Long Ethereum Thesis - (Part 3) Managing Active Trading

This thesis a super long term play and I am thinking of getting involved in this via Brick and Motor mining so this is a big play for me.

On the eToro network, here is how I will be playing this by drawing inspiration from some of the most successful trend followers.

Source:http://turtletrader.com/images/trend-com-big2.jpg

The Value of Ethereum is currently linked to an extremely positive sentiment.

Bubble?

One of my recent readings was titled "Extraordinary Popular Delusions and the Madness of Crowds" and it covered financial bubbles. While I do see Cryptos as potentially being a bubble it does form an interesting topic of conversation in terms of how it is likely to react to an open market situation.

A study by Meb Faber titled "What if (Sir Issac) Newton was a Trendfollower?" shows that even during periods of Bubbles, the use of Trend following strategies provides for a better returns with lower drawdowns than buy-and-hold strategies.

So which trend following strategy is best used?

I don't have a good frame of refence given the short nature of Cryptos but we do know they are an

- upward moving

- unlikely to return to reviously known lows
- possibly fueled by credit in the future

These are characteristics where perhaps the turtles provide the best frame of reference.

Looking forward by looking back

The turtles for those who do not know is a bunch of famous traders who used a leveraged strategy to bring profits back in the day. They had the distinct advantage of having a market somewhat similar to what the Cryptos are.

I believe we can use their framework. Taking from the book "Following the Trend" we will take a modified long only approach as i did notice for instruments such as bonds, it has been unfavourable to trade both long and short due to the single tradrectory. Also modifactions were neccessary due to using CFDs as opposed to Futures contracts, hence the calculation of vol and risk is different.

I will employ a short only on BTC, and only selectively.

• Long entries are only allowed if the 50-day moving average is above the 100-day moving average.

• If today’s closing price is the highest close in the past 50 days, 

• Position sizing is volatility adjusted according to the ATR-based formula. Risk per trade will be 0.5%-1%

• A long position is closed when it has moved three ATR units down from its highest closing price since the position was opened.

Accuracy is expected to be low, around 30-40% but returns if the call is correct will be much larger than risk capital taken.

Long Ethereum Thesis - (Part 2) Bubble or Not

Source: https://pbs.twimg.com/media/CO3fihqUAAA2VMS.jpg

Proof of work vs. Proof of Stake

Proof of work is how transactions get processed on Crypto networks. Ethereum CEO plans on moving away from this to a proof of stake.

I will not go into this in detail but this is one of the reasons why i prefer Ethereum over other cryptos.

Briefly, miners currently use large amounts of computing power to solve problems. Once the problem is solved, they are rewarded.

In the future, Ether will owned by a validator who will use their own Ether to validate transactions. I.e. Individuals who have more access to coinage are more likely to get more fees.

They will then a nominal interest on this. My understanding is it is 2%-15%.

This should encourage a gradual accumulation of coins and a potential bubble could form. If leverage becomes accessible then this will be even more the case.

This creates a fixed income type product. Its nominal value may never diminsh due to the cap in coinage.

Because of this, a reinforcing cylce(ala Sorros) could apply here.

Possible Risks and Exit Theses

Of course, these things may not apply if forces more powerful than us determine that it is not to be.

So here are a few exit points where I will no longer be holding on to the thesis. This lis is of course not exhaustive and I will be constantly be looking out for reasons that I am wrong. 

• Etherum uses proof of work, and price does not seem to be gradually increasing due to the low amount of interest
• Bitcoin sudden adaptation of alt coins in their network
• Hard forks due to global disagreements
• Too much Ethereum in the hands of too few(due to the risk of forks)

Long Ethereum Thesis - (Part 1) Long ETH short BTC?

I have often accused Crypto currencies of being bubble territory. This has not changed, especially for Bitcoin.

As Warren Buffet says about gold, it looks nice but have no real value.

Ray Dalio, one of my absolute heros in trading buys gold because of historical context.

Cryptos do not have any real value or historical context.

So I have been skeptical. Until now.

Source: hhttps://i1.wp.com/coinspondent.de/wrdprss_XXX/wp-content/uploads/2016/10/Bitcoin-vs-Ethereum-1.png?fit=672%2C372&ssl=1

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Bitcoin to me, had a value-add no different from Western Union and to a certain extent Visa and MasterCard.

It was a way to transfer value between parties effectively and at little cost.

These are two industries have significant distprutive value but not a lot.

Bitcoin works as a base means of transferance currency. That is all.

Advantage 1: Smart Contracts

Ethereum has ability to produce smart contracts. The business model allows for contracts and conditional transference.

A common example, is the vending machine. You put in the money, it is irrevocable and it will produce a can of soda in exchange.

The ability to define properties and produce payment is staggering.

There are already applications to gambling, airline insurance and even stock markets.

I can see potential even in the alibaba.com space or trade finance, it is could be a major disruptor.

