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Author Topic: I want to trust one of you who tells me, buy now and sell now. Nothing more.  (Read 6483 times)
RationalSpeculator
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This bull will try to shake you off. Hold tight!


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August 20, 2013, 06:29:35 PM
 #41

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster.  

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

¡ Wow. Extremely interesting strategy !

In the hedge fund world this is called 'trading around your position' and was a strategy used by 'Jimmy Balodimas' that succeeded to make money even when he was wrong in the market, thanks to this strategy as well as a control of his emotions.  

This is a great interview with Jack Schwager who studied successful traders and mentioned this around 16min:
http://www.youtube.com/watch?v=AqCOw-pja7E

 
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August 20, 2013, 11:26:43 PM
 #42


In the hedge fund world this is called 'trading around your position' and was a strategy used by 'Jimmy Balodimas' that succeeded to make money even when he was wrong in the market, thanks to this strategy as well as a control of his emotions.  

This is a great interview with Jack Schwager who studied successful traders and mentioned this around 16min:
http://www.youtube.com/watch?v=AqCOw-pja7E

 

Thanx. Invaluable a  contribution.
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August 21, 2013, 08:51:21 AM
 #43

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster. 

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

Interesting strategy, I like it. 

When I say buy and hold I'm thinking years not months though. You're entry point won't matter much if bitcoins are worth multiples higher than you paid years from now. Its more like the 'stacking' mentality that precious metals bugs have. Add more when you can, don't sell.
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August 21, 2013, 03:34:11 PM
 #44

Add more when you can, don't sell.

The trouble with that is most people tend to have extra money at the same time as everyone else due to macroeconomic influences.  Unless you are the first to get extra money, you are paying a premium over dollar cost averaging or some other strategy that doesn't buy at the same time as everyone else.  Just include the purchase in your budget and execute it on a schedule.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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August 21, 2013, 03:57:13 PM
 #45

Speculation is a fancy word for guessing. I don't think that most people realize that this is true even for big time NYSE speculators. The best of the best on Wall street rarely do better than random chance.
No one has the answer you seek. There is only guessing about what the squiggly line will do next.

The gospel according to Satoshi - https://bitcoin.org/bitcoin.pdf

Free bitcoin in ICELAND - https://bitcointalk.org/index.php?topic=1610684
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August 21, 2013, 08:46:46 PM
 #46

You can help faith a little by showing patience and waiting for the right moment for a trade.

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0xz[.]
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September 04, 2013, 08:50:20 AM
 #47

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster.  

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

¡ Wow. Extremely interesting strategy !

Thanks Smiley

It worked wonders for me.

The only tricky thing is to decide how much of your capital you want to allocate to bitcoin.

I chose for 30% long term. However I added something extra. If price is relatively expensive (meaning price is above the 200 day moving average) I want a lower exposure than my long term target of 30%, if price is relatively cheap (below the 200 day moving average) I want a higher exposure than my long term target of 30%.

Currently my exposure is 20%, 16% to btc and 4% cash on the exchange (meaning I chose 80%/20% btc/cash) because the price ($104) is currently above the 200 day moving average ($86), so relatively expensive. If price goes down I am not only buying more to balance my 80/20, but also to raise my current 20% exposure to 30% and possibly even 40% if price goes considerably below the 200 day moving average.  

This is basically a turbo put on the strategy so that you end up selling even more as it goes up, and buying even more as it goes down.

I plan to continue this strategy for the time being as chances are low we go up soon. However once you go into a parabolic rise this strategy leads you to sell too many bitcoins too soon. So there are times where you want to change to a buy and hold, letting your bitcoins grow to possibly 90% of your capital, and only reactivate the strategy when the parabolic rise is starting to become dangerous.

So during the rise from $13 to $266 this year I only sold some bitcoin at $70, but realized it was not smart as chances were high we would go into a mania like 2011, so I stopped selling and only relaunched the strategy when we went over $150. Even then I didn't stick to the plan and was selling to keep it down to 30% of my capital but I should have reduced to 15% because the price was historically high above the 200 day moving average. I didn't and lost some great profits due to this. But still my return on bitcoin since the start of the year is 1050% whereas a buy and hold has earned 'only' 650%. (Yeah, never expected to have to say 'only' 650% in my investing career Smiley )

How often do you adjust buying or selling BTC to fulfill the percentages? each day, week, month...?
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September 04, 2013, 09:24:34 AM
 #48

Buy as you can afford.

