Sources of alpha/how to make it

---

1. Limited liquidity spots. Mispricing of some kind where the amount you can put on the trade is limited to your size. The smaller your stack, the more important this kind of trading will be to grow, as this stuff doesn't scale. If too easy/simple/repeatable, your edge will likely be botted away soon, so either find edges which bots can't attack. For example - taking short term risk, or attacking rare conditions which cannot easily be tested by a bot. As more market participants enter, expect these edges to fade away and get automated.
These are edges which do not scale, and are absolutely *critical* to making it in the space if you are starting with very little.
Some of these edges do scale, but have limited reward (farming). Take these edges.

2. long term thesis - your absolute highest conviction bet. This should be the currency you denominate in. Note that if your highest conviction bet is dollars... you're probably (but not always) wrong.
That being said, I understand that a lot of people do denominate in dollars for reasons of accounting and its familiarity.
Some bigger funds probably also don't because they have access to cheap dollar leverage.

3. Betting big when you have asymmetric risk/reward, or in purer terms, highest EV.
In general, 90% of your profits will come from 10% of your trades. So forget about the other 90%, focus on the 10% that matter. These are the ones you want to get right. You only have to be REALLY right once or twice to make it. When you see these once in a year opportunities (and you have to judge that for yourself) you *need* to BET BIG.
How much to bet? There's a formula called Kelly's criterion you can look up, but roughly you want to bet the %age chance that you're right. So if something could either 0 or 100x, but you think there's only a 1/10 chance that will happen, you roughly want to bet 10% of your portfolio
A caveat here is that Kelly's criterion assumes you know the EV and success %ages which of course you don't. So manage your bet sizing - you should have about a 0% chance to go bust.
The most common mistake is betting too big on common, smaller edges, and betting too small on rare/unexpected, large edges.

4. Make frens. I rarely post on twitter, because I have absolutely no interest in being an influencer of any kind, though it's possible I could do such a thing.
But I do want to make frens with cool people who are into the same kinds of things I am.
Seriously, this might be the most important one.


---

I personally think of myself as taking on quite a lot of risk, though compared to my peers I am one of the most conservative traders i know. I roughly sit 20-65-15 btc-eth-everything else
Nearly all of my edge is on chain so that's where the vast majority of my trading happens.

Reply · Report Post