Disrupting these areas are much more lucrative.

Advantage 2: Decentralized Independent Cryptos

Ethereum has a mover advantage over its competitors.

It has the DAO (Decentralized Autonomus Organization) which allow for other cryptos to form off of the ethereum network.

Dai for instance, another crypto currency based on the value of SDRs (Special Drawing Rights) is on the Ethereum network.

Augur, an online prediction site is being developed utilizes the Ethereum network.

These are coins on their own, but run off the Ethereum blockchain.

Advantage 3: Friendly to users

The Ethereum Virtual Machine (EVM) allows all programming languages to use the network, meaning it is also accesible.

Advantage 4: First mover

In the above 3 advantages, they are the first to move into this and are currently the largest.

Dash, Litecoin, Ripple etc are not as developed in these areas.

With so many projects in the pipline, i do not see other cryptos affecting these advantages.

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Even today as I publish this post, BTC rose 5% while ETH did practically nothing. It is apparent that Bitcoin is still the favoured child amongst Cryptos and is quite possibly in a bubble. However its long term value to me is  questionable.

In Ethereum, there could quite possibly change the world as we know it and they are ahead of the pack. Till this vision is realized I will be long.

Stay tuned for Part 2 & 3 where i go into further depth on my thesis and how I will manage this actively.

2 months later: USDCHF finally paid off

Finally it paid off, well some of it

I took off a majority of my position on Friday at the 0.9760 level due to structural resistance. While it did drop after, I beleive there is more strength to go.

Part 1: CHF Weakness via Central Bank Intervention

I wrote on my wall that I did not think the SNB would like the dollar to be too strong against the dollar and levels for the EURCHF were close to the previous floor that was set by the SNB.

Since then both crosses have seen CHF weakness.

The EUR though, continues to soar. I believe in the long term, this faith is misplaced, but for now, let us leave it as that.

Part 2: USD Strength yet to recover

The reason why I am taking this direction is because a weak US dollar affect practically everyone. As the reserve currency of the world, there are implactions. 

Sentiment is weak for America because of the turmoil in the Whitehouse and I do not expect it to get better, but global implacations will be there. Moving too quickly too fast will cause some problems.

https://static.seekingalpha.com/uploads/2017/2/7/1693591-14865128824778109_origin.png

Oil for instance, involves the US Dollar, the higher the oil price in conjunction with the dollar the more one will make in their home currency.

This does not affect shale oil producers who have their expenses in US dollars and revenue in US dollars. But in a place like Russia where Revenue is in US dollars but expenses are in Rubbles, there is a large effect against the companies.

Now the same senario is terrible for countries who are dependent on oil. Oil prices have already recovered slightly on the back on the weaker US dollar, but this double whammy effect needs to be taken into consideration in the broad global market.


The DXY though has yet to bounce to a level where i am willing to say, "the dollar is going weaker from here". When that happens i will take out my other position. It helps that the USDCHF has a positive carry so i will get paid a small amount per day to keep the position open, this way i can afford to be patient.

My reflections: I just tried auditioning for 2 prop firms (Part 2)

1st Target for eToro: All-Weather

My All-Weather strategy has not been used simply because ETF leverage is very expensive. I did not know this until I tried to make my first trade.

Also more instruments have been added to eToro, I need to incorporate them in. But I need some money to do that research, data isn't always free.

But once this research is done, I am likely to use this exclusively on the eToro network.

2nd Target: Macro

I aim to get back to scratch back to a breakeven year at 0% from there I will look to employ All-Weather exclusively.

Risk vs. Effort return

The reason why I am taking this direction is because i am seeing that traders on the eToro network are looking for good returns, i.e. in the ballpark of 10%+ per year. 

The amount of effort and energy required to allow for consistent performance(like how i was trading for the prop firm) is not scalable on the eToro platform. i.e. i can make 1000% with $500 but not with $500,000. The reasons are varied but generally it is non-scable.

10% though is a lot, especially considering where interest rates are at the moment. Can this be achieved with the all-weather, I believe so, but with some leverage. 

The all-weather i meant to be a fire-and-forget strategy because it concentrates on the long-term cycles. While demographics, politics and other factors may influence its performance, most of it will be noise to the strategy. 

It makes for an interesting almost "one-size-fits-all" strategy because it is easy to understand and requires less effort to manage, allowing me to spend my time earning eToro income on the side. 

eToro: Where does it fit in my mission

For those seeking better returns above 5-10% can find other means of improving their returns, but if it is by copying, it requires a certain amount of effort and luck. This not just on the copiers part but the person being copied.

Element of luck is something that I scorn when looking at finance because this is perciesely why i started on eToro in the first place. It is undeniable, but i would like to avoid that element as much as possible.

I started on this eToro journey to help people who do not understand finance, not help those who are willing to put in the work. Help in a nieve manner but a sincere manner. Right now this is as sincere as its gets.

