How to Handle Runaways

A runaway occurs when you sell your spot holdings, looking to buy cheaper in the short-term and then price rises without you. There is no one way to deal with these situations, but below is a list of actions you can take. 

 

For these actions below, imagine that you had sold BTC at 41000 looking to buy at 39500 and now BTC is 45000. 

 

  1. Buy BTC at 45000 and take the loss. 
  2. Buy BTC at 45000 with half your holdings and then wait for price to fall to 39500. 
  3. Set a bid at 39500 and wait for price to reach that price point. 

 

The action that you take depends on your market outlook and your timeframe. If you are bearish and looking at accumulating more BTC long-term, then option 3 is likely best. 

 

However, if you do believe that BTC is likely to continue rising in the short-term, you could make a play such as buying at 45000 and then selling at 46000 and then attempting to buy back lower. 

 

Finally, a great strategy you can use to mentally handle runaway spot positions is to use a time budget. You can set a time budget by placing your bid/offer orders accordingly and then denote a period of time where you decide to not take any further actions until that date. 

 

For example, if you have the goal of generating more USD and choose to buy 1 BTC at 49500 and plan to sell at a previous high volume point of 51300 for a nice 1800 USD in profit (not including fees). Then price falls to 48500. How can you set a time budget to limit your stress and avoid poor decision-making?

 

You decide to give BTC 2 weeks to reach your sell price. After setting your time budget, you now must calculate the probability of your sell order being reached. 

 

Using the probability calculator linked with a current IV of 65%, what is the probability that your sell order is touched within 2 weeks?

The probability of your sell order being touched within 14 days is 65.8% (get current implied volatility by clicking here). Know that when using the probability calculator the probability that any price point will be touched can be found by simply multiplying the smaller of the two probabilities in the results section by 2.

 

Even though the price has run away from you, you have about a ⅔ chance of your sell order being reached. If this does not occur after your time budget of 14 days, you can then make the decision to either sell your BTC in order to buy back lower or you could decide to cancel your current orders and just hold BTC until you see a profitable setup. 

error: