Wandering From the Path? | Monthly Portfolio Update - August 2020
Midway along the journey of our lifeI woke to find myself in a dark wood,for I had wandered off from the straight path. Dante, The Divine Comedy: Inferno, Canto I This is my forty-fifth portfolio update. I complete this update monthly to check my progress against my goal. Portfolio goal My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars). This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent. Portfolio summary
Vanguard Lifestrategy High Growth Fund $733 769
Vanguard Lifestrategy Growth Fund $41 794
Vanguard Lifestrategy Balanced Fund $78 533
Vanguard Diversified Bonds Fund $110 771
Vanguard Australian Shares ETF (VAS) $216 758
Vanguard International Shares ETF (VGS) $64 542
Betashares Australia 200 ETF (A200) $237 138
Telstra shares (TLS) $1 540
Insurance Australia Group shares (IAG) $6 043
NIB Holdings shares (NHF) $5 532
Gold ETF (GOLD.ASX) $121 976
Secured physical gold $19 535
Ratesetter (P2P lending) $8 998
Bitcoin $177 310
Raiz app (Aggressive portfolio) $17 421
Spaceship Voyager app (Index portfolio) $2 759
BrickX (P2P rental real estate) $4 477
Total portfolio value $1 848 896 (+$48 777 or 2.7%) Asset allocation
Australian shares 41.5%
Global shares 22.6%
Emerging market shares 2.2%
International small companies 2.8%
Total international shares 27.6%
Total shares 69.2% (5.8% under)
Total property securities 0.2% (0.2% over)
Australian bonds 4.4%
International bonds 8.9%
Total bonds 13.3% (1.7% under)
Gold and alternatives 17.2% (7.2% over)
Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments The portfolio has increased in value for the fifth consecutive month, and is starting to approach the monthly value last reached in January. The portfolio has grown over $48 000, or 2.7 per cent this month, reflecting the strong market recovery since late March [Chart] The growth in the portfolio was broadly-based across global and Australian equities, with an increase of around 3.8 per cent. Following strong previous rises, gold holdings decreased by around 2.2 per cent, while Bitcoin continued to increase in value (by 2.5 per cent). Combined, the value of gold and Bitcoin holdings remain at a new peak, while total equity holdings are still below their late January peak to the tune of around $50 000. The fixed income holdings of the portfolio continue to fall below the target allocation. [Chart] The expanding value of gold and Bitcoin holdings since January last year have actually had the practical effect of driving new investments into equities, since effectively for each dollar of appreciation, for example, my target allocation to equities rises by seven dollars. New investments this month have been in the Vanguard international shares exchange-traded fund (VGS) and the Australian shares equivalent (VAS). These have been directed to bring my actual asset allocation more closely in line with the target split between Australian and global shares set out in the portfolio plan. As the exchange traded funds such as VGS, VAS and Betashares A200 now make up nearly 30 per cent of the overall portfolio, the quarterly payments they provide have increased in magnitude and importance. Early in the journey, third quarter distributions were essentially immaterial events. Using the same 'median per unit' forecast approach as recently used for half yearly forecasts would suggest a third quarter payout due at the end of September of around $6000. Due to significant announced dividend reductions across this year I am, however, currently assuming this is likely to be significantly lower, and perhaps in the vicinity of $4000 or less. Finding true north: approach to achieving a set asset allocation One of the choices facing all investors with a preferred asset allocation is how strictly the target is applied over time, and what variability is acceptable around that. There is a significant body of financial literature around that issue. My own approach has been to seek to target the preferred asset allocation dynamically, through buying the asset class that is furthest from its target, with new portfolio contributions, and re-investment of paid out distributions. As part of monitoring asset allocation, I also track a measure of 'absolute' variance, to understand at a whole of portfolio level how far it is from the desired allocation. This is the sum of the absolute value of variances (e.g. so that being 3 per cent under target in shares, and 7 per cent over target in fixed interest will equal an absolute variance of 10 per cent under this measure). This measure is currently sitting near its highest level in around 2 years, at 15.0 per cent, as can be seen in the chart below. [Chart] The dominant reason for this higher level of variance from target is significant appreciation in the price of gold and Bitcoin holdings. Mapping the sources of portfolio variances Changes in target allocations in the past makes direct comparisons problematic, but previous peaks of the variance measure matches almost perfectly past Bitcoin price movements. For a brief period in January 2018, gold and Bitcoin combined constituted 20 per cent, or 1 in 5 dollars of the entire portfolio. Due to the growth in other equity components of the portfolio since this level has not been subsequently exceeded. Nonetheless, it is instructive to understand that the dollar value of combined gold and Bitcoin holdings is actually up around $40 000 from that brief peak. With the larger portfolio, this now means they together make up 17.2 per cent of the total portfolio value. Tacking into the wind of portfolio movements? The logical question to fall out from this situation is: to what extent should this drive an active choice to sell down gold and Bitcoin until they resume their 10 per cent target allocation? This would currently imply selling around $130 000 of gold or Bitcoin, and generating a capital gains tax liability of potentially up to $27 000. Needless to say this is not an attractive proposition. Several other considerations lead me to not make this choice:
The problem may solve itself as portfolio grows - Growth and continued investments in the portfolio will tend to reduce the variance caused by gold and Bitcoin. The asset allocation targeting approach I adopt has seen continued contributions to equities, reducing the ability of these alternative assets to add to future variance.
Falls in Bitcoin or gold values will also solve the problem - Conversely, price falls in Bitcoin or gold will tend to reduce the variance issue, and such price falls have significant precedents, with for example Bitcoin holdings falling to a value of around $50 000 as recently as January 2019.
If neither of these happen, there may be bigger issues to solve - The only scenario where neither of these alleviating factors occur is should gold and Bitcoin continue to rapidly appreciate compared to other assets, in which case it is difficult to see the value of reducing exposure now.
Does Bitcoin even fit the asset allocation model? - Bitcoin in particular is not a well established or accepted asset class as yet, so it may not be appropriate to apply traditional allocation rules to it - it may be functioning more as a hedge or option against extreme states of the world. Linked to this is the high degree of volatility in Bitcoin. Adopting too tight a target on Bitcoin holdings would potentially see a need to buy and sell Bitcoin frequently, where my intention is to actually never purchase any more.
This approach is a departure from a mechanistic implementation of an asset allocation rule. Rather, the approach I take is pragmatic. Tracking course drift in the portfolio components As an example, I regularly review whether a significant fall in Bitcoin prices to its recent lows would alter my monthly decision on where to direct new investments. So far it does not, and the 'signal' continues to be to buy new equities. Another tool I use is a monthly measurement of the absolute dollar variance of Australian and global shares, as well as fixed interest, from their ideal target allocations. The chart below sets this out for the period since January 2019. A positive value effectively represents an over-allocation to a sector, a negative value, an under-allocation compared to target. [Chart] This reinforces the overall story that, as gold and Bitcoin have grown in value, there emerges a larger 'deficit' to the target. Falls in equities markets across February and March also produce visibly larger 'dollar gaps' to the target allocation. This graph enables a tracking of the impact of portfolio gains or losses, and volatility, and a better understanding of the practical task of returning to target allocations. Runaway lines in either direction would be evidence that current approaches for returning to targets were unworkable, but so far this does not appear to be the case. A crossing over: a credit card FI milestone This month has seen a long awaited milestone reached. Calculated on a past three year average, portfolio distributions now entirely meet monthly credit card expenses. This means that every credit card purchase - each shopping trip or online purchase - is effectively paid for by average portfolio distributions. At the start of this journey, distributions were only equivalent to around 40 per cent of credit card expenses. As time has progressed distributions have increased to cover a larger and larger proportion of card expenses. [Chart] Most recently, with COVID-19 related restrictions having pushed card expenditure down further, the remaining gap to this 'Credit Card FI' target has closed. Looked at on an un-smoothed basis, expenditures on the credit card have continued to be slightly lower than average across the past month. The below chart details the extent to which portfolio distributions (red) cover estimated total expenses (green), measured month to month. [Chart] Credit card expenditure makes up around 80 per cent of total spending, so this is not a milestone that makes paid work irrelevant or optional. Similarly, if spending rises as various travel and other restrictions ease, it is possible that this position could be temporary. Equally, should distributions fall dramatically below long term averages in the year ahead, this could result in average distributions falling faster than average monthly card expenditure. Even without this, on a three year average basis, monthly distributions will decline as high distributions received in the second half of 2017 slowly fall out of the estimation sample. For the moment, however, a slim margin exists. Distributions are $13 per month above average monthly credit card bills. This feels like a substantial achievement to note, as one unlooked for at the outset of the journey. Progress Progress against the objective, and the additional measures I have reached is set out below. Measure Portfolio All Assets Portfolio objective – $2 180 000 (or $87 000 pa) 84.8% 114.6% Credit card purchases – $71 000 pa 103.5% 139.9% Total expenses – $89 000 pa 82.9% 112.1% Summary What feels like a long winter is just passed. The cold days and weeks have felt repetitive and dominated by a pervasive sense of uncertainty. Yet through this time, this wandering off, the portfolio has moved quite steadily back towards it previous highs. That it is even approaching them in the course of just a few months is unexpected. What this obscures is the different components of growth driving this outcome. The portfolio that is recovering, like the index it follows, is changing in its underlying composition. This can be seen most starkly in the high levels of variance from the target portfolio sought discussed above. It is equally true, however, of individual components such as international equity holdings. In the case of the United States the overall index performance has been driven by share price growth in just a few information technology giants. Gold and Bitcoin have emerged from the shadows of the portfolio to an unintended leading role in portfolio growth since early 2019. This month I have enjoyed reading the Chapter by Chapter release of the Aussie FIRE e-book coordinated by Pearler. I've also been reading posts from some newer Australian financial independence bloggers, Two to Fire, FIRE Down Under, and Chasing FIRE Down Under. In podcasts, I have enjoyed the Mad Fientist's update on his fourth year of financial freedom, and Pat and Dave's FIRE and Chill episodes, including an excellent one on market timing fallacies. The ASX Australian Investor Study 2020 has also been released - setting out some broader trends in recent Australian investment markets, and containing a snapshot of the holdings, approaches and views of everyday investors. This contained many intriguing findings, such as the median investment portfolio ($130 000), its most frequent components (direct Australian shares), and how frequently portfolios are usually checked - with 61 per cent of investors checking their portfolios at least once a month. This is my own approach also. Monthly assessments allow me to gauge and reflect on how I or elements of the portfolio may have wandered off the straight way in the middle of the journey. Without this, the risk is that dark woods and bent pathways beckon. The post, links and full charts can be seen here.