What is effort

The other route of effort, that is something that can be learnt from various sources but requires work. Something most people won't be able to do, and most will blow out. There is a reason why 95% of traders fail.

Most education providers are scam artist (see: https://www.tradingschools.org/), no matter how much you research you are not going to find reliable reviews because so many are incentised via marketing. Trading schools is really the only one I would trust.

Even then, for the highly rated providers expect return less than 20%.

The myth of riches is something that cannot be removed from the image of traders.

So 10% for a copied fire-and-forget fund is actually pretty good. 

What about my high percentage FX trading setup?

I may move my macro FX trading system is still something i believe in and i can still run it. But i will move it to another platform. This is really for my own personal highly leveraged returns, with small amounts, but eToro strength is in its ease of use and social aspects so i will use it for those purposes.

My reflections: Auditioning for 2 professional proprietary trading firms (Part 1)

Sorry all.

I have not been very active over the past 3 months, the reason being I have been trying out for 2 different prop firms and it has consumed most of my time. One with a global mandate (trade any instrument on the platform, very similar to eToro) and the other futures.

I signed non-disclosures so I cannot say exactly what I did, but I can talk about what I learnt from my experiences.

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Games we cannot play: Market timing - A lesson in Oil

I have been an avid supporter of Macro type trading because it is based on principles we can understand. And if we are wrong or when the market has overwhelmed us, we can understand why.

But alas 1H2017 was miserable for me on eToro. So is macro usable by retail traders?

This certainty is something I have taken pride in through my research, but yet I have found timing is always a problem with this type of trading.

An example of this was OIL where I shorted at $46.97, well before the OPEC meeting, it went up to $51 and in between I tried to trade it and got completely wrecked. But was my thesis wrong? Looking at price now, no.

I have learnt over the course of the last few weeks, modern macro traders use options to try and elevate this concern. As retail traders, perhaps an approach could be martingale, it negates the requirement to be correct on completely correct on timing but IF wrong, must exit immediately.

I have been very critical of this method because many eToro traders blow up after using this method but if used correctly, I suddenly find it has its merits.

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Games we cannot: Know your role - Outright futures are difficult to play

One of the firms I was trading for used DOMs or Depth of Market, this shows you the order book and you can take positions based on the order book. This method of trading is highly profitable but at the moment is not available to retail traders.

It is not for our purposes but what I have found is that it is profitable on a daily basis. Scalping profits daily.

It is not accessible by retail traders and even for Gold and Oil provide a very different set of data which if one does not have access to puts one at a huge disadvantage.

Looking at Oil, Gold and even indices, is it even fair for us to try and trade these instruments intraday? Probably not. These instruments we have to stay away from in intraday basis, here I will either do daily or weekly candles only.

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We all lose

Even at the prop funds where I was trailing for. Psychology of losing is so important.

There will be periods of not making money, but it does not mean you are bad, just conditions maybe have changed or some other reason. 

Part 2 coming soon.

3% a month Thesis? - Black Swans are rare in a Fragile Market

I have recently picked up Nassim Taleb's book Anti-Fragile. For copiers & followers, you will know that I am a huge fan of this man.

Black Swans is often where I live. And here instead I am taking the opposite view. Why? Monthly income.

As much as I love macro trading, in terms of frequency, it is not quite enough to live life. In 2016, according to Eurkahedge analytics, global macro style funds only made 3.77% in 2016. YTD 2017 only stands at 1.27%.

This is not a stat which is palatable to the eToro community. But who am I to beat professional managers? The answer lies in market structure and leverage.

If I can play in the space where retail traders mostly fail in a more controlled manner perhaps I can be successful. 

These certain advantages also are available which may be why this thesis should work for my copiers.

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Fundamental Structure:

We are in a fragile market which is not used to shocks. Thus, volatility is generally low across asset classes. The Market Structure have evolved to a point where it does not allow for it. With High-Frequency Trading Algorithms and dark pools means that overbought and oversold conditions are quickly reverted to a mean.

Using eToro being a Level 2 / STP (Straight Through Processing) allows us to take advantage of a great amount of relative liquidity in a low volatility market.

This system is temporal; I do not think it will exist 10 years into the future. It is a temporary arbitrage. It is also only available because I have a small amount of capital, scaling this system up will likely fail.

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The details:

There are three flushes of liquidity in a day, they are during the Asian Open, the European Open and the US open.

If the early part of these sessions produces a breakout, it should retrace to the mean quickly. High-Frequency Traders, Dark Pools and the like will sell (buy) overbought (oversold) conditions using RSI, MACD or MA which are programmable. It should then return to the mean quite quickly.

How can I trade these? Using MACD/RSI/MAs are probably arbitraged away and I probably can't be fast enough to get in. But what is not programmable quite yet? Chart Patterns.

It is difficult to program what a bullish engulfing candle is, but it is not hard to see how such a pattern could equate to a crossover of the MACD histogram. We can take advantage of this till it programmers finds a way to take advantage of these.

