Blockchain, Smart Money, and Volume: A Wide-Ranging Conversation With Hadi From Iran
This article is based on a conversation with Hadi. Conducted by Owain Higham.
Could you start by telling us a little bit about yourself, about your background and how you got into trading?
I’m Hadi, I’m 29 years old and I have been getting familiar with the blockchain since 2014. You know, at my university—Sharif University—one of the best universities in Iran, there were so many seminars, webinars, and conferences about the blockchain in logistics. I studied transportation engineering and I was involved in logistics in business and freight transportation, and one of the main technologies that was helpful was blockchain. I was gradually interested in blockchain.
Then 2 years after that, I found Bitcoin, it’s rising price, and it was getting more interesting for me. Then I started to learn about investing, trading, and all the opportunities in blockchain technology after that.
So you were interested in the underlying technology, and then you became interested in the monetary side of things?
Yes. You know, I have talked to many people that first became interested in the monetary aspects, and then became familiar with the blockchain. For me, I was first involved in the blockchain, and then started investing and learning about price and trading.
How did you get into the trading aspect?
At first I was researching the “validity” and the future of blockchain projects, for example Bitcoin and Ethereum mainly, not all the altcoins. I was trying to make sure if they have a future, if the future of Bitcoin and Ethereum is guaranteed. Then I started to inject part of my salary into that. For 2 years, I was accumulating my salary in Ethereum and Bitcoin, and then it was becoming more like a puzzle that I wanted to solve, so I started learning about the theories and methods that can be used to solve this puzzle. How to invest better, how to trade, and how to get the most out of the ups and downs of the market so that I can get more out of the market.
There are so many books and content around the internet, there was even a great course that was around $1,000 dollars, which I registered for. This was between 2015 and 2017. After that, everything got more serious. I started to trade more each day. For example, it was becoming more like a job, not just an interest.
What was your trading style in the beginning?
I was interested in programming and computer technology too. I knew that if I worked on a good strategy that is adaptable for flow charts or programming, something that I implement as a robot, it would be better, because I couldn’t imagine myself trading for many years. I could tolerate trading for just 2, 3, or maximum 4 years. I am now retired, in some sense. I don’t want to trade anymore.
From the beginning, in my strategy I used many indicators, not just price action or market structure. My strategy is mainly made up of indicators and also everything related to volume. I can see the volume, volume profile, or any other tool that indicates different aspects of volume in the market, and then decide whether the market is stable or unstable. That part can give me hints about the costs and motives of the smart money or the market maker. The combination of these indicators are the things I started to implement as flow charts to make a robot out of it, but it needs a lot of work right now.
What do you mean by “I don’t want to trade anymore”?
Not everyone is made for trading. Trading is so stressful, and by the way, trading individually can harm your brain. I’m working with a team of traders, and also working on a robot. But I see myself as retired.
I have this theory—I’ve heard it from another guy too—for traders, the retirement period is after about 8 years. If you are working professionally, not learning—I don’t count that. But when you start trading as a professional, you should work for 8 to 10 years, and then retire. Otherwise, you are not making good progress and this has side effects, unless you are working with a team with so many protocols that can protect you from anything that can harm you as an individual.
Can you give me an example of how trading harms the brain?
There are many mechanics of the brain that we are not aware of, such as when we are trading and opening a position. As long as we see a red candle in front of us, for example, our brain is releasing some hormones that are responsible for tension and all the negative aspects of managing what is going on around us. A red candle can be an example of a menace, a jeopardizing situation in our life. We are not aware of that, but our brain is experiencing that.
This is probably why some traders set their charts to a more neutral color. Speaking of stress, crypto has had periods of high volatility in its history. How do you handle that volatility?
In 2017 and 2018, for example, there was a lot of volatility, yeah. I had so many good profits and so many big losses, I must confess. But after that, we had a period of little volatility.
After the Coronavirus epidemic, Bitcoin rose to $69,000, and the market started to become more mature. The market was not really volatile anymore. I don’t think the behavior of the market after the epidemic can be labeled as volatile. We can’t see any more of those pumps and dumps anymore, at least not in Bitcoin. It’s more “analyzable”, and the share of the smart money in the market is lowering.
