BTC-based 10x returns, former top Wall Street trader Amanda (Twitter @WuWei_BeWater) teaches you step-by-step how to build your own trading system, purely sharing practical knowledge.
This is the 23rd recap of 'Conversations with 100 Traders', continuously updated, welcome to follow.
About Amanda.
Amanda, in February this year, achieved a 10x return on personal options trading based on BTC; this month, it has approached 5x, and the annual return from U.S. stocks is twice that of Nasdaq.
Who is this legendary figure?
Currently the CIO of Chainup Investment, she built a panic index options trading model on Wall Street; she joined Guo Investment in 2011 to engage in primary market investments and secondary market trading, leading the listing of Anxin Securities.
I entered the cryptocurrency space in 2017, and my accumulated investment philosophy and trading experience from traditional financial markets have made me clear on how various financial sub-sectors make money. After adjusting my thoughts, I summarized the investment trading methodologies suitable for the crypto industry from traditional financial capital markets and selflessly shared them.
How to develop your investment strategy?
Start with two perspectives and ask yourself a few questions.
The first perspective is from the individual angle, considering five aspects:
Total investable asset volume, premise: not restricted by loan repayments or time liquidity.
Investment goals and return expectations: If it's 6%, leveraging to buy U.S. Treasuries (credit bonds) is sufficient; if it's 20%, quantitative arbitrage will suffice; for higher returns, look for high-growth assets.
Risk tolerance and acceptance: How much loss/volatility can you bear? If you can only tolerate 20% volatility in an asset, do not leverage more than 5 times.
4. Investment timeline: When might I need this money? When I retire? Next year?
5. Liquidity arrangements: Treat yourself as a company to calculate your balance sheet and profit and loss statement, considering personal living expenses and bill payments.
The second perspective is from the market angle, focusing on two aspects:
Market cycle: When in the middle of a market cycle, does it align with my investment time and position control?
Position control: Don't deliberately pursue diversification; instead, understand where the risk exposure comes from before diversifying assets. Otherwise, you may find that despite the different names of assets, the sources of risk are from the same category.
What strategies can outperform BTC?
Outperforming BTC mainly comes down to timing and coin selection.
First, let's talk about how to choose coins.
BTC's volatility has narrowed significantly compared to before, showing a stable development in the mid to late stages. Meanwhile, some smaller coins with potential are growing even faster than BTC.
So how do we define the indicators of a project's growth potential?
Amanda: 'I typically choose assets that have both growth logic and profitability, along with a compelling story and the ability to create impact.'
Growth potential: Based on different protocols and Dapps functionalities, various indicators of growth potential can be determined, such as TVL, number of token holders, trading volume, and storage. On this basis, innovatively choose to use these quantitative growth indicators combined with the circulating market value of coins, similar to the PEG ratio in stocks, to calculate the relative valuation of a project, monitor it over the long term, and compare it with similar projects to filter out assets with better growth potential and cost performance.
Additionally, monitor supply and demand, factors affecting supply and demand such as halving, staking, and staking rewards.Profitability: For example, analyzing protocol income, profit, and on-chain transaction analysis.
Public sentiment: As mentioned in Fisher's 'How to Choose Growth Stocks', it requires both connotation and extension of comprehensive capabilities, and public sentiment reflects the extension.
How to deliberately practice and train your ability to choose coins?
Training your ability to choose coins can be done simply by focusing on the relative exchange rates of smaller coins to BTC. You will form a matrix with two coordinates: one for rising and falling, and the other for outperforming and underperforming. This will create four quadrants: outperforming BTC when rising, underperforming BTC when rising, outperforming BTC when falling (less loss), and underperforming BTC when falling (more loss).
There is a type of asset that can outperform BTC when rising and lose less when falling; this is the best asset selection, but it is unstable.
What you need to practice is to monitor and identify such statistical relationships over the long term to find high-growth, quality assets that attract market attention and might outperform BTC. The crypto market is not considered a weak efficient market, so technical analysis can still yield excess returns.
Next, how to time BTC.
Buy when no one cares, sell when the crowd is clamoring. On December 26, 2022, Amanda bought BTC all-in at $16,800, knowing that it was acceptable normal volatility when it later dropped to $15K.
There are short-term event-driven trades in between, such as BTC suddenly rising during a banking crisis. On the day the BTC spot ETF launched in January 2024, I shorted and reduced positions, including options trading. Therefore, now that the number of coins has increased, it can be said to have outperformed BTC.
Long-term allocation with periodic selling.
Outperforming BTC is about timing and coin selection. If you lack the ability to choose coins, focus on timing and long-term allocation. Buying near the 200-week line and selling periodically around 12-18 months after halving can generally capture most of the market's returns.
Don’t underestimate timed selling; this has also been compared in 'The Turtle Trading Rules'. Various exit strategies show that periodic selling performs the best. What’s the most challenging part? It’s that everyone is very anxious. If you care about short-term returns, it inevitably limits your gains.