During my test, I was able to find a sweet spot at a 10 pip TP level while SL was 15 pips. This had an 80%+ success rate.

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System failure:

The system fails during economic news or sentiment which doesn't allow the market to remain in its low volatility state. So it is key to avoid these timings. This system is not predictive of the news.

It also fails during low volatility periods 2hrs prior to entering the trade. Lower than 19 pips.

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How I test my system:

Painstakingly. I will do a YouTube video to show how I do it.

 picture of my excel test results

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Currency Used:

Only USDJPY due to lower spreads and also high trading volume. This should result in a lower standard deviation from the mean.

I have tried it with GBPUSD, but it has not worked out. For one the high spreads are a concern, the second if the runners tend to be quite frequent due to the European session. The spreads are no fault of eToro I understand this is the service that they offer. So, for now, USDJPY seems to be the most workable on eToro.

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When am I going to start:

I started today, making barely breakeven because I wanted to test the change to my risk score. I will scale accordingly because I rather my risk score remains lower.

If all goes well, I shall start properly tomorrow.

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EURUSD Thesis: Are we forgetting Populism?

The recent moves in the American politics has caused the EURUSD rally.

The dollar strength seen during the initial speculation of the interest rate rise. It then trended downward upon confirmation of the interest rate hike. While this makes very little sense, we can only observe (I have written more on my eToro wall here)

  

But, my thesis is that there is a dollar funding crisis and the Eurozone still faces considerable headwinds.

Fundamental - EU

 I have also been transparent on my blog about my view that the EU will dissolve at some point.

The EU French elections may be a catalyst for this.

I have but a limited understanding of the election. But Marine Le Pen, who is leading the populist movement in France has called EU as "going to die". Needless to say, she is against the EU.

François Fillon of the Republicans and Marine Le Pen of the National Front led in first-round opinion polls between November 2016 and mid-January 2017(source: Wiki). And so I expect the EUR to weaken as fear sets in leading up to April 23.

France is one of the larger economies of the EU, if they leave the EU, this could mark the end of the union.

Consider the birth of the EU was due to Margret Thatcher and the Single Market Agreement (SMA). And now Britain is leaving.

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Fundamental - US Dollar

The US dollar has been suffering at the failed passing of the healthcare bill

Look at how the SPX500 recovered from the initial dips.  The recent move in many markets may have been exagerated.

If this is true, a recovery is imminent.

I have also written a little about my US dollar strength thesis here and while I do have a few more reasons, I do not see any reason to think otherwise.

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Technical entry

The fundamentals usually get me more excited. But for this trade, the technical prove more interesting.

The DXY (or $USDollar on eToro) index has reached an important support level. A break up here would indicate we are likely to headed higher.

For the EURUSD, the 4hr chart formed a shooting star candle pattern with a bear candle following it. Another sign we are going lower.

Even with all these confirmation I will only enter this position after I see considerable consolidation. A retracement and 3 candles below the 10EMA would also be a good entry for me.

Given the risk: reward, i can afford to be patient here.

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Sentiment

Sentiment for today, especially during the Asian trading sessions has been all about the failed passing of the bill.

However, Article 50 execution is expected on Wednesday. From there we are likely going to see a change in sentiment.

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Entries

I suspect after article 50, there will be a start of a correction. I may be wrong here, and is why i prefer to wait for a consolidation to ensure that this EURUSD bull run is over.

Possible Exits

Whether of not  Marine Le Pen wins is not of great consideration to me. (but I think she will) There are too many variables to predict.

Even if I did, I wouldn't know how the market would react. It could happen like the Trump rally or it could fall. I plan on exiting at least half the position before the results, especially if we are in profits.

If the market moves away from the EUR in fear of the EU dissolving, we will test this the 1.04 levels again.

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Summary:

Short EURUSD.

Sentiment has moved to the US after the whole healthcare bill taking full view of the market.

The EU troubles have flown under the radar, but i expect it to be the centre of attention till the French elections.

This presents an intersting risk: reward for a short.

The entries and exits are not 100% clear at the moment, but i am watching out for it.

Dealing with a losing position - The SP500 & Horses

Now I have a position that is open, it is not very big but it is still part of what I believe is part of a bubble.

I have talked about the reasons at length and why I think it is a bubble(please see here) and since then have developed more evidence to support why it is a bubble and little evidence that it is not. For e.g. 8 presidents of the US has come after a two-term president. 7 of them experienced a recession in the year following their election, Donald Trump is number 8.

I know gurus such as Druckenmiller and Ichan are long in the market but yet others such as Soros are short.

But I am holding a short position in the SP500, and down quite badly, slightly over 1% of my account.

Recovery here would mean averaging down, but more than my initial holding amount. Essentially doubling down on a losing bet to hope it recovers. This specific strategy is called martingale, a term that shares a term with horse riding.