Testing the Tide | Monthly FIRE Portfolio Update - June 2020
We would rather be ruined than changed. -W H Auden, The Age of Anxiety This is my forty-third portfolio update. I complete this update monthly to check my progress against my goal. Portfolio goal My objective is to reach a portfolio of $2 180 000 by 1 July 2021. This would produce a real annual income of about $87 000 (in 2020 dollars). This portfolio objective is based on an expected average real return of 3.99 per cent, or a nominal return of 6.49 per cent. Portfolio summary Vanguard Lifestrategy High Growth Fund – $726 306 Vanguard Lifestrategy Growth Fund – $42 118 Vanguard Lifestrategy Balanced Fund – $78 730 Vanguard Diversified Bonds Fund – $111 691 Vanguard Australian Shares ETF (VAS) – $201 745 Vanguard International Shares ETF (VGS) – $39 357 Betashares Australia 200 ETF (A200) – $231 269 Telstra shares (TLS) – $1 668 Insurance Australia Group shares (IAG) – $7 310 NIB Holdings shares (NHF) – $5 532 Gold ETF (GOLD.ASX) – $117 757 Secured physical gold – $18 913 Ratesetter (P2P lending) – $10 479 Bitcoin – $148 990 Raiz app (Aggressive portfolio) – $16 841 Spaceship Voyager app (Index portfolio) – $2 553 BrickX (P2P rental real estate) – $4 484 Total portfolio value: $1 765 743 (+$8 485 or 0.5%) Asset allocation Australian shares – 42.2% (2.8% under) Global shares – 22.0% Emerging markets shares – 2.3% International small companies – 3.0% Total international shares – 27.3% (2.7% under) Total shares – 69.5% (5.5% under) Total property securities – 0.3% (0.3% over) Australian bonds – 4.7% International bonds – 9.4% Total bonds – 14.0% (1.0% under) Gold – 7.7% Bitcoin – 8.4% Gold and alternatives – 16.2% (6.2% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments The overall portfolio increased slightly over the month. This has continued to move the portfolio beyond the lows seen in late March. The modest portfolio growth of $8 000, or 0.5 per cent, maintains its value at around that achieved at the beginning of the year. [Chart] The limited growth this month largely reflects an increase in the value of my current equity holdings, in VAS and A200 and the Vanguard retail funds. This has outweighed a small decline in the value of Bitcoin and global shares. The value of the bond holdings also increased modestly, pushing them to their highest value since around early 2017. [Chart] There still appears to be an air of unreality around recent asset price increases and the broader economic context. Britain's Bank of England has on some indicators shown that the aftermath of the pandemic and lockdown represent the most challenging financial crisis in around 300 years. What is clear is that investor perceptions and fear around the coronavirus pandemic are a substantial ongoing force driving volatility in equity markets (pdf). A somewhat optimistic view is provided here that the recovery could look more like the recovery from a natural disaster, rather than a traditional recession. Yet there are few certainties on offer. Negative oil prices, and effective offers by US equity investors to bail out Hertz creditors at no cost appear to be signs of a financial system under significant strains. As this Reserve Bank article highlights, while some Australian households are well-placed to weather the storm ahead, the timing and severity of what lays ahead is an important unknown that will itself feed into changes in household wealth from here. Investments this month have been exclusively in the Australian shares exchange-traded fund (VAS) using Selfwealth.* This has been to bring my actual asset allocation more closely in line with the target split between Australian and global shares. A moving azimuth: falling spending continues Monthly expenses on the credit card have continued their downward trajectory across the past month. [Chart] The rolling average of monthly credit card spending is now at its lowest point over the period of the journey. This is despite the end of lockdown, and a slow resumption of some more normal aspects of spending. This has continued the brief period since April of the achievement of a notional and contingent kind of financial independence. The below chart illustrates this temporary state, setting out the degree to which portfolio distributions cover estimated total expenses, measured month to month. [Chart] There are two sources of volatility underlying its movement. The first is the level of expenses, which can vary, and the second is the fact that it is based on financial year distributions, which are themselves volatile. Importantly, the distributions over the last twelve months of this chart is only an estimate - and hence the next few weeks will affect the precision of this analysis across its last 12 observations. Estimating 2019-20 financial year portfolio distributions Since the beginning of the journey, this time of year usually has sense of waiting for events to unfold - in particular, finding out the level of half-year distributions to June. These represent the bulk of distributions, usually averaging 60-65 per cent of total distributions received. They are an important and tangible signpost of progress on the financial independence journey. This is no simple task, as distributions have varied in size considerably. A part of this variation has been the important role of sometimes large and lumpy capital distributions - which have made up between 30 to 48 per cent of total distributions in recent years, and an average of around 15 per cent across the last two decades. I have experimented with many different approaches, most of which have relied on averaging over multi-year periods to even out the 'peaks and troughs' of how market movements may have affected distributions. The main approaches have been:
An 'adjusted income' approach - stripping out the capital gains components of Vanguard funds to reach an estimate of underlying income generation, both across the entire investment period, and during the sharpest low of the Global Financial Crisis
A long-term asset class approach - relying on long-term historical data on averages of the income produced by various asset classes
A 'tax method' approach - this derives an income estimate as a percentage of the portfolio by drawing on taxable investment income totals from tax return records
Simple historical rolling average - this is a rolling three-year measure, based on the actual distributions record of the portfolio
Average distribution rate approach - this method uses a long-term average of annual distributions received as a percentage of the total portfolio since 1999
Each of these have their particular simplifications, advantages and drawbacks. Developing new navigation tools Over the past month I have also developed more fully an alternate 'model' for estimating returns. This simply derives a median value across a set of historical 'cents per unit' distribution data for June and December payouts for the Vanguard funds and exchange traded funds. These make up over 96 per cent of income producing portfolio assets. In other words, this model essentially assumes that each Vanguard fund and ETF owned pays out the 'average' level of distributions this half-year, with the average being based on distribution records that typically go back between 5 to 10 years. Mapping the distribution estimates The chart below sets out the estimate produced by each approach for the June distributions that are to come. [Chart] Some observations on these findings can be made. The lowest estimate is the 'adjusted GFC income' observation, which essentially assumes that the income for this period is as low as experienced by the equity and bond portfolio during the Global Financial Crisis. Just due to timing differences of the period observed, this seems to be a 'worst case' lower bound estimate, which I do not currently place significant weight on. Similarly, at the highest end, the 'average distribution rate' approach simply assumes June distributions deliver a distribution equal to the median that the entire portfolio has delivered since 1999. With higher interest rates, and larger fixed income holdings across much of that time, this seems an objectively unlikely outcome. Similarly, the delivery of exactly the income suggested by long-term averages measured across decades and even centuries would be a matter of chance, rather than the basis for rational expectations. Central estimates of the line of position This leaves the estimates towards the centre of the chart - estimates of between around $28 000 to $43 000 as representing the more likely range. I attach less weight to the historical three-year average due to the high contribution of distributed capital gains over that period of growth, where at least across equities some capital losses are likely to be in greater presence. My preferred central estimate is the model estimate (green) , as it is based in historical data directly from the investment vehicles rather than my own evolving portfolio. The data it is based on in some cases goes back to the Global Financial Crisis. This estimate is also quite close to the raw average of all the alternative approaches (red). It sits a little above the 'adjusted income' measure. None of these estimates, it should be noted, contain any explicit adjustment for the earnings and dividend reductions or delays arising from COVID-19. They may, therefore represent a modest over-estimate for likely June distributions, to the extent that these effects are more negative than those experienced on average across the period of the underlying data. These are difficult to estimate, but dividend reductions could easily be in the order of 20-30 per cent, plausibly lowering distributions to the $23 000 to $27 000 range. The recently announced forecast dividend for the Vanguard Australian Shares ETF (VAS) is, for example, the lowest in four years. As seen from chart above, there is a wide band of estimates, which grow wider still should capital gains be unexpectedly distributed from the Vanguard retail funds. These have represented a source of considerable volatility. Given this, it may seem fruitless to seek to estimate these forthcoming distributions, compared to just waiting for them to arrive. Yet this exercise helps by setting out reasoning and positions, before hindsight bias urgently arrives to inform me that I knew the right answer all along. It also potentially helps clearly 'reject' some models over time, if the predictions they make prove to be systematically incorrect. Progress Progress against the objective, and the additional measures I have reached is set out below. Measure Portfolio All Assets Portfolio objective – $2 180 000 (or $87 000 pa) 81.0% 109.4% Credit card purchases – $71 000 pa 98.8% 133.5% Total expenses – $89 000 pa 79.2% 106.9% Summary The current coronavirus conditions are affecting all aspects of the journey to financial independence - changing spending habits, leading to volatility in equity markets and sequencing risks, and perhaps dramatically altering the expected pattern of portfolio distributions. Although history can provide some guidance, there is simply no definitive way to know whether any or all of these changes will be fundamental and permanent alterations, or simply data points on a post-natural disaster path to a different post-pandemic set of conditions. There is the temptation to fit past crises imperfectly into the modern picture, as this Of Dollars and Data post illustrates well. Taking a longer 100 year view, this piece 'The Allegory of the Hawk and Serpent' is a reminder that our entire set of received truths about constructing a portfolio to survive for the long-term can be a product of a sample size of one - actual past history - and subject to recency bias. This month has felt like one of quiet routines, muted events compared to the past few months, and waiting to understand more fully the shape of the new. Nonetheless, with each new investment, or week of lower expenditure than implied in my FI target, the nature of the journey is incrementally changing - beneath the surface. Small milestones are being passed - such as over 40 per cent of my equity holdings being outside of the the Vanguard retail funds. Or these these retail funds - which once formed over 95 per cent of the portfolio - now making up less than half. With a significant part of the financial independence journey being about repeated small actions producing outsized results with time, the issue of maintaining good routines while exploring beneficial changes is real. Adding to the complexity is that embarking on the financial journey itself is likely to change who one is. This idea, of the difficulty or impossibility of knowing the preferences of a future self, is explored in a fascinating way in this Econtalk podcast episode with a philosophical thought experiment about vampires. It poses the question: perhaps we can never know ourselves at the destination? And yet, who would rationally choose ruin over any change? The post, links and full charts can be seen here.
