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Defense Mechanisms

Introduction

Cryptocurrency trading is a high-stakes game with rapid price changes and extreme volatility, creating a challenging and unpredictable landscape for even the most seasoned traders. However, these challenges also present a wealth of opportunities for those who are able to navigate through it effectively.

Alvisio Defense Mechanisms

To help traders maximize their profits and stay ahead of the curve, all Alvisio’s bots are equipped with powerful and dynamic defense mechanisms: correlation defense, price surge filter, emergency stop, derisker (and more to come). These mechanisms are designed for 24/7 market monitoring with automatic and timely actions.

Traders can choose to activate any or all of these defense mechanisms and customize the sensitivity of each mechanism for each bot and market depending on the risk tolerance and trading strategies. With this level of customization, traders can create a bot that is perfectly suited to their individual needs, providing them with a powerful tool for achieving their financial goals in the unpredictable world of cryptocurrency trading.


Correlation Defense

Small-cap cryptocurrencies can be affected by the movements of Bitcoin (BTC) and Ethereum (ETH). This is because BTC and ETH are two of the largest and most established cryptocurrencies, and their price fluctuations often have a ripple effect throughout the entire cryptocurrency market. Additionally, many cryptocurrencies are traded on exchanges that also support BTC and ETH trading pairs. This means that changes in the value of BTC and ETH can impact the trading volume and liquidity of smaller cryptocurrencies on those exchanges, which can in turn affect their price.

By closely and constantly checking if there is a correlation between the BTC or ETH oversold with the current trading pairs, Alvisio’s correlation defense can protect traders from the sudden shift of the market and help them quickly get out of trade.

Once Correlation Defense is triggered, Alvisio would:

  • Cancel all open bids and open asks
  • Place an ask at fair value and update it when the defensing price is not within 0.5% from the fair value
  • Then, depends on your settings:
    • Stop placing bids and asks until the correlation vanishes
    • OR pause the bot when the defensing ask got it. In case the correlation vanishes but the defensing ask hasn't been hit, the bot would not be paused.

Correlation Defense is applied to Barcode, Grido, and M2.

Price Surge Filter

The name says it all. Price surge filter is a powerful mechanism that takes prompt actions upon detecting drastic spikes in the markets' prices. Alvisio will immediately stop bidding and close any open bid orders. Ask orders will remain open to maximize your profit. After that, depends on you settings, Alvisio will either pause the bot immediately or go into standby mode and automatically resume trading when the spike is over.

One of the key features of the price surge filter is the ability to self-calculate the ‘surge’ trigger price based on the customizable numbers of historical candles. This parameter allows you to adjust the bot's sensitivity to price surge and the follow-up actions to suit your trading style.

Price Surge Filter is applied to all Alvisio’s strategies.

Emergency Stop

Emergency Stop (ES) is triggered when there is a significant price drop to secure your profit or, in a less positive scenario, cut loss. This is the only defense mechanism that behaves differently depending on the strategy.

For Grido and M2, the ES price is dynamically calculated based on a customizable distance from the current lowest open bid. As the market price and the bid-ask ladder move, the ES price will trail accordingly.

For Reversio with an infinite number of entries, Emergency Stop serves as a gatekeeper. Hence the ES price is fixed and determined once the 1st entry is hit. You can still customize the ‘distance’ of how far a drop from the 1st hit price is needed to trigger the Emergency Stop.

Once Emergency Stop is triggered, Alvisio would:

  • Cancel all open ask orders
  • Place a sell order at market price to quickly get out of trade
  • Then, depends on your settings:
    • Stop placing bids and asks, only resume trading when the trend changes
    • Or pause bot immediately

Derisker

Derisker is an exclusive defense mechanism for M2 strategy to protect traders in the event of an unexpected price drop that may not be severe enough to activate an Emergency Stop.

Aiming to maximize inventory turnover, bots under M2 strategy will place as many ask orders as possible for every closed bid order. However, when all the open bids get hit consecutively, meaning that the asset’s price has dropped to a certain point, Alvisio will trigger Derisker and promptly replace the opening ask ladder with a single order at the fair value price. This ask order will automatically adjust to the new fair value price, trailing the market as it moves.

After the derisking ask is hit, meaning the coin has returned to its fair price, Alvisio will continue trading by redeploying the bid ladder as normal.

Recap

Correlation Defenses Price Surge Filter Emergency Stop Derisker
Grido ✅ ✅ ✅ ❌
Barcode ✅ ✅ ❌ ❌
M2 ✅ ✅ ✅ ✅
Reversio ❌ ❌ ✅ ❌


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