Source: https://angusbarrett.com.au/complete-german-martingale-4866 

***********************WARNING***************************

I have to caution, there are many people who use martingale mainly because they do not wish to be wrong, or to be seen as wrong, or do not like to sell losers(prospect theory) especially on eToro. This is super dangerous because when they lose big, they lose everything.

I find this kind of trading is irresponsible if it is blind.

If you are copying someone using this, be aware that it will be like a Turkey effect. Everything will be fine and dandy for 364 days a year, and that one Christmas day. Well...

****************************************

But i do not mind employing it here because one of the marks of a good macro trader is to know when to call it quits and when to recognize it is an even better opportunity. For me, this is a better opportunity.

Using this is merely recovering some of the position, even if it turns against me, that is fine because i do not mind being down double this position.

Looking back at the SP500, each successive high was met with a retracement at least to the 38.2% mark. Using the martingale, i will try to recover the position in full and immediately reenter the trade so my exposure is still similar to what i initially bet on.

In math terms where "x" equal initial entry size

1x - - - > Enter additional Position, of 1x + 1.6x = 2.6x

Sell 2.6A when P&L = $0

Re-enter immediately with 1x

I can exit completely and move on, or i could re-enter at a later time, but i am doing this so i can constantly be exposed to the market and not lose out if my timing is off.

Can I just close 1.6A instead of closing everything, Yes i can, but i am doing this because transaction costs are minimal and exposure can be better managed this way. In other words, its easier for me to math.

If i were to enter current levels now it would look something like this:

	Trade Size (total)	Open Price	Current
Level 1	8.80	2268.7600	2,311.1231	19,965.09
			New Value	20,337.88
			P&L	-372.80
Level 2	14.08	2,337.6000	2,311.1231	32,913.41
			New Value	32,540.61
			P&L	372.80

While Breakeven is going to be somewhere around 2311 levels above the 38.2% fib retracement levels. i will not be upset if it trends higher following that.

For now, i have to wait for consolidation to make my entry, no telling how much more this rally will persist.

eToro-ing Strategies: Part 3 - Backtested Results

For those of you who prefer videos, i have done a series on my YouTube channel here (insert

Link

)

This is not supposed to be detailed instructional into All-Weather, it is too complex for me to describe here and my YouTube videos but i hope it is general enough for my copiers so you do not need a finance degree to understand.

I will probably do a Udemy course to describe the methods in more details, but this is a general overview.

Past results are by no means a reflection of future returns.

But......

i believe in the spirit of the system and human behaviour, the results below are from my back-tested results.

Testing Results

The extreme returns are a result of exposure to real estate in the US, so the gain in 2010 and low returns in 2009 are unlikely to repeat. The loss in 2005 is just an organic under-performance of the system and was partially due to it only being restricted to half a year.

These results are also restricted by the number of years in which the instruments had data.

In view of this, i am reducing the exposure to the Real Estate ETF as well as reducing exposure to the SP500 due to my long term view of this market.

My value add

With the information you have here, you can use this system? Absolutely. If/when i come up with the Udemy course, this will be even more so.

My only value add is

1) i have a macro view of the market,

2) i manage the technical aspect,

3) i understand this portfolio as best i can and

4) that i rebalance this portfolio every quarter. These are elements you can do yourself if you feel up for it!

I hope my intentions are clear and that this portfolio is something that you can add to your investing journey. If not thanks for taking the time to read this and hope you have learnt something!

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.

eToro-ing Strategies: Part 0.5 - My intentions

For those of you who prefer videos, i have done a series on my YouTube channel here (insert

Link

)

This is not supposed to be detailed instructional into All-Weather, it is too complex for me to describe here and my YouTube videos but i hope it is general enough for my copiers so you do not need a finance degree to understand.

I will likely do a Udemy course to help describe the methods in more details, but this is a general overview.

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First to my copiers and followers: Thank you for following me on my journey.

As much as i have enjoyed being a "full-time" trader, returns have been lumpy, (December lost 1+%, mid-January +0.05%) and given the period we have entered, I think we will be entering a period of extended consolidation.

This likely mean i will not be able to trade 1) responsibly and 2) in good conscious.

Why this system?

Only 2 schools of thought have consistently returned good amount of profits

- Global Macro (Soros, Dalio, Druckenmiller, Rogers)

- Micro/Value investing (Buffet, Munger, Pabrai)

As much as people say they have been profitable, a study of the wider universe will show this to be mostly true.

My chosen field has been Macro and I have studied the above-mentioned traders.

This is an application of Dalio's methods

http://news.efinancialcareers.com/wp-content/uploads/Global-macro-trading_djvstock_iStock_Thinkstock.jpg

So why have i not employed this earlier?

Two reasons

1) I have enjoyed employing/studying the reflexive process as this is a more exciting way to look at the world. It is also more lucrative but extremely lumpy.

2) Instruments available now are different from one year ago. The All-Weather system requires certain expression via certain instruments, one year ago before ETFs on eToro, this was impossible. Now we have a not ideal but workable system.