﷽ The Federal Reserve and the United States government are pumping extreme amounts of money into the economy, already totaling over $484 billion. They are doing so because it already had a goal to inflate the United States Dollar (USD) so that the market can continue to all-time highs. It has always had this goal. They do not care how much inflation goes up by now as we are going into a depression with the potential to totally crash the US economy forever. They believe the only way to save the market from going to zero or negative values is to inflate it so much that it cannot possibly crash that low. Even if the market does not dip that low, inflation serves the interest of powerful people. The impending crash of the stock market has ramifications for Bitcoin, as, though there is no direct ongoing-correlation between the two, major movements in traditional markets will necessarily affect Bitcoin. According to the Blockchain Center’s Cryptocurrency Correlation Tool, Bitcoin is not correlated with the stock market. However, when major market movements occur, they send ripples throughout the financial ecosystem which necessary affect even ordinarily uncorrelated assets. Therefore, Bitcoin will reach X price on X date after crashing to a price of X by X date.
Stock Market Crash
The Federal Reserve has caused some serious consternation with their release of ridiculous amounts of money in an attempt to buoy the economy. At face value, it does not seem to have any rationale or logic behind it other than keeping the economy afloat long enough for individuals to profit financially and politically. However, there is an underlying basis to what is going on which is important to understand in order to profit financially. All markets are functionally price probing systems. They constantly undergo a price-discovery process. In a fiat system, money is an illusory and a fundamentally synthetic instrument with no intrinsic value – similar to Bitcoin. The primary difference between Bitcoin is the underlying technology which provides a slew of benefits that fiat does not. Fiat, however, has an advantage in being able to have the support of powerful nation-states which can use their might to insure the currency’s prosperity. Traditional stock markets are composed of indices (pl. of index). Indices are non-trading market instruments which are essentially summaries of business values which comprise them. They are continuously recalculated throughout a trading day, and sometimes reflected through tradable instruments such as Exchange Traded Funds or Futures. Indices are weighted by market capitalizations of various businesses. Price theory essentially states that when a market fails to take out a new low in a given range, it will have an objective to take out the high. When a market fails to take out a new high, it has an objective to make a new low. This is why price-time charts go up and down, as it does this on a second-by-second, minute-by-minute, day-by-day, and even century-by-century basis. Therefore, market indices will always return to some type of bull market as, once a true low is formed, the market will have a price objective to take out a new high outside of its’ given range – which is an all-time high. Instruments can only functionally fall to zero, whereas they can grow infinitely. So, why inflate the economy so much? Deflation is disastrous for central banks and markets as it raises the possibility of producing an overall price objective of zero or negative values. Therefore, under a fractional reserve system with a fiat currency managed by a central bank – the goal of the central bank is to depreciate the currency. The dollar is manipulated constantly with the intention of depreciating its’ value. Central banks have a goal of continued inflated fiat values. They tend to ordinarily contain it at less than ten percent (10%) per annum in order for the psyche of the general populace to slowly adjust price increases. As such, the markets are divorced from any other logic. Economic policy is the maintenance of human egos, not catering to fundamental analysis. Gross Domestic Product (GDP) growth is well-known not to be a measure of actual growth or output. It is a measure of increase in dollars processed. Banks seek to produce raising numbers which make society feel like it is growing economically, making people optimistic. To do so, the currency is inflated, though inflation itself does not actually increase growth. When society is optimistic, it spends and engages in business – resulting in actual growth. It also encourages people to take on credit and debts, creating more fictional fiat. Inflation is necessary for markets to continue to reach new heights, generating positive emotional responses from the populace, encouraging spending, encouraging debt intake, further inflating the currency, and increasing the sale of government bonds. The fiat system only survives by generating more imaginary money on a regular basis. Bitcoin investors may profit from this by realizing that stock investors as a whole always stand to profit from the market so long as it is managed by a central bank and does not collapse entirely. If those elements are filled, it has an unending price objective to raise to new heights. It also allows us to realize that this response indicates that the higher-ups believe that the economy could crash in entirety, and it may be wise for investors to have multiple well-thought-out exit strategies.
Economic Analysis of Bitcoin
The reason why the Fed is so aggressively inflating the economy is due to fears that it will collapse forever or never rebound. As such, coupled with a global depression, a huge demand will appear for a reserve currency which is fundamentally different than the previous system. Bitcoin, though a currency or asset, is also a market. It also undergoes a constant price-probing process. Unlike traditional markets, Bitcoin has the exact opposite goal. Bitcoin seeks to appreciate in value and not depreciate. This has a quite different affect in that Bitcoin could potentially become worthless and have a price objective of zero. Bitcoin was created in 2008 by a now famous mysterious figure known as Satoshi Nakamoto and its’ open source code was released in 2009. It was the first decentralized cryptocurrency to utilize a novel protocol known as the blockchain. Up to one megabyte of data may be sent with each transaction. It is decentralized, anonymous, transparent, easy to set-up, and provides myriad other benefits. Bitcoin is not backed up by anything other than its’ own technology. Bitcoin is can never be expected to collapse as a framework, even were it to become worthless. The stock market has the potential to collapse in entirety, whereas, as long as the internet exists, Bitcoin will be a functional system with a self-authenticating framework. That capacity to persist regardless of the actual price of Bitcoin and the deflationary nature of Bitcoin means that it has something which fiat does not – inherent value. Bitcoin is based on a distributed database known as the “blockchain.” Blockchains are essentially decentralized virtual ledger books, replete with pages known as “blocks.” Each page in a ledger is composed of paragraph entries, which are the actual transactions in the block. Blockchains store information in the form of numerical transactions, which are just numbers. We can consider these numbers digital assets, such as Bitcoin. The data in a blockchain is immutable and recorded only by consensus-based algorithms. Bitcoin is cryptographic and all transactions are direct, without intermediary, peer-to-peer. Bitcoin does not require trust in a central bank. It requires trust on the technology behind it, which is open-source and may be evaluated by anyone at any time. Furthermore, it is impossible to manipulate as doing so would require all of the nodes in the network to be hacked at once – unlike the stock market which is manipulated by the government and “Market Makers”. Bitcoin is also private in that, though the ledge is openly distributed, it is encrypted. Bitcoin’s blockchain has one of the greatest redundancy and information disaster recovery systems ever developed. Bitcoin has a distributed governance model in that it is controlled by its’ users. There is no need to trust a payment processor or bank, or even to pay fees to such entities. There are also no third-party fees for transaction processing. As the ledge is immutable and transparent it is never possible to change it – the data on the blockchain is permanent. The system is not easily susceptible to attacks as it is widely distributed. Furthermore, as users of Bitcoin have their private keys assigned to their transactions, they are virtually impossible to fake. No lengthy verification, reconciliation, nor clearing process exists with Bitcoin. Bitcoin is based on a proof-of-work algorithm. Every transaction on the network has an associated mathetical “puzzle”. Computers known as miners compete to solve the complex cryptographic hash algorithm that comprises that puzzle. The solution is proof that the miner engaged in sufficient work. The puzzle is known as a nonce, a number used only once. There is only one major nonce at a time and it issues 12.5 Bitcoin. Once it is solved, the fact that the nonce has been solved is made public. A block is mined on average of once every ten minutes. However, the blockchain checks every 2,016,000 minutes (approximately four years) if 201,600 blocks were mined. If it was faster, it increases difficulty by half, thereby deflating Bitcoin. If it was slower, it decreases, thereby inflating Bitcoin. It will continue to do this until zero Bitcoin are issued, projected at the year 2140. On the twelfth of May, 2020, the blockchain will halve the amount of Bitcoin issued when each nonce is guessed. When Bitcoin was first created, fifty were issued per block as a reward to miners. 6.25 BTC will be issued from that point on once each nonce is solved. Unlike fiat, Bitcoin is a deflationary currency. As BTC becomes scarcer, demand for it will increase, also raising the price. In this, BTC is similar to gold. It is predictable in its’ output, unlike the USD, as it is based on a programmed supply. We can predict BTC’s deflation and inflation almost exactly, if not exactly. Only 21 million BTC will ever be produced, unless the entire network concedes to change the protocol – which is highly unlikely. Some of the drawbacks to BTC include congestion. At peak congestion, it may take an entire day to process a Bitcoin transaction as only three to five transactions may be processed per second. Receiving priority on a payment may cost up to the equivalent of twenty dollars ($20). Bitcoin mining consumes enough energy in one day to power a single-family home for an entire week.
Trading or Investing?
The fundamental divide in trading revolves around the question of market structure. Many feel that the market operates totally randomly and its’ behavior cannot be predicted. For the purposes of this article, we will assume that the market has a structure, but that that structure is not perfect. That market structure naturally generates chart patterns as the market records prices in time. In order to determine when the stock market will crash, causing a major decline in BTC price, we will analyze an instrument, an exchange traded fund, which represents an index, as opposed to a particular stock. The price patterns of the various stocks in an index are effectively smoothed out. In doing so, a more technical picture arises. Perhaps the most popular of these is the SPDR S&P Standard and Poor 500 Exchange Traded Fund ($SPY). In trading, little to no concern is given about value of underlying asset. We are concerned primarily about liquidity and trading ranges, which are the amount of value fluctuating on a short-term basis, as measured by volatility-implied trading ranges. Fundamental analysis plays a role, however markets often do not react to real-world factors in a logical fashion. Therefore, fundamental analysis is more appropriate for long-term investing. The fundamental derivatives of a chart are time (x-axis) and price (y-axis). The primary technical indicator is price, as everything else is lagging in the past. Price represents current asking price and incorrectly implementing positions based on price is one of the biggest trading errors. Markets and currencies ordinarily have noise, their tendency to back-and-fill, which must be filtered out for true pattern recognition. That noise does have a utility, however, in allowing traders second chances to enter favorable positions at slightly less favorable entry points. When you have any market with enough liquidity for historical data to record a pattern, then a structure can be divined. The market probes prices as part of an ongoing price-discovery process. Market technicians must sometimes look outside of the technical realm and use visual inspection to ascertain the relevance of certain patterns, using a qualitative eye that recognizes the underlying quantitative nature Markets and instruments rise slower than they correct, however they rise much more than they fall. In the same vein, instruments can only fall to having no worth, whereas they could theoretically grow infinitely and have continued to grow over time. Money in a fiat system is illusory. It is a fundamentally synthetic instrument which has no intrinsic value. Hence, the recent seemingly illogical fluctuations in the market. According to trade theory, the unending purpose of a market or instrument is to create and break price ranges according to the laws of supply and demand. We must determine when to trade based on each market inflection point as defined in price and in time as opposed to abandoning the trend (as the contrarian trading in this sub often does). Time and Price symmetry must be used to be in accordance with the trend. When coupled with a favorable risk to reward ratio, the ability to stay in the market for most of the defined time period, and adherence to risk management rules; the trader has a solid methodology for achieving considerable gains. We will engage in a longer term market-oriented analysis to avoid any time-focused pressure. The Bitcoin market is open twenty-four-hours a day, so trading may be done when the individual is ready, without any pressing need to be constantly alert. Let alone, we can safely project months in advance with relatively high accuracy. Bitcoin is an asset which an individual can both trade and invest, however this article will be focused on trading due to the wide volatility in BTC prices over the short-term.
