Let's Talk About News Trading (Again)
We’re only 8 days away from the Ethereum Shanghai upgrade where 18,000,000 $ETH ($32.5B) will start to unlock (on April 12th).
There is a possibility that we will see some short-term selling pressure for both $ETH and altcoins.
But in today’s issue, I want to discuss news trading (again).
A really interesting event took place yesterday with the change of the Twitter logo from a bird to a dog from the coin “Dogecoin”.
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Let's Talk About News Trading (Again)
Once again, this is a topic I’ve touched on several times, but I find the topic so interesting that I simply can’t stop talking about it:
News trading.
And yesterday (April 3rd), there was a new big trade waiting for us to be picked up in Dogecoin.
Let’s go through the trade and my thinking processes throughout the event.
Twitter = Dogecoin
Around 1.30 PM EST some people in a group chat I’m in started to post that the Twitter logo is changed to the Dogecoin logo.
1 minute later I see that db (@tier10k) posts this:
I know that db (@tier10k) has the power to move the market so I need to hurry to get in.
Let’s look at the price movement:
The price started moving immediately from $0.077 to $0.081 within the first minute (that’s a 5% move).
My thinking process through this was as follows:
Twitter changing logo is insanely bullish.
This time we have a specific coin for it ($DOGE). Other times Elon has tweeted or posted something about dogs lately it has been for a specific coin which leads to liquidity in tokens like $SHIB and $MASK too = not that strong effect
Being early would probably pay off because this is big news and most people will buy later (10 min later or more)
Watch out for tweets by Elon or Twitter official account to if this is permanent, a late April Fool’s joke, or just a glitch from Elon’s intern.
Put on a trailing stop loss (discussable), but at some level, the trade is invalidated and I want to protect some of the profits.
I managed to market buy some at $0.0825, but I didn’t size up properly. Also sat some limit orders that never hit.
If you timed the move perfectly (which almost no one did), you got a 30% move in 30 minutes. Nothing but incredible.
The price retraced to $0.094 before a new spike up to $0.105 led by this tweet from Elon:
Huge speculation about if Dogecoin actually is the new logo of Twitter now.
I mean just look at the meme Elon posted:
“That’s an old photo” where the doge in the car shows his driver's license to the officer.
Sometimes I wonder what Wall Street thinks when they read about news like the one about the new Twitter logo. Elon pumps a digital coin with a picture of a dog 30% in 30 minutes. Meanwhile, on Wall Street, people hope for a 10% annual interest rate in stocks. Different world.
Anyway, I got out of $DOGE at $0.94 and was happy with that. But my only regret was that I didn’t size big enough.
The crypto trader Tree of Alpha on the other hand got in with a good size ($8m) and earned a great profit from this trade.
You can read his reflection on the trade here:
As Tree of Alpha writes:
“While everyone is focused on getting entries within 2 seconds of a tweet/blog, most aren't spending enough time wondering why they are not sizing appropriately.”
This is an interesting statement, and I feel I can relate. Lots of times I actually see news like this, but decide to not act because I’m afraid the move will be gone because I didn’t act fast enough. I need to think more about sizing and risk management in trading.
Also, since I recently had a pretty bad trading day I wasn’t mentally prepared to size up. The reason was simple: I was afraid of losing again. Trading psychology is so important and something I struggle with. I think everyone struggles with this. But I believe that you only can get better at this by practicing more and also journaling every trade. I like using CoinMarketMan for this.
Catching A News Trade - Timing Is Everything
The hardest part of news trading is timing. You can be right with your entry, but it's impossible to know if the token will:
a) pump at all
b) if it pumps, when should you get out? (answer, have a take profit or at least a mental take profit, or a trailing stop loss)
c) if it pumps, but then quickly retraces how long should you stay in (answer: you should already have a stop loss before you enter a trade)
And about timing. Have you ever wondered where you are on the timing ladder in terms of catching a trade?
The Twitter user King G made an interesting tweet where he made a hierarchical ladder from A to G telling at which price you will enter a trade.
I recite from his tweet below with text here so you don't miss it.
The ladder:
A: Insiders, the team - this is generally where the news comes from so the team and fellow insiders accumulate well before the news is public
B: Coders who have found hidden endpoints (leaks), hackers who can see news websites postings early and are able to front-run the public news
C: Coders who have a speed advantage (@Tree_of_Alpha @tier10k and many others that aren’t public on Twitter)
D: Bots that market long/short on group C public tweets. Automated bots on select accounts will generally always be faster than the manual traders (with few exceptions)
E: Manual traders that are early and quickly analyze the implications of news headline
F: Manual traders that are late (even a few minutes can sometimes be late)
G: Laggards who trickle in once the news is blasted on everyone’s timeline and the price has gone up significantly
It’s important to understand where you are in this order when news trading.
The crypto market is incredibly inefficient (good for us) so some catalysts take time to properly price in.
In essence, if you are in groups E-G you need a greater fool to buy your bag for you to profit.
Personally, I'm in group E, but working with some people to make bots to get up to D or maybe even C.
The Bottom Line
Trading the news is crucial for positioning your portfolio to take advantage of market moves and boost overall returns.
Also, some traders are only doing this and are making a living from it.
But again, this is not easy. To become profitable you might try to work on your edge for years. And even then, you might not become profitable. I still struggle with this. I think one of the smart things to do is to find a way to get higher up on the ladder in terms of timing the news.
News like the ones about Dogecoin doesn’t come out every day, so it is a patience game and it requires a lot of screen time.
Think of it this way, I’m probably online 12-14 hours per day, and even then I’m not one of the best, actually, I’m very far from being one of the best. That tells you everything about the competition here. There are several ways I could improve this, and I’m working on this. Planning to write more about improvements in coming newsletter issues.
Also if you want to learn more about trading I wrote a 25 min read about everything I know here:
Should be a good starting point, and also some of the text is for more advanced degens.
To end this you have to remember that in trading, you got to react quickly. Trading on news is 100% not a safe bet at all.
The moment a news headline like for example “Dogecoin is the new Twitter logo” comes out, the market participants start pricing in the new Expected Value (EV) for the asset (Dogecoin).
Your job is to calculate that EV more accurately and take position earlier, than most other participants.
This is how you can make money.
Sounds easy in theory, but very hard in practice.
But it doesn’t stop me from trying :)
I also compiled a Twitter list with the best news traders, take a look at them here:
https://twitter.com/i/lists/1590828215161036815?s=20
Hope you enjoyed this write-up.
See you next week, anon!
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