0xz[.]
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September 04, 2013, 11:55:43 AM
 #49

trust yourself
buy now, sell never

Trust myself or trust in you?  I prefer to trust anyone who knows before myself
RationalSpeculator
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September 04, 2013, 01:10:31 PM
 #50

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster.  

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

¡ Wow. Extremely interesting strategy !

Thanks Smiley

It worked wonders for me.

The only tricky thing is to decide how much of your capital you want to allocate to bitcoin.

I chose for 30% long term. However I added something extra. If price is relatively expensive (meaning price is above the 200 day moving average) I want a lower exposure than my long term target of 30%, if price is relatively cheap (below the 200 day moving average) I want a higher exposure than my long term target of 30%.

Currently my exposure is 20%, 16% to btc and 4% cash on the exchange (meaning I chose 80%/20% btc/cash) because the price ($104) is currently above the 200 day moving average ($86), so relatively expensive. If price goes down I am not only buying more to balance my 80/20, but also to raise my current 20% exposure to 30% and possibly even 40% if price goes considerably below the 200 day moving average.  

This is basically a turbo put on the strategy so that you end up selling even more as it goes up, and buying even more as it goes down.

I plan to continue this strategy for the time being as chances are low we go up soon. However once you go into a parabolic rise this strategy leads you to sell too many bitcoins too soon. So there are times where you want to change to a buy and hold, letting your bitcoins grow to possibly 90% of your capital, and only reactivate the strategy when the parabolic rise is starting to become dangerous.

So during the rise from $13 to $266 this year I only sold some bitcoin at $70, but realized it was not smart as chances were high we would go into a mania like 2011, so I stopped selling and only relaunched the strategy when we went over $150. Even then I didn't stick to the plan and was selling to keep it down to 30% of my capital but I should have reduced to 15% because the price was historically high above the 200 day moving average. I didn't and lost some great profits due to this. But still my return on bitcoin since the start of the year is 1050% whereas a buy and hold has earned 'only' 650%. (Yeah, never expected to have to say 'only' 650% in my investing career Smiley )

How often do you adjust buying or selling BTC to fulfill the percentages? each day, week, month...?

On average I check prices daily. If it is very volatile I trade several times a day and check prices hourly. If price is stagnant I start to check prices less and end up forgetting to check it every other day. My strategy only requires trading when prices change.

A lot depends on the size of your capital since every transaction has a cost, not just the exchange fee, but wiring funds, your own time, etc. So if your capital is small it makes economical sense to have much wider balancing triggers. My target currently is 18% btc. If it becomes 19%, just 1% more, it is already worthwhile to do a trade for me since the capital is large enough. But for others it may be only worthwhile if btc goes up or down 5% in size in their portfolio before making a trade.

There is also some speculation coming in. If I think prices won't go higher I'm quick to sell off btc to remain within my target and lock in those profits. But if I think it will continue to go up I dare to not balance to my target and let it grow bigger for a while. For example, since price has gone up recently above $100 to the current $140 I've been thinking all along it would crash so I've been balancing quickly, ie: on every $5 up move. But likely if it starts dropping I won't balance quickly as I currently think it will fall deep, so I'll probably balance only on every $10 down move.

But yeah I'm behind the screen daily.
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September 04, 2013, 01:44:56 PM
 #51

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster.  

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

¡ Wow. Extremely interesting strategy !

Thanks Smiley

It worked wonders for me.

The only tricky thing is to decide how much of your capital you want to allocate to bitcoin.

I chose for 30% long term. However I added something extra. If price is relatively expensive (meaning price is above the 200 day moving average) I want a lower exposure than my long term target of 30%, if price is relatively cheap (below the 200 day moving average) I want a higher exposure than my long term target of 30%.

Currently my exposure is 20%, 16% to btc and 4% cash on the exchange (meaning I chose 80%/20% btc/cash) because the price ($104) is currently above the 200 day moving average ($86), so relatively expensive. If price goes down I am not only buying more to balance my 80/20, but also to raise my current 20% exposure to 30% and possibly even 40% if price goes considerably below the 200 day moving average.  