Am i giving up?

Please do not mistaken this as a means of giving up on the 1-year journey. There are ways of trading which i can make about ~30% a year in most trading conditions but lose everything once every 7-8 years.

I have used methods like this before and is VERY VERY common on eToro. I used to earn an average of 7% a month for about 2 years.

But my experience shortly after was similar to a pattern that i saw when i was doing my Masters thesis, you will lose a significant portion of your account (30-80%) after if you keep going down that road.

I have long decided that this is irresponsible and if copiers do not understand this process, you expose them to a chance of earning 30% with the possibility of losing 30%-80%. And most copiers who do not trade themselves will not understand these risk nor want to accept these risks.

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Conclusion

I am not making excuses with my one year challenge, I knew that there will be periods where i would not make money and that returns might be lumpy in maybe 10% of conditions. I was hoping the market would play out in the 90% area. But as the world would have it, we are in the 10%.

You can quantify this but the extended ranginess we are in.

One objective that i have is to be around on eToro for a very long time but given my current circumstances, it is better for both myself and my copiers if i spend 4 hours a day employing this system and work some hours instead of stressing every moment waiting for the next trade.

This is a better way to show my trading "abilities".

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset invest ment platform. The value of your investments may go up or down. Your capital is at risk.

eToro-ing strategies: Part 2 - Modifcations and Expression on eToro

For those of you who prefer videos, i have done a series on my YouTube channel here (insert

Link

)

This is not supposed to be detailed instructional into All-Weather, it is too complex for me to describe here and my YouTube videos but i hope it is general enough for my copiers so you do not need a finance degree to understand.

I will likely do a Udemy course to describe the methods in more details, but this is a general overview.

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My replication on eToro is probably a poor way of doing it, but it is what we have as certain expressions via certain instruments are just not available.

If you were to follow what was described in Tony Robbins book, Intermediate Government bonds are not available via eToro.

Instead i can only keep the spirit of the All-Weather.

Modifications

http://2.bp.blogspot.com/-cBxzwNheouM/UAiYQfq0ZoI/AAAAAAAAAE4/1C6ciaFAolc/s1600/car+modification1.jpg

I have a liquidity preference and i believe CFDs to be more liquid, i may be wrong here, but it is my belief for now.

Risk parity will change consistently and i have adopted the volatility per day for the last 12 years as a starting point. But risk allocation will be

re-balanced

 and changed depending on my market outlook.

Also in my study of reflexivity and the self-reinforcing cycles, i have added a super simple technical analysis system to try and direct our allocations towards long term self-reinforcing trends. The 200 Simple Moving Average.

Because we are not dealing with currencies, i imagine this to work slightly better in the instruments expressed.

Instruments used

As mentioned above, i do not have access to all the instruments in question via the platform so some improvisation was done.

For instance, the TLT is the long term treasury ETF.

The corporate bond index includes a broad range of

duration

, because our expression of this requires short & medium term bonds as well as corporate credit, i have to take a short position on the TLT to remove large effects of long term treasuries within the corporate ETF.

This is not ideal, but it is the best expression that we have.

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset invest ment platform. The value of your investments may go up or down. Your capital is at risk.

eToro-ing the world's largest Hedge Fund: Part 1 - Technical Introduction

For those of you who prefer videos, i have done a series on my YouTube channel here (insert Link)

This is not supposed to be detailed instructional into All-Weather, it is too complex for me to describe here and my YouTube videos but i hope it is general enough for my copiers so you do not need a finance degree to understand.

I will likely do a Udemy course to help describe the methods in more details, but this is a general overview.

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Only 2 schools of thought have consistently returned good amount of profits

- Global Macro (Soros, Dalio, Druckenmiller, Rogers)

- Micro/Value investing (Buffet, Munger, Pabrai)

This is an application of Dalio's methods.

This is no secret as Dalio has always been transparent to a very high degree, and he was kind enough to offer an allocation strategy in Tony Robbins book, Money Master the Game.

It involves two important aspects

4 seasons

No not the hotel!

Every economic enviroment can be descibed in 4 seasons.

1.      High Inflation, High Growth

2.      Low Inflation, High Growth

3.      High Inflation, Low Growth

4.      Low Inflation, Low Growth

In any season certain assets will perform well and certain will not.

^{Source: http://www.wallstreetoasis.com/blog/all-weather-ray-dalios-approach-to-the-ultimate-investment-case-study}

Here a graphic of what Dalio proposes.

So if one were to own assets equally, it should be theoretically possible to return in most economic environments and those that you lose it is not too bad.

E.g. when times are Low Inflation, Low Growth. Times are bad, equities are down, the market is cranky. Long Term Treasury bonds and Gold performs well cause no one wants to take risk and rather have a "safe" environment.

2) Risk Parity

The second theoretical part you need to understand is that risk is different per asset.