When is a good selling point?
Recently, many technical indicators have shown signs of peaking. Indeed, historical data is a good reference, but I do not believe every cycle is the same as the last. Those who buy are apprentices; those who sell are masters.
From a quantitative perspective, we know from calculus that the second derivative can be used to find extreme values. When the second derivative equals zero, it indicates a maximum value. It is fundamentally a concept of rate; in other words, a gradual slowdown in growth indicates approaching the peak.
In the crypto space, reflexivity theory is vividly demonstrated. In 'Financial Alchemy', it discusses that market fluctuations, from beginning to unsustainability, indeed reflect how people's expectations transition to realization in a positive feedback loop, reaching the market peak.
From a qualitative perspective, the market rises for certain reasons and falls for others.
During the bull market from 2016 to 2017, the cryptocurrency community was excitedly imagining that Wall Street institutions would enter the cryptocurrency space. However, when CME launched Bitcoin futures in December 2017, the reaction in the market was panic, believing Wall Street was coming to short Bitcoin.
In the last bull market in 2020, after the outbreak of COVID, massive QE brought liquidity overflow, causing all risk assets to rise. Thus, after the Fed announced the end of interest rate cuts in November 2021, we reached that round's peak.
In this current market cycle, from a macro perspective, the real point of volatility started with expectations for ETFs. On January 10, the day ETFs launched, prices began to decline, driven by Grayscale's large sell-off of GBTC, leading to net outflows from ETFs. If you only look at the favorable outcomes of Trump's election, it does indeed show a recent slowdown, satisfying some signals of a cycle peak. However, my judgment on this market cycle is that this interest rate cut will be gradual, with massive adoption by large institutions slowly increasing, leading to a slow bull trend in this market.
What is the source of market dynamics? - The Crust Theory.
The cryptocurrency market is unpredictable, but the volatility remains constant. To capture a specific volatility, you need a framework to capture it and understand the underlying emotional drivers. Like the Earth's core, it is the starting point of energy, and the original driving force of the market must come from emotions, which are central, sometimes panic, greed, or confusion.
Layering on top are the project's fundamentals, price performance, and short-term event-driven factors.
Then, the prices that reflected the market's prosperity during that period came together, representing the surface.
Thus, the crust theory provides deep insights into market changes, fundamentally asking what it is based on to start and end. At what percentile level is the market sentiment?
The core market momentum certainly comes from sentiment, which is the essence of the Crust Theory. Just like an earthquake, energy changes in the Earth's core manifest in the movements of tectonic plates, resulting in violent fluctuations at the surface, layer by layer. You must perceive where the market sentiment starts, iterates, and then develops to the point of unsustainability.
How to gauge sentiment? What indicators are there?
Simple indicators, such as the fear and greed index. For example, when it is below 20, you are unlikely to buy wrong, and when it is above 90, selling is also unlikely to be a big mistake. However, behind it may be opening positions.
There are many ways to gauge sentiment:
First, ETF inflows are a typical indicator of sentiment change.
Additionally, observe continuous price changes outside U.S. stock trading hours to feel the pulse of market sentiment changes by looking at hourly and minute charts, as well as the market's opening interest, perpetual premium, and funding rate.
The overall conclusion is that the market is still very optimistic. This means that real capital is pouring in, with a strong bullish sentiment.
How to continuously discover new Alpha?
First, consciously and proactively accept and understand these new things instead of being afraid. Soros told his apprentices to invest first, then analyze, and then see if it can be sustained.
Second, do not limit yourself to the small scope of the crypto space; solving current problems requires a broader perspective and interdisciplinary thinking, consciously understanding major asset classes.
Third, invest with a psychological mindset attuned to world gossip. Price reactions are often faster and more timely; exploring what drives prices in that direction reveals the underlying forces. There must be traces; you will discover the threads that lead to new stories.
Regarding traders' self-growth, can you recommend a book that changes oneself?
Amanda: Every year I read 1-2 books that reveal a lot of areas for improvement. In 2022, I re-read the Tao Te Ching twice, read The Art of War in 2023, and then finally read Poor Charlie's Almanack, which shocked me.
If we only talk about trading, I still recommend 'Reminiscences of a Stock Operator' and 'Financial Alchemy'.
Every day, I have iterations like 1.01, 1.11, 2.11 in my personal version. It’s a continuous process of improving my understanding, and you never know when it will reflect in your trading. By seeing yourself and the entire world, you can understand the market's truth and achieve stable, certain long-term returns in the market.
Finally, I invite everyone to follow my podcast - Crypto Cubed.
Final thoughts.
It’s not a must to outperform BTC. If you find a trading strategy that suits you and practice it deliberately while continually improving, the joy that growth brings you is actually a core motivation that supports every trader's progress, even more than monetary returns. This is why I believe it’s important to have 'Conversations with Traders' and hope that everyone finds their own trading strategy and experiences growth every day.