Technical Indicator Analysis of Bitcoin
Technical indicators are often considered self-fulfilling prophecies due to mass-market psychology gravitating towards certain common numbers yielded from them. They are also often discounted when it comes to BTC. That means a trader must be especially aware of these numbers as they can prognosticate market movements. Often, they are meaningless in the larger picture of things.
Volume – derived from the market itself, it is mostly irrelevant. The major problem with volume for stocks is that the US market open causes tremendous volume surges eradicating any intrinsic volume analysis. This does not occur with BTC, as it is open twenty-four-seven. At major highs and lows, the market is typically anemic. Most traders are not active at terminal discretes (peaks and troughs) because of levels of fear. Volume allows us confidence in time and price symmetry market inflection points, if we observe low volume at a foretold range of values. We can rationalize that an absolute discrete is usually only discovered and anticipated by very few traders. As the general market realizes it, a herd mentality will push the market in the direction favorable to defending it. Volume is also useful for swing trading, as chances for swing’s validity increases if an increase in volume is seen on and after the swing’s activation. Volume is steadily decreasing. Lows and highs are reached when volume is lower.
Therefore, due to the relatively high volume on the 12th of March, we can safely determine that a low for BTC was not reached.
VIX – Volatility Index, this technical indicator indicates level of fear by the amount of options-based “insurance” in portfolios. A low VIX environment, less than 20 for the S&P index, indicates a stable market with a possible uptrend. A high VIX, over 20, indicates a possible downtrend. VIX is essentially useless for BTC as BTC-based options do not exist. It allows us to predict the market low for $SPY, which will have an indirect impact on BTC in the short term, likely leading to the yearly low. However, it is equally important to see how VIX is changing over time, if it is decreasing or increasing, as that indicates increasing or decreasing fear. Low volatility allows high leverage without risk or rest. Occasionally, markets do rise with high VIX.
As VIX is unusually high, in the forties, we can be confident that a downtrend for the S&P 500 is imminent.
RSI (Relative Strength Index): The most important technical indicator, useful for determining highs and lows when time symmetry is not availing itself. Sometimes analysis of RSI can conflict in different time frames, easiest way to use it is when it is at extremes – either under 30 or over 70. Extremes can be used for filtering highs or lows based on time-and-price window calculations. Highly instructive as to major corrective clues and indicative of continued directional movement. Must determine if longer-term RSI values find support at same values as before. It is currently at 73.56.
Secondly, RSI may be used as a high or low filter, to observe the level that short-term RSI reaches in counter-trend corrections. Repetitions based on market movements based on RSI determine how long a trade should be held onto. Once a short term RSI reaches an extreme and stay there, the other RSI’s should gradually reach the same extremes. Once all RSI’s are at extreme highs, a trend confirmation should occur and RSI’s should drop to their midpoint.
Trend Definition Analysis of Bitcoin
Trend definition is highly powerful, cannot be understated. Knowledge of trend logic is enough to be a profitable trader, yet defining a trend is an arduous process. Multiple trends coexist across multiple time frames and across multiple market sectors. Like time structure, it makes the underlying price of the instrument irrelevant. Trend definitions cannot determine the validity of newly formed discretes. Trend becomes apparent when trades based in counter-trend inflection points continue to fail. Downtrends are defined as an instrument making lower lows and lower highs that are recurrent, additive, qualified swing setups. Downtrends for all instruments are similar, except forex. They are fast and complete much quicker than uptrends. An average downtrend is 18 months, something which we will return to. An uptrend inception occurs when an instrument reaches a point where it fails to make a new low, then that low will be tested. After that, the instrument will either have a deep range retracement or it may take out the low slightly, resulting in a double-bottom. A swing must eventually form. A simple way to roughly determine trend is to attempt to draw a line from three tops going upwards (uptrend) or a line from three bottoms going downwards (downtrend). It is not possible to correctly draw a downtrend line on the BTC chart, but it is possible to correctly draw an uptrend – indicating that the overall trend is downwards. The only mitigating factor is the impending stock market crash.
Time Symmetry Analysis of Bitcoin
Time is the movement from the past through the present into the future. It is a measurement in quantified intervals. In many ways, our perception of it is a human construct. It is more powerful than price as time may be utilized for a trade regardless of the market inflection point’s price. Were it possible to perfectly understand time, price would be totally irrelevant due to the predictive certainty time affords. Time structure is easier to learn than price, but much more difficult to apply with any accuracy. It is the hardest aspect of trading to learn, but also the most rewarding. Humans do not have the ability to recognize every time window, however the ability to define market inflection points in terms of time is the single most powerful trading edge. Regardless, price should not be abandoned for time alone. Time structure analysis It is inherently flawed, as such the markets have a fail-safe, which is Price Structure. Even though Time is much more powerful, Price Structure should never be completely ignored. Time is the qualifier for Price and vice versa. Time can fail by tricking traders into counter-trend trading. Time is a predestined trade quantifier, a filter to slow trades down, as it allows a trader to specifically focus on specific time windows and rest at others. It allows for quantitative measurements to reach deterministic values and is the primary qualifier for trends. Time structure should be utilized before price structure, and it is the primary trade criterion which requires support from price. We can see price structure on a chart, as areas of mathematical support or resistance, but we cannot see time structure. Time may be used to tell us an exact point in the future where the market will inflect, after Price Theory has been fulfilled. In the present, price objectives based on price theory added to possible future times for market inflection points give us the exact time of market inflection points and price. Time Structure is repetitions of time or inherent cycles of time, occurring in a methodical way to provide time windows which may be utilized for inflection points. They are not easily recognized and not easily defined by a price chart as measuring and observing time is very exact. Time structure is not a science, yet it does require precise measurements. Nothing is certain or definite. The critical question must be if a particular approach to time structure is currently lucrative or not. We will measure it in intervals of 180 bars. Our goal is to determine time windows, when the market will react and when we should pay the most attention. By using time repetitions, the fact that market inflection points occurred at some point in the past and should, therefore, reoccur at some point in the future, we should obtain confidence as to when SPY will reach a market inflection point. Time repetitions are essentially the market’s memory. However, simply measuring the time between two points then trying to extrapolate into the future does not work. Measuring time is not the same as defining time repetitions. We will evaluate past sessions for market inflection points, whether discretes, qualified swings, or intra-range. Then records the times that the market has made highs or lows in a comparable time period to the future one seeks to trade in. What follows is a time Histogram – A grouping of times which appear close together, then segregated based on that closeness. Time is aligned into combined histogram of repetitions and cycles, however cycles are irrelevant on a daily basis. If trading on an hourly basis, do not use hours.
Daily Lows Mode for those Months: 1, 1, 2, 4, 12, 17, 18, 24, 25, 28, 29, 30
Hourly Lows Mode for those Months (Military time): 0100, 0200, 0200, 0400, 0700, 0700, 0800, 1200, 1200, 1700, 2000, 2200
Minute Lows Mode for those Months: 00, 00, 00, 00, 00, 00, 09, 09, 59, 59, 59, 59
Day of the Week Lows (last twenty-six weeks):
Weighted Times are repetitions which appears multiple times within the same list, observed and accentuated once divided into relevant sections of the histogram. They are important in the presently defined trading time period and are similar to a mathematical mode with respect to a series. Phased times are essentially periodical patterns in histograms, though they do not guarantee inflection points Evaluating the yearly lows, we see that BTC tends to have its lows primarily at the beginning of every year, with a possibility of it being at the end of the year. Following the same methodology, we get the middle of the month as the likeliest day. However, evaluating the monthly lows for the past year, the beginning and end of the month are more likely for lows. Therefore, we have two primary dates from our histogram. 1/1/21, 1/15/21, and 1/29/21 2:00am, 8:00am, 12:00pm, or 10:00pm In fact, the high for this year was February the 14th, only thirty days off from our histogram calculations. The 8.6-Year Armstrong-Princeton Global Economic Confidence model states that 2.15 year intervals occur between corrections, relevant highs and lows. 2.15 years from the all-time peak discrete is February 9, 2020 – a reasonably accurate depiction of the low for this year (which was on 3/12/20). (Taking only the Armstrong model into account, the next high should be Saturday, April 23, 2022). Therefore, the Armstrong model indicates that we have actually bottomed out for the year! Bear markets cannot exist in perpetuity whereas bull markets can. Bear markets will eventually have price objectives of zero, whereas bull markets can increase to infinity. It can occur for individual market instruments, but not markets as a whole. Since bull markets are defined by low volatility, they also last longer. Once a bull market is indicated, the trader can remain in a long position until a new high is reached, then switch to shorts. The average bear market is eighteen months long, giving us a date of August 19th, 2021 for the end of this bear market – roughly speaking. They cannot be shorter than fifteen months for a central-bank controlled market, which does not apply to Bitcoin. (Otherwise, it would continue until Sunday, September 12, 2021.) However, we should expect Bitcoin to experience its’ exponential growth after the stock market re-enters a bull market. Terry Laundy’s T-Theory implemented by measuring the time of an indicator from peak to trough, then using that to define a future time window. It is similar to an head-and-shoulders pattern in that it is the process of forming the right side from a synthetic technical indicator. If the indicator is making continued lows, then time is recalculated for defining the right side of the T. The date of the market inflection point may be a price or indicator inflection date, so it is not always exactly useful. It is better to make us aware of possible market inflection points, clustered with other data. It gives us an RSI low of May, 9th 2020. The Bradley Cycle is coupled with volatility allows start dates for campaigns or put options as insurance in portfolios for stocks. However, it is also useful for predicting market moves instead of terminal dates for discretes. Using dates which correspond to discretes, we can see how those dates correspond with changes in VIX. Therefore, our timeline looks like:
2/14/20 – yearly high ($10372 USD)
3/12/20 – yearly low thus far ($3858 USD)
5/9/20 – T-Theory true yearly low (BTC between 4863 and 3569)
I posted about this just a few months ago, but I feel that it's necessary to repeat. The Bitcoin price is on an unbelievably ridiculous upswing which is rather likely to be a bubble. If you're trying to get rich quick by dumping your retirement funds into BTC at $10k, then your "investment strategy" is not much better than someone betting everything on a game of roulette. High-risk-high-reward investing is not necessarily bad, but you have to seriously look at your thought process to make sure that you're not:
Being blinded by dreams of getting rich quickly, similarly to people who dump money on very-negative-EV lottery tickets.