For instance,

- Google Stocks in Jan 2006 @ $235. Now $832

- 250% increase in 10 years

- 25% Per Year

- 10 year bond in Jan 2006 – Yield 4.30%

- 4.30% per year

This makes sense because bonds have lower risk. But what happens if i borrow money or lever the bonds up say 5x? This will change 10 year bonds return to 21+% a year.

Yes, leveraging increases risk but that is the point of risk parity, changing allocation to match the risk: return ratio for each instrument. 

Oil Update & The Unfair Advantage

Hi all,

I am at heart and by training and circumstances am a technical analyst.

     - When i first picked up trading, this was what i learnt,

- for the first few years of trading this is what i used,

       - most books that i have read preach technicals

- when i was working part-time for a fund, it was based on technicals.

 Credits: https://www.colourbox.com/image/young-man-showing-poker-cards-image-4253145

In trying to find a way to trade oil, i ultimately found out the technicals did not hold in certain periods (e.g. Jan - Mid Feb 2016).

The recent Trump victory scenario is one period where technicals and fundamentals did not apply and some traders lost money (including myself). Yet as eToro traders we have one thing that gives us an advantage over all hedge funds and mutual funds out there.

The ability to walk away and not play the game.

I liken this to playing poker, if we have a bad hand instead of folding or staying or whatever, we can just walk away. If you are a large fund manager, it is difficult to liquidate large positions without adversely affecting your portfolio, transaction costs, move the market, scare your brokers, not to mention regulations and things like that.

But for us, if we have a bad hand, we walk. We do not need to keep positions open, nor do we need to have capital invested at all times.

We do not have a liquidity problem or have issues entering or exiting the market.

Many of you know i was thinking of entering the oil trade, but i have decided not to. The OPEC meeting looking back at the past few months is nothing better than a coin flip with reasons no more compelling than the last. So while my thesis holds true, and i believe in it, without having someone who specialises in oil giving this a review i will not pretend to fully understand all the powers at work. 

Maybe next week once speculation has died down. But in the meantime, I am walking away from the poker table.

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Being Honest: Its not Enough

Honesty

My goals for Etoro have changed. My singular focus of this trading account is to provide monthly income, and in doing so, help others achieve financial freedom.

Since I have joined the popular investor program, I promise, to be honest, and transparent.

With that said.

It is NOT good enough

The past 2 months the USDJPY system has been great for me! Till last week where my system didn't return anything for a week. And it lost me some money today.

So reality check, it is not enough for my goals of monthly income. I do not have all the answers and do not know everything there is to know.

I need to get better.

Dirty Secret of the industry

As a partial academic (I am perusing my masters in Finance), my understanding is different from most people when it comes to selecting managers.

Warren Buffet says it best (full article here):

Buffett begins by imagining a nationwide coin-flipping contest. Everyone in the country participates and calls the flip of a coin. Call correctly and move on to the next round, guess wrong and you're out.

After 20 days, about 215 lucky flippers will have correctly called 20 consecutive flips. They gloat in success, yet the nature of coin-flipping tells us they're just lucky. It's a game of random chance.

But what if all 215 flippers lived in the same town? What if they all hailed from the same school? The same fraternity? Then we'd get excited. The laws of probability suggest 215 winners after 20 days. But those same laws tell us that if all 215 belonged to an associated group, that almost certainly wouldn't be the product of random chance. These 215 flippers clearly would know something we don't.

The real flippers in Buffett speech are nine "superinvestors" -- himself included. All nine crushed the market averages over multiyear periods by between 8% and 22% per year.

In a world with millions of investors, such returns can occur by sheer luck -- just like the 215 coin-flippers appeared at first glance. But all nine superinvestors hailed from the investment school of Benjamin Graham and David Dodd -- Columbia professors now known as the fathers of value investing. That meant something big. It meant that their success wasn't the product of luck. It almost had to be attributable to the only common link they shared: the investing philosophy learned from Graham and Dodd. The "intellectual origin," as Buffett put it.

Credit: Photospin

Learning from the best:

I echo these thoughts and want to be part of the superinvestors. I have thus dedicated the basis of my trading on the best Macro traders and thinkers of our time and all of my systems have been based on these concepts.

Ray Dalio - Credit Cycle

Nassim Nicholas Taleb - failure of bell curve statistics and asymmetrical risk

Michael Marcus - Trinity of trades (Fundamentals, technical and sentiment)

George Soros - reflexivity

But for my 3 systems at the moment, they have to change because it isn't good enough to reach the goals.

I will choose hold on to nothing if it does not benefit this goal. And unfortunately, this includes my beloved 4hr system which has not failed me since I was doing my undergrad.

Rigorous Testing

Copiers and followers, do please know I do test my methods before applying and never risk capital to test anything. It either works or it does not.

I do not believe in eyeballing charts either, IT DOESN'T WORK! So anyone showing you past data with the benefit of knowing future movement. Like so many YouTube gurus. So please take it with a pinch of salt.

