A page from my personal notebook....An idea that involves utilizing momentary instances of inverse correlation. (Sadly I could not post the picture)
Imagine you have a portfolio with 10 different cryptocurrencies. For example, you have an account with Gemini and you've diversified into the largest cryptocurrencies by market capitalization. You are effectively invested in the cryptocurrency space and you are betting/hoping the entirety of the crypto market will go up. The way you distribute your funds across various holdings is at your discretion, but typically I would recommend having a larger portion of your portfolio in the larger projects. For example, maybe 25% of your position in Bitcoin, and only 10% in something like Doge. Just an example.
Now let's discuss the meat of my strategy. During bull markets, the respective companies and projects within the Sector tend to move in unison. A bullish day in the crypto market will see the vast majority of projects moving up. The key is that some projects will move up more than others and this is when you should make a trade.
My most recent example is how I've handled my cannabis stock Holdings during the Bear Market that's been going on for the last couple of months. If company number one drops by 3% and Company number two only drops by 1%, I will sell a small portion of company number two and buy company number one. This is done with the idea of exploiting the momentary inverse correlation. This is where the visualization on the graph paper is helpful.
I've applied the strategy over the past couple of months and it has been successful. Meaning, the cannabis portion of my portfolio is worth more now than if I would have held the stocks I owned. I have made hundreds and hundreds of Trades during this time... so far it has been successful.
It's not a miracle, my portfolio is only worth about 7% more than it would have been worth. This may seem like an anomaly, but I was measuring on a regular basis and it seems like a good strategy.
However, the strategy has one systemic problem that needs to be corrected. Namely, it will result in the accumulation of the underperformer. Statistically, the stock which goes down the most proportionally will have the most days where it is inversely correlated to something else. Namely, you'll find yourself buying it more often than selling it. Thankfully I devised a solution to this problem. Put simply, you have to track the performance of your little ETF, and then track the performance of each individual stock relative to the mean. If one of them is underperforming, you adjust the trading criteria, Scaling it downward so you don't buy as much and you sell more. This conceptualization is located on the bottom left.
The top portion of the picture represents various share prices fluctuating around a mean. You can see the over and underperformers.
Imagine you have a portfolio with 10 different cryptocurrencies. For example, you have an account with Gemini and you've diversified into the largest cryptocurrencies by market capitalization. You are effectively invested in the cryptocurrency space and you are betting/hoping the entirety of the crypto market will go up. The way you distribute your funds across various holdings is at your discretion, but typically I would recommend having a larger portion of your portfolio in the larger projects. For example, maybe 25% of your position in Bitcoin, and only 10% in something like Doge. Just an example.
Now let's discuss the meat of my strategy. During bull markets, the respective companies and projects within the Sector tend to move in unison. A bullish day in the crypto market will see the vast majority of projects moving up. The key is that some projects will move up more than others and this is when you should make a trade.
My most recent example is how I've handled my cannabis stock Holdings during the Bear Market that's been going on for the last couple of months. If company number one drops by 3% and Company number two only drops by 1%, I will sell a small portion of company number two and buy company number one. This is done with the idea of exploiting the momentary inverse correlation. This is where the visualization on the graph paper is helpful.
I've applied the strategy over the past couple of months and it has been successful. Meaning, the cannabis portion of my portfolio is worth more now than if I would have held the stocks I owned. I have made hundreds and hundreds of Trades during this time... so far it has been successful.
It's not a miracle, my portfolio is only worth about 7% more than it would have been worth. This may seem like an anomaly, but I was measuring on a regular basis and it seems like a good strategy.
However, the strategy has one systemic problem that needs to be corrected. Namely, it will result in the accumulation of the underperformer. Statistically, the stock which goes down the most proportionally will have the most days where it is inversely correlated to something else. Namely, you'll find yourself buying it more often than selling it. Thankfully I devised a solution to this problem. Put simply, you have to track the performance of your little ETF, and then track the performance of each individual stock relative to the mean. If one of them is underperforming, you adjust the trading criteria, Scaling it downward so you don't buy as much and you sell more. This conceptualization is located on the bottom left.
The top portion of the picture represents various share prices fluctuating around a mean. You can see the over and underperformers.