Getting wrapped up in "HODL" memes, reddit comments, and other groupthink, which is sometimes fun, but absolutely the last appropriate source of investment advice.
Acting based on panic thinking like, "OMG the price is going to $1 million and I will miss my chance forever if I don't buy right now" or "OMG the price is going to $0.01 and I will miss my chance forever to retain some value if I don't sell right now".
Investing more than you can afford to lose. Bitcoin is HIGHLY, HIGHLY speculative. No investment advisor would tell you to put all of your life savings into MSFT or whatever, and MSFT has a market cap 4x larger than Bitcoin. Although I believe that it is very unlikely, there are several ways in which the value could drop precipitously, even to zero. For example, there is no mathematical proof that the cryptographic algorithms used in Bitcoin are actually secure -- they are merely believed to be secure because nobody has been able to break them after many years of intense scrutiny. (I'm not here recommending "diversifying" into altcoins -- altcoins are almost all complete trash, and price-wise they follow BTC but with even more volatility, so they're not really useful for diversification.)
It is entirely possible that the massive price increase of the last year is based on lasting fundamentals. In addition to things like the fairly recent subsidy halving, the defeat of B2X, etc., the world fiat-based economy is in many ways on very shaky ground, and getting worse all the time. There are many good reasons why BTC should have a larger market cap than every fiat currency combined. It's even possible that the price will increase quite a bit more from now. But for goodness sake, don't think that Bitcoin is the first-ever infinite-money generator that will continue to rise exponentially forever (in real terms). I can nearly guarantee that there will be a large and long-lasting crash/downturn at some point. Maybe it will be $10k to $5k, maybe it will be $50k to $30k, who knows. But if you're thinking for example that the current $5k+ price range is absolutely secure after only existing for a few months, then you're traveling blind through very dangerous territory. Some points to consider:
Buying near the ATH is very risky, and while it can be correct/profitable, it puts you on the wrong footing. You need to buy low and sell high to make money.
On 2013-11-29 (exactly 4 years ago) the peak ATH hit $1163, and then fell to $152 by 2015-01-13. That's a drop of 86.9%. Imagine this happens again: The price drops sharply to $2000 or something and then just continuously decreases down to a low of $1,432 (an 86.9% reduction from today's ATH) over the course of a whole year. I'm not saying that this will happen, but it's happened once and it can happen again. Could you survive this?
Bitcoin is experimental, and it is probably imprudent for someone who is not a true believer in the soul of Bitcoin to invest a lot into it. For example, I personally wouldn't invest more than a few percent of my total assets into ETH even if I felt very confident that it would rise in price because I simply don't believe in its philosophy or long-term value.
To reduce risk, it is frequently recommended to allocate assets by percentage, and rebalance upon large price movements. Eg. If you previously decided that you want to allocate 50% of your wealth in BTC (because you are a super big true believer), but BTC is now 90% of your wealth because the price increased so much, it may generally be advisable to start selling to rebalance your BTC allocation back down to 50%. I'm not saying that it is always absolutely wrong to have 90% of your assets in BTC or whatever, but it should be because you are intentionally choosing to do so, not because the price got away from you and you never really considered that you now have 90% of your wealth riding on one thing.
Avoid panic buys and panic sells. Dollar-cost-averaging over a long period of time is often a good strategy.
Nothing rises in real value to infinity. That's impossible. It is possible that 1 BTC could someday be worth infinite dollars, but that just means that dollars are worthless in that hypothetical scenario. BTC probably does have plenty of room to grow in real value before it completely takes over the world, but keep in mind that there is a ceiling.
If BTC were to reach values like $100k-$250k, that'd probably cause/imply that the prevailing economic regime has completely fallen apart. At some point in that price area, people around the world would probably lose substantial faith in fiat currencies. A good result, but ask yourself: do you expect the prevailing economic regime to go down easily?
I'm not telling you to buy or sell, and I'm not giving financial advice here. I'm just urging everyone to think rationally, not emotionally or recklessly.
Set and Drift | Analysis - Estimating Future Income from the FIRE Portfolio
Cultivate an asset which the passing of time itself improves. – Seneca, Letters XV Overview The focus of the voyage to financial independence so far has been designing the portfolio, and measuring the distance still to travel. There is more basic question to be asked as the journey progresses - will the portfolio produce the income targets set for it, or will something need to change? Currently, the income estimates from the portfolio targets - $67 000 from a short-term target of around $1.6 million and $83 000 from a target of around $2.0 million in several years - are set on an assumption of a total portfolio return of 4.19 per cent. That does not mean, however, that the portfolio will simply automatically produce an income of that level. Just pointing the ship in the direction of travel is not enough. This is because the total return assumes both capital growth and distributions or interest. This analysis examines what income the portfolio is likely to produce when the targets are achieved, and assesses whether or not selling down or changing the portfolio in other ways to meet the income goals may be necessary. To answer this question, history and three different methods of estimating the potential income produced by the portfolio are reviewed. Approach #1 - Navigation by landmarks The first approach is to simply use what is already known to establish one’s position. Previous analyses have discussed the overall trends in portfolio distributions, and reached some approximate estimates of the likely underlying level of distributions. These estimates differ according to the precise method chosen, and time period considered. So far, these analyses have established that the portfolio appears to be generating between:
$5 000 per month or $60 000 per year, if an approach where the moving average of the past three years of distributions is used; or
$3 800 per month or $45 000 per year, if a conservative approach of an average of the past four years of distributions is applied.
This is healthy progress, however, both of these figures are short of the Objective #1 income requirement of $67 000 per year (or $5600 per month), and even further from the projection of $83 000 (or $6 900 per month) under Objective #2. Will the future look like the past? These historical figures are useful because they are real data based on holdings in the actual portfolio. Their disadvantages are that they are backward-looking. This has two possible impacts. First, the growth of more than 50 per cent in the total portfolio size over even the past three years means that the level of historical distributions will underestimate the income generation potential from the now larger portfolio. In short, this is like trying to estimate interest from a bank account by looking at your balance three years ago. Second, the distributions of three or four years ago will reflect past asset allocations, and investment products. As an example of this, two years ago the portfolio contained over $55 000 invested in Ratesetter’s peer to peer lending platform. This was earning an average income return of 9.1 per cent. Today, Ratesetter is less than half of this size, due to a slow asset reallocation process and withdrawals as loans mature. This suggests a purely backward view of the actual achieved distributions may be incomplete and misleading. Taking an average distribution rate approach The other potential way of estimating the income return of the portfolio is to use the average distribution rate of the portfolio in the past. The rate is calculated as total distributions over a defined period divided by the average portfolio level over the same period. This eliminates any errors from the first impact discussed above of growing portfolio growth size, as it is a rate rather than a level measure. It does not eliminate the second impact. For example, higher interest rates meant that cash holdings in 2013-14 could make up over third of total distributions, a position not likely to reoccur in the short or even medium term. Yet it still may be an approximate guide because while overall portfolio asset allocation has shifted in the past two and half years, it has remained within some broad bounds. As an example, total equity holdings were at 70% of the portfolio both 5 and 10 years ago. Additionally, using a median long-term average of 4.4 per cent will tend to reduce the impact of one-off changes and outlier data points. [Chart] As established in Wind in the Sails the average distribution rate over the past two decades has been around 4.4 per cent. This implies that the portfolio would produce: -$5 900 per month or $70 300 per annum income when the portfolio is at Objective #1 (e.g. this suggests that the target income at Objective #1 would be met, with around $3 000 to ‘spare’). - $7 300 per month or $87 100 per annum income when the portfolio is at Objective #2 (e.g. as above it suggests meeting Objective #2 would produce around $4 000 more income than actually targeted). An interesting implication of this is that the portfolio has been producing distributions (at 4.4 per cent) at a rate that is higher than the overall rate of assumed long-term total return (around 4.2 per cent). This is consistent with the fact that the Vanguard funds, and to some extent shares and other ETFs have been realising and distributing capital growth, not just income. This means that if I truly believe my long-term total return forecast is more accurate than the distributions estimate, I would need to re-invest the difference, to ensure I was not drawing down the portfolio at a higher rate than intended. Approach #2 - Navigation by 'dead reckoning' A different approach to reaching an income estimate from the portfolio is to forget about the actual history of the portfolio, and look to what the record shows about the average distribution rate from the asset classes themselves. That is, to construct an hypothetical estimate of what the portfolio should produce, based on external historical data on average income from the individual portfolio components of Australian shares, international shares, and fixed interest. To do this, estimates of the long term income generated by each of the asset classes in the portfolio are needed. For this ‘dead reckoning approach’ I have used the following estimates. Table 1 - Asset class and portfolio income assumptions Asset class Allocation Estimated income Source Australian shares 45% 4.0% RBA, 1995-2019, May Chart Pack International shares 30% 2.0% RBA, 1995-2019, May Chart Pack Bonds 15% 1.0% Dimson, Marsh and Staunton Triumph of the Optimists 101 Years of Global Investment Returns, Table 6.1 Gold/Bitcoin 10% 0% N/A Total portfolio 100% 2.55% This analysis suggests that at the target allocation for the portfolio, based on long-term historical data, it should produce a income return of around 2.6%. This equates to:
$3 400 per month or $40 700 per year when the portfolio is at Objective #1
$4 200 per month or $50 500 per year when the portfolio is at Objective #2
These figures are also well short of the income needs set, and so imply a need to sell down assets significantly to capture some of the portfolio's capital growth. Abstractions and obstructions Of course these figures are highly averaged and make some simplifications. Year to year management will not benefit from such stylised and smooth average returns. Income will be subject to large variations in distribution levels and capital growth will vary across asset classes and individual holdings. Another simplification is that is analysis does not include the value of franking credits. If it is assumed that Australian equities continued to pay out their historical level of dividends, and the franking credit rate remains at the historical average of around 70 per cent then Australian shares dividends should yield closer to 5.2 per cent, lifting the total income return of the portfolio to around 3.1 per cent. In turn, this would marginally reduce the capital sell-down required. Adjusting for this impact means the portfolio income would be $4100 per month at Objective #1, and $5100 per month Objective #2 Yet these assumptions can be challenged. It is possible that the overall dividend yield of the Australian market will fall and converge with other markets. This would be particularly likely to happen if further changes to dividend imputations or the treatment franking credits to occur. It could also occur due to a maturing and deepening of Australian equity markets and domestic investment opportunities available to Australian firms. Shorter term, uncertainty around the future ability of shareholders to fully benefit from franking credits could encourage a payout of credits currently held by Australian firms. Approach #3 - Cross-checking the coordinates Due to these simplifications and assumptions, it is appropriate to cross-check the results of one method with other available data. An alternative to either a purely historical approach using distributions received, or the stylised hypothetical above discussed in Approach #2, is relying on tax data. Specifically, taxable investment income can be estimated as the sum of the return items for partnerships and trusts, foreign source income and franking credits (i.e. items 13, 20 and 24) in a tax return.This has been previously discussed here. Using this data is - of course - not independent of my own records of distributions. It's benefit is that it strictly relies on verified data provided in tax calculations. This will include income distributions and realised capital gains from within Vanguard funds, for example, but will not pick up unrealised capital gains. As with Approach #1, as the portfolio has changed in size and composition the absolute historical levels of taxable will not necessarily produce the best estimate of the expected level of distributions looking forward. For example, because it is drawing on a period in which the portfolio was smaller, a five year average of investment income would suggest future annual investment income of $32 300 or $2 700 per month. So instead an 'average rate' approach can be used to overcome this. Over of the past five years, the portfolio has produced an annual taxable investment income of around 3.5 per cent of the value of portfolio. This in turn implies an average taxable investment income of:
$4700 per month or $56 000 per year when the portfolio is at Objective #1; and
$5800 per month or $69 000 per year when the portfolio is at Objective #2
Once again, these estimates imply the existence of a significant income gap remaining at reaching both portfolio objectives. Summary of results So far historical data from the portfolio and three different approaches have been set out to seek to answer the question: how much income is the portfolio likely to produce? Comparing estimates and income requirements These individual estimates (blue) and the average of all estimates (green) are summarised in the charts below, and compared to the monthly income requirements (red) of both of the portfolio objectives. The chart below sets out the estimates for Objective #1. [Chart] The following chart sets out the same data and projections for the portfolio when it reaches Objective #2 (a portfolio total of $1 980 000). [Chart] The analysis shows that:
Portfolio income is likely to be below target at reaching Objective #1 - Using the approaches and history as a guide the portfolio should on average produce an income of around $57 000 per annum at Objective #1
And also below target at Objective #2 - When Objective #2 is reached portfolio income should on average be around $71 000
Therefore an income gap does exist to solve - Under most estimation approaches there will be a significant income shortfall at reaching both Objective #1 and #2
The gap is significant, but not disastrous - Assuming an equal weighting to the three approaches and actual historical distributions over the past three years the size of the income gap will be around $900 per month at Objective #1 (or $10 200 per annum) and greater, around $1000 per month at Objective #2 (or $12 000 per annum)
Only one estimation approach doesn't identify a gap - Only if the 'average distribution rate' approach under Approach #1 is accurate will there be no income shortfall.