[...]


How often do you adjust buying or selling BTC to fulfill the percentages? each day, week, month...?

On average I check prices daily. If it is very volatile I trade several times a day and check prices hourly. If price is stagnant I start to check prices less and end up forgetting to check it every other day. My strategy only requires trading when prices change.

[...]

But yeah I'm behind the screen daily.
Thank you very much. You are very kind. Your explanations are very helpful for me.
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September 04, 2013, 03:27:24 PM
 #52

Trust yourself. It is a lottery to pick someone to trust. Decide wether you yourself think bitcoins will rise long term. If you can reach that conclusion then the buy and hold strategy is by far the safest, you'll need plenty of patience to hold long term though.

Buy and hold does require a lot of patience, resolve and character that many fail to execute. The profits you make with buy and hold are sometimes euphoric as you haven't sold a single coin, making you considerably richer, and tempting one to buy even more on highs. Inversely the losses are sometimes enormous too, as not a single coin was sold on the high, shrinking ones capital dramatically and tempting one to sell on lows 'to at least have something left if it fails' . Depending on your entry point a buy and hold may end up showing a serious loss for over a year too. I strongly suspect that on average those that choose for a buy and hold tend to make less returns than a buy and hold would have offered due to the enormous volatility of their capital and the resulting emotional rollercoaster.  

Hence why I think a fixed allocation strategy is a better solution for most. Instead of allocating all the reserved bitcoin capital immediately. Allocate only say 75% and keep 25% in cash. If price goes up and your bitcoins become more than 75% while your cash becomes less than 25%, sell some so that you remain with 25% cash. If price goes down, and your cash becomes bigger than 25% and bitcoin less than 75%, buy some btc so that it's balanced again. This way you are forced to sell on highs, and forced to buy on lows. Even if you don't always execute this strategy as greed and fear take you over, at least you won't do the inverse! Your end result will be that your ride up and down is less volatile, and your profits will likely be higher than a buy and hold.

¡ Wow. Extremely interesting strategy !

Thanks Smiley

It worked wonders for me.

The only tricky thing is to decide how much of your capital you want to allocate to bitcoin.

I chose for 30% long term. However I added something extra. If price is relatively expensive (meaning price is above the 200 day moving average) I want a lower exposure than my long term target of 30%, if price is relatively cheap (below the 200 day moving average) I want a higher exposure than my long term target of 30%.

Currently my exposure is 20%, 16% to btc and 4% cash on the exchange (meaning I chose 80%/20% btc/cash) because the price ($104) is currently above the 200 day moving average ($86), so relatively expensive. If price goes down I am not only buying more to balance my 80/20, but also to raise my current 20% exposure to 30% and possibly even 40% if price goes considerably below the 200 day moving average.  

This is basically a turbo put on the strategy so that you end up selling even more as it goes up, and buying even more as it goes down.

I plan to continue this strategy for the time being as chances are low we go up soon. However once you go into a parabolic rise this strategy leads you to sell too many bitcoins too soon. So there are times where you want to change to a buy and hold, letting your bitcoins grow to possibly 90% of your capital, and only reactivate the strategy when the parabolic rise is starting to become dangerous.

So during the rise from $13 to $266 this year I only sold some bitcoin at $70, but realized it was not smart as chances were high we would go into a mania like 2011, so I stopped selling and only relaunched the strategy when we went over $150. Even then I didn't stick to the plan and was selling to keep it down to 30% of my capital but I should have reduced to 15% because the price was historically high above the 200 day moving average. I didn't and lost some great profits due to this. But still my return on bitcoin since the start of the year is 1050% whereas a buy and hold has earned 'only' 650%. (Yeah, never expected to have to say 'only' 650% in my investing career Smiley )

How often do you adjust buying or selling BTC to fulfill the percentages? each day, week, month...?

On average I check prices daily. If it is very volatile I trade several times a day and check prices hourly. If price is stagnant I start to check prices less and end up forgetting to check it every other day. My strategy only requires trading when prices change.

A lot depends on the size of your capital since every transaction has a cost, not just the exchange fee, but wiring funds, your own time, etc. So if your capital is small it makes economical sense to have much wider balancing triggers. My target currently is 18% btc. If it becomes 19%, just 1% more, it is already worthwhile to do a trade for me since the capital is large enough. But for others it may be only worthwhile if btc goes up or down 5% in size in their portfolio before making a trade.

