SCOTT WELSH TRADING BLOG

Searching for Moonshots

Searching for Moonshots

Apr. 14, 2021

The big win.

It changes everything.

And it can ruin everything.

What if we spend our whole career putting all our money on lottery tickets?

If we don’t hit the jackpot, we lose.

If we’re committed to winning big but it’s a pipe dream based on very low-risk principles, where will we end up?

We’re told we need to take risks but we never are told about all the people who risked it all and lost.

And those stories are everywhere.

Elon Musk was about a month away from bankruptcy when launching the Model 3.Amazon was a few months away from being pets.com.

We know those moonshots paid off for Musk and Bezos, but how many failures do we not know about?

Moonshots can be dangerous business.

But they don’t have to be.

While building a business slowly is the inevitable path to success, there’s nothing wrong with allocating some funds to moonshots if those shots are based on a sound methodology.

What’s a sound methodology?

It’s a methodology that is based on universal principles that are repeatable.

Blindly buying GME on a message board recommendation might make some profit but is not repeatable.

If it can’t be done again, it shouldn’t be done in the first place.

So, is there a sound way to go for a moonshot? And are there any examples?

Yes, going for moonshots via breakouts is absolutely repeatable.

And there’s one very easy example.

Bitcoin.

No, I’m not talking about reading some rah-rah message boards rants or watching some documentaries and then going all-in.

That method is frighteningly dangerous.

I’m talking about trading Bitcoin with a simple trading system. A fundamentally-sound system with definite rules allows us to participate in a moonshot while never risking it all.

Here’s what I mean.

It’s possible now to trade the Bitcoin Futures contract. It doesn’t have much volume and it only allows us to enter via a limit order (at least it did the last time I checked with Tradestation).

But it’s still possible to trade it with a system.

System: Bitcoin Breakouts

  • Go Long when price breaks above the 50-day high. Bitcoin bulls would have no reason to ever go Short (because it’s going to $200,000, right?), but a system trader could also go Short on breaks below a 50-day low.
  • Stop: 1x the current ATR
  • Trailing stop: The high/low of the past 20 bars

How would this system have hypothetically done since this contract was launched in 2018?

On a hypothetical $10k account, I’d say that’s pretty incredible.

And, specifically, you would’ve gone long on 10/21/20 and would still be in that trade (hypothetically sitting on a 295% winner):

Of course, you’d have to make sure you got your entry using a hypothetical limit order and you’d have to have enough margin and you’d have to navigate rollover and you’d have to handle your own emotions.

But that’s a moonshot that was gettable by anyone who was interested in Bitcoin and was armed with a fundamentally-sound trading system.

Is that a one-shot deal on Bitcoin, by the way?

Not if you believe the Bitcoin bulls. They swear there will be many more trends.

And not if you’re willing to go Short because you think Bitcoin might be a bubble.

This moonshot story may have a lot more chapters.

Talk to you soon.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.