I have my own way of testing and if you would like to hear more, drop me a comment or write on my Etoro feed and I might do a blog post on it.

Stay safe people!

Rules: Very Few High Risk Trades

New System: Very Few High Risk Trades

So from now on I will follow the system(link) and I will add the below rules in addition to the system.

Rule 1: Don't swing at every pitch

I learnt this from reading a book on Charlie Munger (link), we don't have to be in the market all the time. The goal will be 10-15 traders a year. YES in one year!

For instance, the past month, everyone is speculating on the Brexit, but we don't need to be involved because there is no educated guess on where this is going.

Rule 2: Bet BIG!

I believe I learnt this from an interview with Sorros. Test your theory with smaller positions, if it works, go BIG.

The system I have been using has been working for a while, losing positions closing at stop loss. Therefore each trade size stop loss will be 15-20% of the entire account. The amount we earn will depend on where the market is, but generally 1:1 risk reward is minimum.

Again there will be very few trades, and I expect them to be high percentage(see rule 1), so I am comfortable with exposure.

Rule 3: Respect the market

- Always respect the market, never move Stop Loss.

- Monitor every trade till it gets to green and TP moved to SL.

Rule 4: No correlated bets

If we are betting against USD strength, no taking another bet with the same consequence

GOLDEN RULE 5: No Averaging

Averaging works people! It works till it doesn't then you lose big.

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Rules on how to copy me will be up soon!

My System: It really isn' complicated

The System

- Here is my system – setup, entries, exits

- I only play 4hr chart as I find it the most accurate

- Based on adaptation of 2 different strategies

- Must read book for all aspiring traders(Link)

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So lately i have been working a new "All Weather Strategy" but a good definition is, 1) Robust, 2) simple (taken from an excellent book available here)

I have tried pure technical and pure fundamentals what i have found is robustness works the best, fundamental truth backed by mathematical concepts.

Simple means not as many variables. Too many indicators does not equate to better results.

 I believe i have achieved that here. A simple countertrend strategy with no fancy indicators based on a mixture of 2 different strategies. Individually, they work, but in conjunction they produce really great results. 

This is not the only workable system, but i find it gives me asymmetrical risk returns and is high percentage!

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Setup - Indicators

EMA 10

4Hr chart

MACD - default settings 

Works on all currencies generally but i only use the following due to higher spreads on Etoro: 

EURUSD GBPUSD USDCAD USDJPY AUDUSD EURJPY 

If you are not on etoro, i used to trade 16 different crosses.

Part 1 - Finding an entry, adaptation of “Nanningbob 4h trading system(Link)”

If I see that price is moving beyond a point that has not been seen in a while that's my first criteria. This takes a bit of judgement but think about it as it passed the last major resistance/support level.

Underlying belief is that as long as nothing super major is happening fundamentally, currencies should not fall beyond what was seen previously without some kind of retracement first. Currencies falling rapidly without the digestion period can be dangerous (see 1997 financial crisis), also stop losses, bottom fishing, taking profits.

There are many reasons why retracement is necessary and in my opinion is the basis behind the Elliott wave principle

Part 2- finding a point, adaptation of "Bladerunner(Link)"

When prices run, they can run fast. Blind entry just based of levels can be dangerous.

I used to do blind entries till I traded the USDJPY in late 2012. There was no retracement,and I even averaged down so the loss balooned.  This is why I believe averaging down is poisonous.

Now to improve that I noted that I can enter only if I can see prices are stabilizing and getting ready to reverse.

I am using the bladerunner strategy to find a counterpoint. Retrace to the 10EMA & MACD shows momentum slowing beyond 20/80 point and if i am lucky some candles patterns as well.

Barricade - behind a strong resistance level (good principal no matter what system)

Now, doesn't mean all trades work out, we win some we lose some. I will always have a preset Stop Loss at the next support/resistance and give It a couple dozen basis points leeway.

I read this sometime back, if you need protection why not set it behind a barricade

Exit fibbo - Fibbos are one of the best retracement levels cause it gives us some sense of where we are going.

Since our system involves going beyond levels that haven't been seen in a while. Fibbos provide good levels.

Barricade – Profit taking

Going again with Fibbos

Sizing 

5-10% of invested amount. 

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Notes:

Do i recommend the bladerunner itself on like the 5/15/30M chart? I used it previously to good effect at 15M, BUT I have not tested it throughout an economic cycle and don't know how it reacts to crisis events.

The true masters of trading I noted have traded throughout crises such as the GFC in 2008 they have come out alive, this is a must see this book for inspiring traders(Link).

On etoro I have met some who says they have successful from 2/3/4 years experience. The real experience is when you can say you have seen the economic boom and bust cycle.

And really does a system need to be so complicated? Follow my blog and my etoro feed for posting of my trades, copy me if you want an optimized portfolio!

Stay Safe People