There is also some speculation coming in. If I think prices won't go higher I'm quick to sell off btc to remain within my target and lock in those profits. But if I think it will continue to go up I dare to not balance to my target and let it grow bigger for a while. For example, since price has gone up recently above $100 to the current $140 I've been thinking all along it would crash so I've been balancing quickly, ie: on every $5 up move. But likely if it starts dropping I won't balance quickly as I currently think it will fall deep, so I'll probably balance only on every $10 down move.

But yeah I'm behind the screen daily.

If you follow such a strategy, say, deciding to keep a balance of 50% btc and 50% fiat, the first obvious question (that you answered now) is "on which interval should I execute trades?".

You say during volatile time you trade daily, but that's only a partial answer: on a volatile day, price can wildly swing up and down, unrelated to where it will end up finally.. If you would execute your strategy on each of those swings, you'd be broke, because each time you lose some value to fees and slippage. But you say that much in your own post.

So in reality you will probably set yourself some limits, e.g. "if price continues to fall throughout the day, I buy at the end of the day", or something like that. You use your intuition.

My claim is: you're basically following a simplified and intuition based version of an algorithmic trend following method, for example like the one described in Goomboo's thread. (yes, they're not identical strategies, for example the entry/exit points of both strategies are different, but they are principally related: they both wait for trends to manifest, and then attempt to sell higher than the point at which you bought, and vice versa.)

I'm not saying everyone should use an average crossover method like the one described in Goomboo's thread, but my point is, if you use a fixed allocation percentage strategy, you're almost half-way there to use TA to guide your trading. The only difference is that, instead of looking at derived indicators, you're basing your trading decisions on the price directly, filling in the blanks with your intuition.

Nothing wrong with that, but my point is, it's not fundamentally different from using a more algorithmic method, which might have the additional advantage to reduce the influence your emotions have on your trading.

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September 04, 2013, 04:01:03 PM
 #53

Buy and hold has two great advantages. The first is that it is effortless. The second is that you don't need to know anything about trading. If you believe in bitcoin for the long run then IMHO it is the best strategy for the vast majority of ordinary people.

But avoid leverage. It can wipe you out or at the very least give you a horrible sick feeling (I speak from experience....)

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September 04, 2013, 08:43:08 PM
 #54



If you follow such a strategy, say, deciding to keep a balance of 50% btc and 50% fiat, the first obvious question (that you answered now) is "on which interval should I execute trades?".

You say during volatile time you trade daily, but that's only a partial answer: on a volatile day, price can wildly swing up and down, unrelated to where it will end up finally.. If you would execute your strategy on each of those swings, you'd be broke, because each time you lose some value to fees and slippage. But you say that much in your own post.

So in reality you will probably set yourself some limits, e.g. "if price continues to fall throughout the day, I buy at the end of the day", or something like that. You use your intuition.

My claim is: you're basically following a simplified and intuition based version of an algorithmic trend following method, for example like the one described in Goomboo's thread. (yes, they're not identical strategies, for example the entry/exit points of both strategies are different, but they are principally related: they both wait for trends to manifest, and then attempt to sell higher than the point at which you bought, and vice versa.)

I'm not saying everyone should use an average crossover method like the one described in Goomboo's thread, but my point is, if you use a fixed allocation percentage strategy, you're almost half-way there to use TA to guide your trading. The only difference is that, instead of looking at derived indicators, you're basing your trading decisions on the price directly, filling in the blanks with your intuition.

Nothing wrong with that, but my point is, it's not fundamentally different from using a more algorithmic method, which might have the additional advantage to reduce the influence your emotions have on your trading.

I studied Gomboo his crossover trendfollowing style of trading. I see many big differences with a fixed allocation strategy, even if you exclude the speculation part:  
  • Like a buy and hold, trendfollowing will not sell as it goes up. Fixed allocation will force you to sell as it goes up. Profit is therefore lower with a fixed allocation as long as it continues to go up.
  • Like a buy and hold, trendfollowing did not sell anything on the high and when it starts crashing will also give you large losses. Because you sold with a fixed allocation as it went up, you now have a smaller exposure and hence less losses as it starts crashing. You are also forced to start buying again now and since crashes generally go fast you end up buying considerably lower than the last prices you've sold.  
  • Whipsaws are the weak point of trendfollowing and can destroy your capital. Buy and holders don't care for whipsaws, and fixed allocation actually makes money with whipsaws.