Can you tell me how you came to using Bookmap?
As I said, in my strategies, I use volume and also the orders, anything about the open orders plays an important role in my strategy. So I started to discover any tool that gives me that information, and one of the best is Bookmap, because it’s a really agile and precise heatmap of the orders in the market.
I started to use it and have had good experiences. I am working on it with one of my teammates, to learn it more and get the most out of it. It is great.
About your team; are they mostly programmers, traders, or a mix?
In my team, there are just 2 programmers. The others are analysts of different strategies and methods. For example, I work on the concepts of volume and smart money, and another is working on “classic” theories and methods, and another is using the “NeoWave” strategy. We can all compliment each other and the decisions that we are making together on a shared fund.
There is a very good book called Inside the Black Box by Rishi K. Narang about quantitative trading. He says he has worked with literally thousands of hedge funds, and that most directional trading strategies typically fall into the category of either trend following/momentum or mean reversion. Which category would you say your strategy falls under?
I think there is no “theory of everything” in the market that always works. By using the methods and working on them just to manage the risk. The only parameter that really makes me judge a strategy is how it can manage risk, or how reliable it is.
The thing that I’m doing is, instead of converging all of those methods into one theory of everything, I am working on a team of traders—4 or 5 traders—and I’m teaching them. Each of them can use a part of that to manage their fund, and I just work on them, monitor them, and analyze those individuals statistically to see how risky or reliable their work is.
What is your definition of risk, because there are a lot of different ways to measure it?
There are some common parameters when it comes to analyzing the work of a trader, for example win rate or drawdown—I’m not really relying on them. I was studying transportation engineering, and in transportation engineering you are working with big data, and in those data we have so many parameters for risk and reliability, so I try to use them as factors that I can use to examine the risks in my own analysis.
I have another definition for reliability, and that’s if a trader can predict his work for the next few months or years, he is reliable. But if he cannot predict his work, for example, right now he’s so profitable. Next month, he’s not profitable, and the month after that he also experiences a big loss. His work is not predictable, and that’s the main reason we consider that risky.
You have mentioned volume a few times. Can you tell me how you are looking at volume?
I am really interested in the patterns in the market that are more deception-based, the patterns that form a structure in the market that deceives the masses, and there are some traces of that in volume. For example, when you are drawing a support or resistance line, even if they are so powerful, you can trace in a way that you can see if the breakout is a deception or in fact a confirmation. It’s kinda interesting, puzzling, and a bamboozling puzzle in markets.
When you say ‘deception’, you mean manipulation of bigger players?
Exactly. The volume talks to the trader and says whether or not the pattern or break is manipulation of the smart money, or if they are a natural behavior of the masses in the market.
Would you say that the majority of price manipulation is done by algorithms?
Somehow yes. Some parts are detectable visually, but some other parts are algorithmic and you cannot easily detect them.
The part of volume that really helps us to evaluate the market is the volume that is locked in long or short positions on exchanges in the market. For example, right now in Bitcoin there is a huge amount of volume locked in long positions, and just a tiny little bit of volume in short positions, and it’s like that on many exchanges. So that really indicates that smart money or exchanges may liquidate those positions to provide enough demand for the next uptrend of the market. That is the only thing that really makes me conservative about long positions right now.
Would you say that the futures market leads the spot market?
Yes, I always work in the spot market. I don’t ever use futures or leverage.
So you don’t trade in futures markets, but you get your signal from the futures markets?
Any final words?
For those that want to invest in crypto for the long-term, I suggest they look at the ‘Gartner cycle’. It’s about new technologies that are taking over industries. You can google the Gartner cycle for blockchain, and the vision for long-term investment is 2035, so I suggest they accumulate for their own children, and not to worry about the future of the market. Mainly high-credit altcoins and Bitcoin, as well as Ethereum—not ‘shitcoins’ and ‘memecoins’.