About Alpha
“I think to be in the upper echelon of successful traders requires an innate skill, a gift. It`s just like being a great violinist. But to be a competent trader and make money is a skill you can learn”.
– Michael Marcus
The title of this article is misleading:
There is no such thing as alpha.
People spend all day on twitter, youtube, telegram, discord, looking for this fantastic beast called “alpha”, that will miracolously grant them divine wisdom, tell them what coins to buy, at what price, when to sell, some lotto numbers and maybe Julia Fox’s phone number.
But the truth is there’s no such thing as alpha. There is, as we will see, such a thing as having an edge. Now that is an advantage. But there’s something else too, many things going on in private conversations, of different nature, which people conflate all under the umbrella of “alpha”.
For example:
Insider trading
Insider trading is the trading of a company’s securities by individuals with access to confidential or material non-public information about the company. Taking advantage of this privileged access is considered a breach of the individual’s fiduciary duty.
A company is required to report trading by corporate officers, directors, or other company members with significant access to privileged information to the Securities and Exchange Commission (SEC). Federal law defines an “insider” as a company’s officers, directors, or someone in control of at least 10% of a company’s equity securities. Congress has criminalized these insiders’ use of non-public information under the theory that the use fraudulently violates a fiduciary duty with which the company has charged the insider.
Insider trading is not exactly a crime in crypto, just because most crypto is able to evade the definition of “security”. But the ethical implications of having access to “insider” information and being able to directly trade on it against clueless participants, or disclosing such info to others so that they can trade on it, is the same mechanism.
Retail is somewhat aware that the game is skewed against people with no insider info, and feel disadvantaged - often not without reason - to being limited to trade the naked chart. One could argue that a great trader should be able to trade based on price action alone, and there’s truth to that, but it is undeniable that there is a “market” of insider information that leaves people with no access to it behind the curve. The quest for such access, is commonly referred to as a search for “alpha”.
But ask yourself, why would your favourite crypto influencer, who is in the circles “that count”, with access to such information, thus an advantage in a market that can return insane ROI, share it with you, a simple twitter follower gambling with your mother’s retirement savings? What would he gain from it? Clearly the r/r of sharing such precious info with “fodder” market participants doesn’t seem to be there.
Therefore, you should instead treat any such “bestowment” as suspicious. If an account with 200k followers is sharing with you to “go long” into this $ASSBOOBA coin, could it not be instead that he is indeed looking for exit liquidity in his followers?
Different case is accounts who are small, still haven’t gotten recognition, and just treat their twitter as a space where they share their setups on the chart, share their views and mistakes (!), for example taking Ls or getting out at breakeven. Or sharing small marketcap coins to ape on (1m-10m). Of course in this case it is also a business proposal, they share - hopefully - correct setups to trade on, and they can get recognition and follower growth if they are right, but the exchange here is fair and not malicious. It’s win-win.
Having an edge
Having an edge is instead something that you can build for yourself. It is not based on having access to private or undisclosed information for insiders, but on having an advantage in the market thanks to the understanding of public information that is either under the radar of most market participants, or just more commonly ignored even if it staring them in the face.
For example, for the last few months, noticing a very high correlation between the bitcoin chart and the major stock indexes, mostly the Nasdaq (tech stonks) and the S&P500, and having an understanding of the influence of interest rates of US Treasury Bills, the FED policy and its impact on markets, has proven to be an insane advantage to navigate the stormy waters of this bear market.
Personally I was very ignorant in the matter so the moment I recognized this was becoming more and more important, I started surrounding myself with people and accounts that seemed to understand what they were talking about - note: you need to build your own bullshit filter, to filter the noise accounts from the signal accounts, but this is a skill I cannot teach you - meanwhile I studied these concepts for myself and was trying to apply them on the chart(s).
Having an understanding on when certain macro events were about to take place (FOMC, OPEX, CPI) and how these were routinely, that is, predictably, going to affect markets, has proven to be an insane advantage over participants who simply kept following their favourite influencers writing bullshit like “bitcoin is oversold” or “the rsi gonna reset” or garbage like that. And it is all public information, available to anyone willing to learn.
So, what can I suggest you to do?
For example:
(works better in bullmarket) look for coins that exploded in popularity for some reason which is organic and tangible, and for example went from 1-10M to 100M, and search the cashtag ($nameofcoin) on twitter, and follow the small accounts who were talking about it BEFORE, without anyone noticing
Try to spot emerging patterns or narratives that seem to drive the market, and surround yourself with people who are knowledgeable about it (see FED example above) but also humble enough to know they don’t predict the future
If you are good at something, be it trading, finding good coins early, making memes, whatever, post about it!
Let others recognize you, and try your best to work your way to get invited to the closed circles where people who know, or know how to, or even just start engaging in meaningful conversations with you so that you can grow your viewpoints or correct them when necessaryJournal journal journal. I wrote "About fear" so check it for more detail, but in short journaling is a great tool to grow as a trader and building an edge. If you see that a certain patters always plays out, that a certain trade is always a L for you, etc. it all helps you in the long run
Good luck fren, have fun.