Alex Krüger – Thread on market timing and improving returns over Buy & Hold

Contrary to popular belief, timing the market is possible. Not only that, it can be easy. If you think one cannot time the market and thus averaged down in crypto all of 2018 – thank you for your donations.


Timing the market does not mean buying the bottom. There are many ways to time the market. These are some:

– trend following systems
– breakouts
– capitulation bars
– understanding news / macro events


Still, don’t believe one can time the market?
– Go tell Soros who broke the Bank of England.
– Go tell those who sold the pound on the Brexit referendum.
– Go tell those who sold the euro when the ECB announced QE.
– Go tell CTAs running systematic trend following systems.


Trend following is a very simple form of market timing that often generates better risk adjusted returns by reducing downside. It is particularly useful in highly trending asset classes such as crypto. It is very basic.

Here’s a detailed example: https://www.trendfollowing.com/whitepaper/CMT-Simple.pdf …


This compares a Buy & Hold strategy with various trend following strategies based on moving average crossovers. Most trend following strategies delivered *superior returns with lower risk*. No active trading required: the best performing strategy took 5 trades in 9 years.


Note the comparison is not with Buy & Hold from day 1. It would be unrealistic to do so, due to both unrealistic timing and limited liquidity (see https://twitter.com/Crypto_Macro/status/1080935427035541509 …). It instead uses as day 1 the close 200 days prior to the first 200 day moving average crossover.


What about Dollar Cost Averaging (DCA)?

This compares a Buy & Hold strategy where investor adds 10% of initial equity every month versus trend following strategies where investor adds 10% of initial equity only when the strategy is “on”, and keeps funds in the bank when not.


Conclusions

HODL =/ greatest investing strategy.
– Not HODLING =/ active trading.
– Indiscriminate Dollar Cost Averaging is suboptimal.
– For long term speculators, shorting bitcoin best avoided.
– No need to buy the bottom / sell the top to do well (relax).

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Vladyslav Skakun
thecryptodiffer@gmail.com

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