a 30% return in 7 weeks is pretty sweet.

Next up, I’ll show you how to get started investing/gambling with Bitcoin.

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My Mortgage is Smaller Than My Credit Card Balance

It’s been one heck of a spring summer for my family, financially speaking, and it turned out to be a bit more than we had budgeted for.

English: Victor Fung and Anna Mikhed dancing a...

English: Victor Fung and Anna Mikhed dancing a ballroom tango. The couple, dancing for the USA, came third in the World Professional Standard Championship 2009. Photo taken in 2006 by Porfirio Landeros, Kwixite Media, in San Diego, California. (Photo credit: Wikipedia)

Here’s what we’ve done on top of our regular spending, so far:

  • Remodeled both of our bathrooms(at the same time!) ($6000-ish)
  • Summer camp for two kids ($500)
  • Swimming lessons for three kids ($350)
  • Replaced the entire air conditioning system in my car ($1600)
  • Finished paying for our current round of ballroom dancing lessons($400)
  • New mattress on our bed($1200)
  • My wife is off work for the summer.   Part time and sporadic hours when it’s not the school year.

Taken in reverse order…

Mattress

The wire frame on our mattress broke.   I wish that was a complement to my prowess, but nothing was happening when it snapped.   Sleeping with a jagged piece of steel poking you sucks, to say the least.

Dancing

Ballroom dancing is something my wife and I both enjoy, and it’s good exercise, so we decided to keep it up.  We are officially in training for competition-level dancing, but now that our favorite place to dance is closed, we may not continue.  The lessons are paid for through next spring, though.

Air conditioner

My A/C system “grenaded”.  Basically, the insides decided to disintegrate and go flowing through the rest of the system, mucking it all up.   And making the car undriveable.    On the plus side, this hard-to-find leak I’ve been ignoring in favor of annual $75 A/C recharges is fixed, now.

Swimming, not dying

My youngest kids have never had swimming lessons and my oldest isn’t a strong swimmer.   Helping my kids not drown is a good thing.

Camp

We put the down payment on camp back in February, then promptly forgot about paying for the rest of it until the deadline hit.   I paused while typing this to add it to my budget so I don’t forget for next year.

The remodel

We had, at one point, $9500 set aside for the remodel, but I raided that account a few times if we went over on our monthly spending.   Then, when we got the estimate, we neglected to include one of the subtotals together when we agreed to it, so the job cost more than I was expecting from the start.  We still got a great price, though.

Until the tub surround didn’t come in a color we liked and could get in less than 6 weeks.  So, we upgraded to porcelain tile.

And the ceiling started peeling.

And we decided to get nice fixtures, so it would be a bathroom we loved enough to demonstrate physically, for years to come.

And we noticed the basement bathroom floor tiles were loose.

So much money just poured out of my credit card.

At the moment, we have approximately $8,000 on our credit cards.   That’s the highest balance we’ve carried in years.   This month was the first time I’ve paid interest on a credit card since August 2012.

What’s our plan for the credit cards?

  • I get a $500 bonus every month.   Getting this bonus is almost entirely under my control.
  • We gave our renters(two of our closest friends) a good introductory rent until their current lease expires.   Their rent triples at the end of the month.
  • I stopped paying double mortgage payments.
  • We have some money in our emergency fund.
  • We should have about $1000 left in the remodel account when the job is finished.

That’s $1500 as an immediate payment, plus about $2300 per month on top of our normal spending to pay off the cards.

That means we’ll be down to about $4300 in two weeks.   When my wife gets her first full paycheck at the end of September, we’ll have the cards paid off.

Then comes the challenge of catching back up on the mortgage.   Until yesterday, we were projected to pay off our house on December 1.   Our current balance is $4660, with a mandatory monthly payment of $470.58.  That’s about 10 months of payments.   We were making an extra $520 interest payment each month, which brought it down to the December payoff date.   For the next 3 months, we’re only going to be paying roughly the minimum, which means we’ll have to pay a bit over triple for November and December to be done with it this year.

I think we can do it.

How do we avoid this in the future?

With our renters paying full rent now, our goal is to pretend Linda isn’t getting paid when her work picks up again in September.  We want to save or invest everything she makes, on top of the current savings.    Not all of that will be long-term, and not all of it will be spendable.  That saving will include things like braces for the younger kids, vacations that are more than just long weekends, and maxing out both of our retirement accounts.

That should still let us pad out our emergency fund to 4 months of expenses by spring, which is a pretty good cushion for us.

I hope.  I haven’t done the math.

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