Obviously with the current price of $140, and the general strong upward move, a buy and hold has been and most likely will continue to be, in the long term, more profitable than trendfollowing and fixed allocation.

However, the risk exposure is immense, and the volatility enormous, leading to most people sooner or later giving up on buy and hold on the worst moments. Trendfollowing does not solve this. The risk exposure is also enormous on highs as you don't sell a single coin and the losses also disastrous once it starts crashing. And eventhough it is true that trendfollowing will stop you out and avoid you losing everything if bitcoin continues to go down. It is also true that if bitcoin whipsaws for some years giving many false signals trendfollowing will fail due to the many small losses whereas buy and hold not. Many people will give up on trendfollowing likely when they lost considerable capital due to whipsaws and the market is close to finally taking a direction. I would agree though that chances are much higher for bitcoin to not whipsaw for years but take a direction.

However, in contrast to trendfollowing, fixed allocation does indeed solve the enormous risk exposure and volatility problems a buy and hold has. By selling as it goes up and buying as it goes down your exposure remains limited and the volatility of the up and down move is less. It is true however that a fixed allocation will also fail if bitcoin fails because you continue to buy more coins as it goes down. Therefore a fixed allocation strategy also needs a limit where you stop buying more coins. For me that limit is around $30 as a fall below that indicates for me that bitcoin might fail. And if the price would exceed new highs of $266 the coming months I will also stop selling as indeed, although chances are low, a black swan may take bitcoin to $1000 in no time too, in which case a fixed allocation would be very painful too.

It remains speculation, and every strategy will sooner or later fail to perform. Be that buy and hold, trendfollowing, or fixed allocation. When chances are high for it to go up strongly, a buy and hold is the best. When chances are high for it to correct strongly or whipsaw for a while, a fixed allocation is best. And when chances are high it will fail completely trendfollowing is the best so that you are out completely.

And every strategy fits a certain personality. I cannot bear to sell an investment that I believe is priced very cheaply as trendfollowing forces you to do. I rather stop buying more and see it go to zero. So for me I prefer to switch between fixed allocation and buy and hold but like to use trendfollowing crossovers (edit: I use historical price analyses) to decide when Smiley
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September 04, 2013, 11:07:28 PM
 #55

Chances are that Bitcoin will grow exponentially in the years to come - that's the trend, and fixed allocation will cost you a lot of coins on the way up. Would you care to backtest the fixed allocation strategy since Gox opened trading in 2010 till today, and compare it with buy&hold?

"Invest in BTC as much money as you could comfortably lose" is the best simple advice you could have given to anyone in the last years, and I do not see that changing anytime soon. Obviously this is a volatile market and I do think we will test again $100 sooner than later, so Id recommend buying gradually, but the end goal in my book is to accumulate as much coins as possible - fixed allocation kills that purpose.

For the faint of heart, day trading is just a very expensive gambling, not only because the market is very small and thus volatility wild and unpredictable, but also because of huge fees and slippage.

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September 05, 2013, 07:02:20 AM
 #56

Chances are that Bitcoin will grow exponentially in the years to come - that's the trend, and fixed allocation will cost you a lot of coins on the way up.

This. Say, if you keep it 50:50, then your capital will grow twice as slow. That is when BTC will grow 4-fold, your holding will grow 2-fold only. When 100-fold, your capital will grow 10-fold. Square root. In Rational Speculator's case (20% in BTC) it would be fift root: 2.5-fold instead of 100   Wink

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September 05, 2013, 07:33:27 AM
 #57

trust yourself
buy now, sell never

Yes. I do this with some of the BTC. But I like  tinkering with the rest...
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September 05, 2013, 08:38:47 AM
 #58

@RationalSpeculator: I have the impression you might not like the "buy&hold" strategy because you want to make a lot of money with Bitcoin, and you believe that by investing "only what you can afford to lose" you won't radically change your life, because the amount you can afford to lose is too small. Thus, you throw to BTC money you can't comfortably risk to lose, and that's why you embrace an historically losing strategy as fixed allocation.

