I am not a financial advisor. Pursue this strategy at your own financial risk
When it comes to investing, protecting the downside is just as important as having a strong upside. In the stock market there is something called Modern Portfolio Theory, which focuses on diversification and beta, but in the world of crypto this just isn't the correct way to go about it. For anybody who has ever held a Bitcoin, they know very well that it is a tiny bit more volatile than the stock market. Furthermore, crypto holders are generally far more willing to stomach far more risk. What is risk? In the world of value investing where I hail from, risk is defined as the permanent loss of capital. This doesn't mean that a 5% drop is bad, it's just that if there is a 5% loss of intrinsic value that is bad.
Modern Portfolio Theory (MPT) downfalls
Spreading the risk, spreading the eggs, whatever you want to call it, diversification is the cornerstone of MPT. Often in a portfolio there is above 20 holdings without any consideration of the underlying asset. The idea is to limit volatility, basically to make it easier for the investor to stomach, and it can work as the stock market is highly diverse with many industries. When one industry is collapsing, another may be rising, cancelling out. Crypto is a highly correlated industry, so in a downturn, holding 20 coins may just simply mean that the loss isn't as bad- 20% loss compared to 30%. Yes, this is an improvement, but I reckon I can get even better.
Short term, high concentration trading
In crypto, you can experience a years worth of stock market investing in a single day. This leads to a lot of gains and losses, but nothing of permanence. How can this be changed? I believe that by holding your portfolio in cash for the majority of the time, and waiting for dramatic, crypto wide drops to occur before returning to the market. The market has a habit of severely overreacting both ways, so when you buy in the down and sell on the up, there is a chance to make a consistent 10-20% profit every few weeks, with a lot less exposure. Yes, there will be times when the market continues falling, but that is the case with every system, it isn't perfect. There will be no hodling, just trading with the portfolio being in cash 90% of the time, but in drops, going all in over about 4-7 coins. There is no point having exposure to the extreme volatility for the sake of it, and I wouldn't hold the positions for more than a week. Yes, there is more work, but the returns should be higher with far less lost sleep.
Final Note
This is a system highly reliant on the mental courage of the person instigating it. They must be brave enough to go all in when others are running for the hills, and sell when others believe they are about to become a millionaire.
Tell me what you think of this!
Begin trading crypto now! When you join coinspot through this link, you earn $10 Bitcoin right now after making a deposit (I make $10 too, win-win)!