This implies that at the $1.6 million target of Objective #1, a small portion of any portfolio gains (around 0.6% of the value of the total portfolio) would need to be sold each year to meet this income gap. An identical result applies at the Objective #2, around 0.6% of value of the total portfolio would need to be sold annually. Another intriguing implication of the reaching the average estimates is that it allows for an approximation of the required portfolio level to rely entirely on portfolio income, and avoid any sale of assets. At both portfolio Objectives the average of all estimation approaches indicate portfolio income of around 3.5 per cent. Reversing this figure for the target portfolio income (e.g. for $67 000 at Objective #1 is 0.035/67000) implies a portfolio need of $1.91 million. For the higher target income for Objective #2, the implied portfolio required to not draw down capital is close to $2.4 million. This would require many additional years of future paid work to achieve. Trailing clouds of vagueness There are many caveats, inexactitudes and simplifications that should loom large in interpreting these results. The level of future returns as well as their income and capital components are unknowable and volatile. In particular, the volatility of returns introduces key sequence of return risks that are simplified away by the reliance on deceptively stable historical estimates or averages. Particularly sharp movement in asset prices could change the asset allocation. Legislative or market changes could change the balance of income and capital appreciation targeted by Australian firms. For these reasons, the analysis does not make me consider any particular remedial action. It indicates that under a range of assumptions and average outcomes, there will need to be a sale of some investments to meet the portfolio incomes targeted. The same analysis shows that the superficially attractive choice to live only off portfolio income would in reality mean aiming for a target around 20 per cent higher - needing an extra $300 000 to $400 000 - potentially adding many years to the journey. The relatively small scale of the required sales is the most surprising outcome of this analysis. Selling around 0.6 per cent of the portfolio annually does not on its face appear to be a high drawdown in most market conditions. Another potential issue to consider is what this result means for asset allocation. There is no doubt that history would suggest that the income gap could be reduced by either reducing the bond allocation, or lower yielding international shares. To give a sense of the magnitudes of this - using the 'dead reckoning' Approach #2 set out above - allocating 100 per cent of the equity portfolio to Australian shares would produce around $900 per month (or $10 300 per year) additional distributions at the Objective #1 portfolio of $1.6 million. In theory, this domestic shares only option would all but close the income gap. Yet the benefits of diversification and risk reduction bonds and international shares offer make this a trade-off to consider, not a clear choice. At present, my plan would be to revisit this issue at my annual review of the portfolio asset allocation. In the meantime, having produced these estimates has helped starting to think in more concrete terms about the draw down phase, its challenges and mechanics. In a small way, this seems to clear some of the clouds away, and enable me to glimpse some possible futures more clearly. The post and graphs can be viewed here. Note: The historical average estimate for this purpose has been proportionally adjusted to increase based on the increased size of the portfolio between now and reaching Objective #2
In the Shade of Afternoon | Monthly FI Portfolio Update – August 2019
It is idle, having planted an acorn in the morning, to expect that afternoon to sit in the shade of the oak. Antoine de Saint-Exupéry, Wind, Sand and Stars This is my thirty-third portfolio update. I complete this update monthly to check my progress against my goals. Portfolio goals My objectives are to reach a portfolio of:
$1 598 000 by 31 December 2020. This should produce a passive income of about $67 000 (Objective #1) - Achieved
$1 980 000 by 31 July 2023, to produce a passive income equivalent to $83 000 (Objective #2)
Both of these are based on an expected average real return of 4.19%, or a nominal return of 7.19%, and are expressed in 2018 dollars. Portfolio summary Vanguard Lifestrategy High Growth Fund – $750 246 Vanguard Lifestrategy Growth Fund – $43 194 Vanguard Lifestrategy Balanced Fund – $79 500 Vanguard Diversified Bonds Fund – $110 418 Vanguard Australian Shares ETF (VAS) – $102 977 Vanguard International Shares ETF (VGS) – $20 184 Betashares Australia 200 ETF (A200) – $258 984 Telstra shares (TLS) – $1 982 Insurance Australia Group shares (IAG) – $14 056 NIB Holdings shares (NHF) – $8 868 Gold ETF (GOLD.ASX) – $104 149 Secured physical gold – $16 759 Ratesetter* (P2P lending) – $19 968 Bitcoin – $158 330 Raiz* app (Aggressive portfolio) – $16 223 Spaceship Voyager* app (Index portfolio) – $2 104 BrickX (P2P rental real estate) – $4 395 Total value: $1 712 337 (-$2 653) Asset allocation Australian shares – 40.5% (4.5% under) Global shares – 22.2% Emerging markets shares – 2.4% International small companies – 3.1% Total international shares – 27.7% (2.3% under) Total shares – 68.3% (6.7% under) Total property securities – 0.3% (0.3% over) Australian bonds – 5.1% International bonds – 10.1% Total bonds – 15.1% (0.1% over) Gold – 7.1% Bitcoin – 9.2% Gold and alternatives – 16.3% (6.3% over) Presented visually, below is a high-level view of the current asset allocation of the portfolio. [Chart] Comments The portfolio experienced a small decline this month, with an overall decrease of $2 600. This movement comes after a strong period of expansion through the first half of the year in the value of the portfolio. [Chart] As with last month, the fall occurs despite some significant new investments being made, meaning the absolute size of the decline is somewhat obscured. Renewed concerns about global trade and a relative weakening in the outlook for future earnings played a significant role in the overall movement of the portfolio. [Chart] Once again movements this month within the portfolio have been relatively limited in terms of the size of the portfolio. Equity holdings have declined by around $28 000 when contributions are accounted for, whilst appreciation in the price of gold has offset just over a third of that loss. In fact, despite no recent purchases, the gold component of the portfolio is currently at the highest nominal value it has ever held. On the topic of gold, this 2013 paper (pdf) provides a comprehensive and skeptical empirical analysis of the range of claims made to support holding gold, including tracing the real gold value of average soldiers pay across 2000 years. This month has seen a continuing 'averaging in' of the capital from July distributions. These have been directed to purchases of Vanguard's Australian shares ETF (VAS). This is to bring the allocation closer to my original targets - with my Australian shares allocation currently further underweight than the international shares allocation. Psychologically, a weakening Australian dollar has also made purchasing unhedged international shares more problematic. Risk, volatility, markets and economies There has been significant market volatility this month, and discussion around the future of Australian and global growth in the midst of trade tensions between US and China. In such times, something to remember as this St Louis Federal Reserve piece points out, is that the economy and sharemarket are not the same thing. This means that bad (or good) news for one, does not necessarily imply anything about the other. Missing this has the potential to lead to overconfident investment actions predicated on assumptions of future national economic trends (which will themselves most likely be priced into equity markets well before any retail investor reading the news arrives). The volatility in equity markets has brought out many well-intentioned injunctions to remain calm and fixed on the objective of contributing capital with a long-term view in mind. At times, however, this wise advice can shade into a form of near complacency - for example, for people to invest confident in the knowledge that long-term returns are (almost) guaranteed. No doubt this is generally good advice, directed at easing particularly new investors' concerns about investing at the "wrong" time, and reducing the potential damage from selling into falling markets due to panic. Even as I continue to invest amidst volatility, it is important to reflect on Elroy Dimson's definition that 'risk means more things can happen than will happen', and to consider that the history of equity markets available to us provides only a basis for sound conclusions around what has happened, not what could happen. This is the definition of the risk assumed in markets by investors. None of this is to suggest that starting, saving and regular investing with a view to one's individual risk tolerances are not the most important steps in the path to FI. There is a need to pause, however, and acknowledge that at times common financial independence investment precepts bear a disconcerting passing resemblance to the declaration and mathematical proof offered by famous stock promoter Jacob J Raskob in the well-known Ladies Home Journal (pdf) article exactly 90 years ago. This declaration was that with a steady investment in equities, based on the past patterns of returns, 'everybody ought to be rich'. Nearly 90 years happened to be just before the Great Depression devastated equity markets and employment prospects alike, and US equity investors were behind in nominal terms for around 25 years. Interestingly, however, this New York Times article argues that deflation, higher dividend yields and impacts from changes in the Dow index composition could theoretically have shortened the real losses of any investor to just 4.5 years, provided they possessed the resources and fortitude to hold on to average stocks. Progress Progress against the objectives, and the additional measures I have reached is set out below. Measure Portfolio All Assets Objective #1 – $1 598 000 (or $67 000 pa) 107.1% 145.4% Objective #2 – $1 980 000 (or $83 000 pa) 86.5% 117.4% Credit card purchases - $73 000 pa 98.3% 133.4% Total expenses - $89 000 pa 80.7% 109.4% Summary Progress against my goals and benchmarks has been static this month, with the exception of the 'total expenditure' benchmark. My detailed review of expenditure last month identified that I could lower this to recognise some double-counting of fixed expenses, and this has meant a leap forward in progress in that aim of 5.8 per cent. This moves the clock forward appreciably for achieving that benchmark. As a general rule, it is always later than we think. For example, on a recent lunch time walk it occurred to me that if my progress to my current FI target of $1.98 million is considered in terms of the length of an ordinary working day, it is currently approximately 3.50pm in the afternoon. Quite late, and just over an hour until heading home. This perspective, of being further towards the tail end than expected, is explored fully and powerfully in the blog Wait but Why here. It helps frame the remaining journey. Viewed in this way, wishing time away seems less useful and fitting than seeking to fill the remaining time with as much meaning, learning, knowledge transmission and patience as feasible. Yet it also explains why in a FI context at this stage sharp changes in investing approach, or commencing new 'side hustles' have limited appeal. Despite it being late afternoon from this one perspective, there are a couple of other considerations or viewpoints. One is the potentially deceptive role of compounding later in the journey, which means that - at least in a stylised world of 'smooth returns' - the end goal is actually likely closer than any purely linear measure would suggest. The other counterpoint to this is that while in my case the absolute journey to FI has involved serious investments over around 18 years, this is not the whole story. Viewed in terms of the average 'age' of dollars actually contributed or invested, the journey of the average dollar in the portfolio has been shorter. In fact, in terms of dollars contributed, around 50 per cent have been contributed since January 2016. So, in some ways, it is more akin to mid-morning for the portfolio as a whole, meaning perhaps that I should not reasonably expect to shade myself under the oak tree just yet. Finally, this month also saw Pat the Shuffler emerge from a short hiatus and provide a honest and well-argued insight into his rethink on investment options between LICs and ETFs. I also enjoyed reading the start of another Australian FI voice at Fire for One. The past few months has also had many interesting podcasts related to FI - from The Escape Artists' Chris Reining on Equity Mates, to a really fascinating practical ChooseFI episode on David Sawyer's on the UK Path to FI. On the slightly more technical and future focused side of finance, the outgoing address of the Bank of England's Governor to the Jackson Hole central bankers gathering provides much food for thought on current and longer term monetary and currency issues, particularly as global bond rates continue to cross the 'zero-bound' into uncharted territory. The post and full charts can be seen here.