Honest question: I am a getting close? I would appreciate an honest reply.

My opinion on the above, is that your "fixed allocation" strategy is driven by greed at the end of the day - you want to make a lot of money ASAP, thus you throw at BTC a too high % of your total wealth. You want to make a lot, so you invest more that you can lose, thus you need to mitigate the risks with your strategy.

Let me tell you that IMO the above would be an emotion-driven decision, and thus a huge mistake.

You speak about $1,000 like being a remarkable milestone - let me tell you that it's very short sighted. You seem like a thoughtful guy, so I'm sure you have analyzed the forums. Didn't you read what people said about $10 in 2010? It seemed completely crazy. And $100 in 2012? Only some permabulls (like Adam) wrote that $100 would have happened in 2013, and they were laughed at.

$1,000 its around the corner. If the Winklevils ETF is accepted, you will see 5 figures per BTC before you can even blink your eye. You know the very characteristics of BTC, its unique properties, the real problems it solves... And that there will only ever be 21 millions, right?

Just lurk the forums: in 2011, a lots of guys with thousands of BTC cashed out for good during the bubble inflation/deflation. They posted about how they bought a nice house, how they made a killing... But now in 2013 we know they did a mistake. They made a few hundred of k's denominated in fiat - now they would be millionaires, probably "all set for life". But yeah, hindsight is 20/20 - in 2011 nobody really knew if BTC was going to fully recover from the bubble pop, the sentiment after the crash was nefarious, the beating on the media continuos and the "this is a ponzi" crowd might had a point.

In 2013, there is no excuse. You know how the market performed in the past, you know what's the historical BTC trend, you know that the ones who held on their coins bought or mined sub-dollar are the ones winning big time.

Do you think BTC is just another commodity? Or on the opposite you think there is much more in BTC, that is a revolutionary tool that could profoundly change the world, an experiment that will probably just skyrocket or go bust? If you believe the latter, there's no better advice than "invest all the money you can comfortably lose". And if you are a trader, trade to increase your BTC stash and forget about short-sighted fiat profits, because you will probably regret it in the future - as all those who "secured profits" in 2011 are doing now.

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September 05, 2013, 11:58:14 AM
 #59

Chances are that Bitcoin will grow exponentially in the years to come - that's the trend, and fixed allocation will cost you a lot of coins on the way up. Would you care to backtest the fixed allocation strategy since Gox opened trading in 2010 till today, and compare it with buy&hold?

"Invest in BTC as much money as you could comfortably lose" is the best simple advice you could have given to anyone in the last years, and I do not see that changing anytime soon. Obviously this is a volatile market and I do think we will test again $100 sooner than later, so Id recommend buying gradually, but the end goal in my book is to accumulate as much coins as possible - fixed allocation kills that purpose.

For the faint of heart, day trading is just a very expensive gambling, not only because the market is very small and thus volatility wild and unpredictable, but also because of huge fees and slippage.

As the most simple strategy, b&h is probably not bad advice for newcomers, but I would still advise against unconditional b&h, for two reasons:

(1) a realistic estimation will see the number of new investors correlate with price and volume, i.e. more new people entered the market in April than now, for example. Agreed so far? The newcomers who bought in close to the April peak are still sitting on a loss -- even though they will turn a profit the long run in all likelihood. I suspect however that quite a few of them left the market again in frustration.

My conclusion: I can only see benefits from teaching newcomers a modicum of TA to determine if conditions are severely overbought and about to correct, and if price is extremely volatile and it would be better to wait before buying in. Using very "conservative" tools, a new market participant whose money arrived on the exchange in April should have probably waited until early May, then bought in at a reasonable 100 to 120 USD, compared to buying in immediately at 160 to 200, or even more in the worst cases.

tl;dr assuming bitcoin continues its growth path, it ultimately doesn't matter at which price you buy in, but for very understandable human reasons, it actually matters a lot. Some TA can help with finding the right entry point -- afterwards, b&h all you want :D

(2) Buy and hold is outperformed by several parameter combinations of a simple average crossover strategy -- I backtested this myself. There is reasonable doubt about this of course: the parameters were optimized on the trading period itself, which is problematic. I have a long post saved that I'll post in goomboo's thread at some point, where I backtest several parameter combinations that outperform b&h under a more realistic methodology.

