So I started this topic on another board, and it was deleted. Since no explanation was offered, all I can do is guess it was on the wrong board. A heads-up would've been nice though.
Either way, this is important to me. I hope it won't get deleted this time. Here's a copy/paste of said post.
As I’ve stated before, I’ve been following several courses on cryptocurrency trading and investing. In one of them, I came across a website (Shrimpy.io) that provides automatic portfolio rebalancing to investors.
Now, for some reason, they have a whitepaper you can download. I just read it. Very interesting indeed.
Of course the whitepaper is more of a cleverly disguised advertisement, but it still made for a good read, and raised a couple of questions.
Two kinds of rebalancing. Why not three?First question is fairly simple. Rebalancing can be performed periodically (regardless of the deviation percentage between different assets, providing there’s some), or on a threshold basis, independently of time. But, why not combine both? Let’s say setting up an “X” period, but also a given threshold at the same time, so the rebalance would be performed should either be reached.
Then, there are a few more questions:
As per the whitepaper, there are a number of possible scenarios that would call for rebalancing:
Pump and dump: an asset gets a quick price hike, and then falls back to it’s normal(ish) price range.
Flash crash and recovery: pretty much the opposite to the pump and dump: the asset’s price drops suddenly, and later recovers to a somewhat normal value.
Sideways movement: The asset price stays within a given range.
Slow death: the asset price drops slowly, and doesn’t recover.
Slow take off: the asset price starts an upward trend.
Sharp decline: the asset price drops sharply, and stabilizes to a new baseline.
Sharp jump: the asset price increases sharply, and stabilizes to a new baseline.
Now, there are several scenarios that worry me:
Sideways movement: of course, this is already covered in trading: you buy when the price approaches the support and sell when it reaches the resistance. Great. But a scenario can arise (depending on the rebalancing period you may have selected), in which you end up buying high and selling low. On the other hand, using a combined strategy under those conditions could prove lucrative.
Pump and dump: the price starts rising, and you sell some to keep your portfolio right. Then it keeps going up, so you sell more of it. Then it falls back to the baseline, and you have to buy back part of it. Sure, you won’t lose money (you sold high and, with any luck, you’d be buying low), but you’d have made more money if you had kept an eye on it, and sold at (or near) the highest price.
Slow death/Sharp decline: whether the price of an asset drops slowly or suddenly, you can potentially end up sinking your entire portfolio on a sinking coin. That’s the scenario that worries me most.
So, here’s my idea: wouldn’t be feasible to set up kind of a “panic price” (similar to a stop loss) at which to stop correcting that cryptocurrency, just in case?
At the same time, wouldn’t it make sense to use sort of a combined strategy (besides the third rebalancing option I mentioned above), using some trading techniques that might be useful for some of those scenarios, in order to maximize profit?
And finally, would it make sense to keep a small amount of a stablecoin (I’m thinking USDT), to quickly liquidate (or buy) a coin when needed?
And finally, my main question: am I reading too much into it? I have a tendency not to trust anything that paints me a perfect scenario or outcome. My personal experience is they don’t exist.
Do you guys know this website? Is anybody using it?
Thank you all in advance.