WSB101 - THE BOOK OF YOLO: BEGINNERS GUIDE TO TRADING LIKE A DEGENERATE AND EVERYTHING WSB
The Book of Yolo: COMPLETE GUIDE TO WSB The goal of this is to actually create something that all of you WSB newbies can read - because we’re all tired of seeing the endless wave of uninformed and unavoidable stupidity from those who have never touched the stock market. CALLING ALL NEWFAGS AND NORMIES. If you can’t read, GFY now. Now that we will be on the popular section of reddit, this has become pertinent. WSB can't avoid newcomers, so we might as well explain how the clock ticks here. This one is for you all. This is to serve as a reference what values we hold, what instruments we use, and as a general place to educated the uneducated. First off, this is the LEAST helpful stock market-based community for newcomers. Sarcastic answers are the only thing of true value here. It isn't a place to learn, but a place to plan out where you will dock your yacht. Newcomers are usually berated upon asking the inevitable stupid questions that they could learn slowly from reading here, or just using a damn search engine. Instead of embarrassing yourself here, you now have the opportunity to read this and get what we’re all rambling about. This will help you understand what to expect if you make the decision to undertake a WSB style trading career, so you can stay here and contribute to the yolo lifestyle or otherwise GFY. I will edit in any suggestions that our frequenting users or mods want to add to this as well. To begin: Here are our topics for WSB101 -Basics (Equities/Stocks) ; -ETF's ; -Options ; -Futures Trading ; -SubCulture ; BASICS/EQUTIES Skip if you understand basic stock stuff Okay, so what is an equity/stock? An equity is essentially what you’d think of as your “vanilla” trading tool. They move up or down depending on market forces, and can range from pennies to thousands of dollars per share. To explain how stocks work, let's define a few terms. Volume: The number of shares of stock traded during a particular time period, normally measured in average daily trading volume. Spread: The difference between the bid and the ask price Bid Price: The current price in which someone wants to buy at Ask Price:The current price in which someone wants to sell at Volatility: The WSB favorite. Volatility is referring to the price movements of a stock as a whole. The higher the volatility, the more the stock is moving up or down. Highly volatile stocks are ones with extreme daily up and down movements and wide intraday trading ranges. Margin: A margin account lets a person borrow money (take out a loan essentially) from a broker to purchase an investment. The difference between the amount of the loan, and the price of the securities, is called the margin. Margin is one of WSB’s popular instruments of wealth and destruction. Dividend: This is a portion of a company’s earnings that is paid to shareholders, or people that own hat company’s stock, on a quarterly or annual basis. Not all companies do this. PPS: Acronym for “Price per Share” Moving Average: A stock’s average price-per-share during a specific period of time. Bullish: Expecting the stock to go up Bearish: Expecting the stock to go down Any raised hands can redirect themselves to here: http://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 Now that these terms are defined, let's move into the details of why this is even useful. Most people know what a stock is, but how and why stocks move is a different story. The stock market is essentially a big virtualization of supply and demand - meaning that usually high positive volume creates upwards movement in the PPS, where high negative volume does the opposite. This creates a trader’s opportunity; Generally, the most effective time to buy or sell is where the candlesticks (volume data) are thinning out. When you are ready to take an entry point or execute an exit point, waiting till the volatility (candlesticks) thin out is one method to give you best trade possible. WSB FAVORITE EQUITIES: Of many equities, WSB favors the riskier ones - but avoiding penny stocks is a policy. AMD - CEO Lisa Su, Next Gen Processors, chips, graphics. It’s the gamers gambit. Up roughly 1400% as of 2/7/2017 since WSB first mentioned it NVDA - AMD’s sister? Mother? Daddy? Who knows. NVDA has been a sexy semiconductor leader. Is up 400% since gaining traction on WSB. FNMA / pfds - Mnunchin, Trump, Big fat fannies. Get your self deep in the fannie. We all want it. WSB 10 bagger candidate for reforming the housing market. WSB holds a large cumulative position that can be seen below. Also a good read is the beginners guide to FNMA. Any post by u/NOVACPA is very often VERY informative on FMNA/pfds. https://www.reddit.com/wallstreetbets/comments/5oissp/results_wsb_fnmafmcc_holdings https://www.reddit.com/wallstreetbets/comments/5t7gba/beginngers_guide_to_fnma_fmcc_read_this_before/ ARRY - A biotech champion that prevailed after a lot of failures and huge losses in the biotech sector. Dark times for WSB. Up ~300% since getting traction on the subreddit. TWTR - WSB likes to buy put option contracts on her. Exemplary of a social media platform that is unable to monetize itself. TSLA - Maybe not unanimously a favorite, but loved for it’s sexy volatility, Elon Musk, and ridiculously expensive options. GILD - A Shkreli pump and dump? The greatest large cap pharma recovery of all time? Who knows. Martin took the time to make a post on this reddit and it is up $5 dollars since. ETF'S Welcome to the world of investing made easy. Exchange traded funds (etfs) are devices that can be traded like stocks, but often track the value of many companies by investing in their listed assets accordingly. Specifically, An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors. ETF’s come in beautiful and delicious varieties, often with a BEAR form and a BULL form of each; but the most delicious to WSB are the 3x etf’s. A 3x ETF is one in which the underlying movement of the ETF is leveraged 3:1. Meaning for every movement within the underlying index or stocks, the 3x ETF moves well.... 3x as much.. WSB FAVORITE AND USEFUL ETF’S: JNUG - 3x Gold Miner Bull - A hit or miss, has extreme intraday movements and essentially tracks GDX (gold miner’s index). Jnug will usually move with a pretty strong correlation to gold, which is affected by the mentioning of rate hikes (negatively), movement of the US dollar (inversely), uncertainty (positively), and supply and demand. NUGT - Jnug with a different price tag JDST - The inverse 3x etf of JNUG - or the bear etf. It does almost exactly the opposite movements of JNUG by the tick. Moves for the same reasons, but obviously opposite directions. DUST - Jdst with a different price tag. UGAZ - Natural Gas 3x Bull ETF - essentially tracks the price value of the commodity Natural Gas, but more specifically the S&P GSCI Natural Gas Index ER. The index comprises futures contracts on a single commodity and is calculated according to the methodology of the S&P GSCI Index. Natural gas is most affected by Weather temperature conditions (use your brain), petroleum prices, and broader economic conditions. DGAZ - Inverse of UGAZ UWT - Crude Oil Bull 3x ETF - extreme intraday movements, closely follows the price of oil. More specifically, it tracks futures. UWT seeks to replicate, net of expenses, three times of the S&P GSCI® Crude Oil Index ER. The index tracks a hypothetical position in the nearest-to-expiration NYMEX light sweet crude oil futures contract, which is rolled each month into the futures contract expiring in the next month. The value of the index fluctuates with changes in the price of the relevant NYMEX light sweet crude oil futures contracts. DWT - Inverse of UWT FAS - Financial Bull, specifically FAS seeks daily investment results, before fees and expenses, of 300% of the performance of the Russell 1000 ® Financial Services Index. The fund creates long positions by investing at least 80% of its assets in the securities that comprise the Russell 1000 ® Financial Services Index and/or financial instruments that provide leveraged and unleveraged exposure to the index. Can be used when bullish on US financial services - so banks, lenders, etc. FAZ - Inverse of FAS UPRO - S&P500 Bull 3x ETF, essentially tracks the S&P500 and multiplies it’s returns by 3x. BRZU - Tracks Brazil (in its most basic form). It creates long positions in the MSCI Brazil 25/50 Index. LABU - Tracks the Biotech sector, or specifically 300% of the performance of the S&P Biotechnology Select Industry Index ("index"). It should be noted that LABU has doubled since just before the election of Donald Trump. LABD - Inverse of LABU RUSL - roughly creates 300% of the performance of the MVIS Russia Index. RUSS - Inverse of RUSL SPY - Tracks the S&P500, but is not 3x. OPTIONS: Alright, so half you are going to understand this, and half of you are not. Pull up an options chain now on any stock (penny stocks and specific stocks do not have chains because of their market cap). Options are truly the ultimate way to achieve maximum risk/reward. An option is a contract that gives the buyer the right to buy or sell 100 shares of a stock at a certain price, on a certain date. This concept makes options a commodity themselves. KEY TERMS: A CALL - is the right to buy. Buying calls is taking a bullish position in its most extreme form. A PUT - is the right to sell. The underlying - is the stock that the option is covering i.e. AAPL, GOOG, AMZN Strike Price - the price at which a put or call option can be exercised. ITM, In the money - In the money means that a call option's strike price is below the market price of the underlying asset or that the strike price of a put option is above the market price of the underlying asset. Being in the money does not mean you will profit, it just means the option is worth exercising. OTM, Out of the money - a call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. ATM - At the money - Strike price at the same price as the underlying Expiration - Expiries for options are every friday of every week usually, with exceptions such as every month, or every other day - depending on the underlying. SPY and SPX are great examples of very active option chains with expiries every other day. On the expiry date or any time before (with american options), an option can be, but doesn’t have to be exercised, meaning the holder of the option can use it to buy or sell shares of the underlying stock at the strike price. Most people on WSB do not exercise the contracts, but merely flip them for increases in value as the underlying moves. For example, when AAPL was at 120 before its earnings report, Joe Shmoe Yolo buys 10 FEB 17th CALLS at strike 127 for .60 , each. Now .60 cents is really 60 dollars each, because the contract is multiplied by 100 (the right to 100 shares). In total, Joe Shmoe Yolo spends $600 dollars + commision on this trade. The next day, AAPL leaps to 130 upon great news. These same option contracts are now worth 3.50 each. $350 dollars per contract, times ten contracts is $3500 dollars. Joe Shmoe Yolo just turned $600 into $3500 dollars. MAGIC. Spoiler