What I'm trying to say is: I'm pretty sure that careful use of relatively simple (and testable) TA methods will allow some people to outperform b&h reliably. Not everyone perhaps, as it requires a bit of patience and willingness to get technical -- if you simply try to apply a recipe, you're probably going to lose.

EDIT: added a sentence or two

Not sure which Bitcoin wallet to use? I suggest to take a look at Electrum.
Electrum is an open-source lightweight client: user friendly, fast, and one of the safest ways to store, send or receive bitcoins.
For executables (Windows, OSX, Linux, Android), source code and documentation, see the Electrum homepage.
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September 05, 2013, 12:09:45 PM
 #60

Chances are that Bitcoin will grow exponentially in the years to come - that's the trend, and fixed allocation will cost you a lot of coins on the way up. Would you care to backtest the fixed allocation strategy since Gox opened trading in 2010 till today, and compare it with buy&hold?

"Invest in BTC as much money as you could comfortably lose" is the best simple advice you could have given to anyone in the last years, and I do not see that changing anytime soon. Obviously this is a volatile market and I do think we will test again $100 sooner than later, so Id recommend buying gradually, but the end goal in my book is to accumulate as much coins as possible - fixed allocation kills that purpose.

For the faint of heart, day trading is just a very expensive gambling, not only because the market is very small and thus volatility wild and unpredictable, but also because of huge fees and slippage.

As the most simple strategy, b&h is probably not bad advice for newcomers, but I would still advise against it, for two reasons:

(1) a realistic estimation will see the number of new investors correlate with price and volume, i.e. more new people entered the market in April than now, for example. Agreed so far? The newcomers who bought in close to the April peak are still sitting on a loss -- even though they will turn a profit the long run in all likelihood. I suspect however that quite a few of them left the market again in frustration.

My conclusion: I can only see benefits from teaching newcomers a modicum of TA to determine if conditions are severely overbought and about to correct, and if price is extremely volatile and it would be better to wait before buying in. Using very "conservative" tools, a new market participant whose money arrived on the exchange in April should have probably waited until early May, then bought in at a reasonable 100 to 120 USD, compared to buying in immediately at 160 to 200, or even more in the worst cases.

tl;dr assuming bitcoin continues its growth path, it ultimately doesn't matter at which price you buy in, but for very understandable human reasons, it actually matters a lot. Some TA can help with that.

(2) Buy and hold is outperformed by several parameter combinations of a simple average crossover strategy -- I backtested this myself. There is reasonable doubt about this of course: the parameters were optimized on the trading period itself, which is problematic. I have a long post saved that I'll post in goomboo's thread at some point, where I backtest several parameter combinations that outperform b&h under a more realistic methodology.

What I'm trying to say is: I'm pretty sure that careful use of relatively simple (and testable) TA methods will allow some people to outperform b&h reliably. Not everyone perhaps, as it requires a bit of patience and willingness to get technical -- if you simply try to apply a recipe, you're probably going to lose.

Thanks for your interesting (as usual) insight, just a question: did you factor a) slippage and b) trading fees in your backtests? What kind of trading volume did you consider in your backtests?

Following my experience Goombo's strategy is inferior to b&h when taking into consideration slippage and fees, especially if you have a medium/high volume per trade as the slippage is HUGE as soon as you sell/buy a few hundred coins. In fact, Goombo's backtests are for hourly 10/21 EMA crossings, but then he admits that he does not trade on that timeframe - he trades weekly or daily at most, precisely because he has to hand-pick very seldom which "cross signals" to trade, as otherwise slippage and fees will eat all his profit. In my opinion that kills his system's purpose.

At the end of the day, he writes a lot about emotionless trading based on EMA crossings, but he admits he is not using a bot (the only way to be 100% emotionless) because it would be unprofitable (again: fees and slippage + a lot of false signals), so he has to "hand pick" daily or weekly when to trade. In fact, he never specified what "strategy" he follows to choose which crossing to trade and which not, which leads me to think that his choices are not based on a precise system as it looks like and are somewhat arbitrarily chosen taking into consideration diverse factors...

At the end of the day he is making an "informed gamble" as all the others TA daytraders do.

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