alert: Joe Shmoe Yolo was me. That same Joe Shmoe later buys FEB 17th XOM calls at 90, hoping for similar results. However, XOM ends up never reaching anywhere close to the strike price, and the options expire worthless. Get it? Now what determines the pricing of options? OPTION PRICING: Below is sourced from investopedia Intrinsic Value: The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Additionally, intrinsic value is primarily used in options pricing to indicate the amount an option is in the money. Time Value: Time Value = Option Price - Intrinsic Value. The more time an option has until it expires, the greater the chance it will end up in the money. The time component of an option decays exponentially. The actual derivation of the time value of an option is a fairly complex equation. As a general rule, an option will lose one-third of its value during the first half of its life and two-thirds during the second half of its life. This is an important concept for securities investors because the closer you get to expiration, the more of a move in the underlying security is needed to impact the price of the option. Time value is basically the risk premium that the option seller requires to provide the option buyer the right to buy/sell the stock up to the date the option expires. It is like an insurance premium of the option; the higher the risk, the higher the cost to buy the option. Makes sense, right? Time value is determined by the expiration date. An expiration date in derivatives is the last day that an options contract is valid. When investors buy options, the contracts gives them the right but not the obligation, to buy or sell the assets at a predetermined price, called a strike price, within a given time period, which is on or before the expiration date. If an investor chooses not to exercise that right, the option expires and becomes worthless, and the investor loses the money paid to buy it. Volatility: In an options pricing, you see IV. This stands for implied volatility. The higher that is, the higher the options will be priced Volatility is the extent to which the return of the underlying asset will fluctuate between now and the option's expiration. Volatility, as expressed as a percentage coefficient within option-pricing formulas, arises from daily trading activities. How volatility is measured will affect the value of the coefficient used. Decaying Nature of Options: Decay refers to derivative trading (i.e. options). When you sell or buy a call/put (using those two for simplicity purposes) you don't get an infinite time frame to make your dreams come true. Time is your enemy; the further out the expiration date, the less time decay there is. Time decay really hits the worst the week of expiration. Sound confusing? Say you're buying options of the stock WSB (I hope you're seeing what I did there) - and the option costs $1, the expiration is this Friday. Say today is Monday. You buy a call expecting WSB to take you to the moon and beyond. Each day the stock doesn't move closer to your strike price or remains stagnant/drops, you lose value on your option + the time decay. Meaning if it finishes closer to your strike price, your option could be worthless because of that time decay. Questions? Ask away. A great example of these factors in action is TSLA. TSLA’s options are among the most expensive for companies in its price range, why? An in the money TSLA call expiring this week is worth around $1100 per contract. Insanely expensive. But for a reason. TSLA has extreme intraday movements and calls have an implied volatility of 40.92%. Which is fairly high. In addition to that, it holds high intrinsic value / price per share, and a week of time value. -Futures 101 - The Ultimate YOLO Guide (thanks to u/IncendiaryGames) Okay, a lot of you have been YOLOing on faggot delights on SPY options. How would you like to trade something with the same or more leverage, 1.0 delta, and no time premium costs? Have you considered futures? What are futures? Unlike options, futures is a contract where both the buyer and seller is obligated to perform the transaction by the expiration. Conversely, in options, only the seller is obligated to perform. That means you can lose more than your investment. Originally they were used by farmers to sell future crops early and guarantee some amount of sales. Since then futures have expanded not just to commodities but currency and equity indices like the S&P 500. Why the heck would I want to trade futures? Here are the advantages: Leverage $5k is the margin requirement for most contracts. For example with the E-mini S&P 500 with 5k you're trading $120k worth of stuff. 1 contract = 500 spy shares. Some brokers offer intraday daytrading margin rates too - TD Ameritrade is 25% of the overnight margin rate($1,250.) Some brokers go as low as $500 an /ES future. SPAN Margin If 24x overnight leverage and 240x day trade leverage didn't give you a hard on there is also SPAN margin, which is like portfolio margin on steroids. The beauty of SPAN margin is you don't need a $125k+ account to be eligible. SPAN will greatly reduce your margin requirements if you hold uncorrelated or inversely correlated positions (up to an 80% discount, here is a list of groups that give discounts) and if you hedge with options. Hedge with the right option or asset and now you have up to 500x day trading margin. 23/7 and day trading Ever get in and out of an equity only to have your broker yell at you to stop doing that or deposit $25k? There is no pattern day trading restrictions on futures. Feel free to day trade and blow up your account as often as you want! You can also trade 23 hours a day. Get trading on how the S&P 500 index will react to news from China right away. Taxes No matter how long or how short you hold you always get taxed under the 60/40 rule. 60% of your profit from futures will be taxed as a long term gain and 40% will be taxed as short term gain. No wash sales. Trade your hearts out. Just remember holding past Dec 31st will treat you as if you closed all your positions that day and you'll be taxed on unrealized gains. Long/Short No need to pay interest or borrow shares as being short a future contract is being a writer, just like an options writer. Options Of course there are options. What fun would it be without options? Unlike stock options each contract gives different number of future contracts. Research what you're trading. Ok. I'm convinced. I want to strat trading futures! What are some good strategies? YOLO Strategies Swing trading Trying to guess/predict/ride sudden market momentum. A low volume average day in the S&P 500 (/ES) for one contract can swing +- $500. Get it right and you can see a huge appreciation of value. /ES is usually highly liquid during regular hours with average volume of 1 million trades and usually bid-ask spreads of one tick. One approach is to buy or short in your direction and put in a stop loss to an amount you're comfortable to lose (say $200.) Since it's so liquid you'll likely be filled at or near your stop loss during the day if your trade goes against you. If you can guess the direction 50% of the time and have trades like this: trade 1 - gain $800 trade 2 - lose $200 Then you may profit over the time period. If you have a 50% chance of being wrong and losing $200 or 50% chance of being right and gaining $800 then over time you'll gain more than you lose. Also, since the present value of your futures contract is included in your margin calculation then if it goes strongly in your favor your position can quickly grow to cover its own margin and you can let it ride for a while. You'll want to be sure you enter a combo buy/short order along with a stop loss order simultaneously, like this for Thinkorswim. Futures can move suddenly and a sudden movement can make you lose a ton of money. Exploiting outdated SPAN margin guidelines There are several out of date correlations between popular futures like oil and say things like wheat that SPAN gives you margin credits on. Take whatever position you want in oil (/cl) then take the opposite in something that doesn't move much day to day with less volatility such as /w (wheat)) and your /cl and /w positions will get a 75% credit, giving you 50% more buying power on crude oil. (2 positions * .25 = 0.5). Trade your heart out on the more volatile future then when you're done close your safer future pair. SPAN is constantly changing but such a complex system definitely has its exploits. Automated/algorithmic trading For you programmer geeks out there it's really hard to algorithmic trade on small accounts due to pattern day trading rules and economies of scale with broker fees. Futures is probably the best way to get your feet wet. Join us on /algotrading if you want to explore more! Boring safer strategies I'm including these for completeness but these belong on /investing. Scalping With high frequency trading scalping is less guaranteed. Basically scalping is using tiny momentum as usually there are small micro patterns in futures buying and selling activity where it will rise or fall a couple of ticks. Since the notional value of each tick is $12.5 it's profitable for retail investors and small accounts to act as a market maker after fees at the smallest bid-ask spread possible. Spreads Just like you can trade spreads in options, you can trade calendar spreads in futures. Futures have contracts with different expiration dates and the prices are different for each month of expiration based on the market's expectations. You can go long or short the near month expiration and the opposite for the far month. This will hedge out any sudden market moves as that would likely affect both months. Bull markets in general tend to increase the price of the near month faster than the far month. Basically with a spread trade you're making a long term bet on bull or bear for the underlying future. Pairs trading You can go long in one future say the dow jones (/ym) and short the S&P 500 index and profit off the relative growth. This is a hedged trade as any market ups or downs will likely affect both positions with the same % value. For the past 180 days /ym - /es has been really profitable. Even if you don't do a full perfect pairs trade it is still a great option to reduce the leverage too on whatever index future you're trading so you can stay in longer or overnight. Interest rate and optimal leverage plays Since the $5k investment is equal to $120k of the S&P 500 index currently then you'll likely beat out the market by buying one future contract and putting $115k in safe treasuries or bonds or uncorrelated assets. Some people choose to leverage their stock portfolio and you can get the exact leverage ratio of liquid investments to future ratios. In probability theory the max leverage you can gain is determined by the Kelly Criterion which modeling shows indicates the S&P 500 index to be leveraged to 1.40x. Yes, you could do the same with options but even on SPY deep in the money call leaps are illiquid and have a time premium. Even today they are so deep ITM that the options you would need to use have 0 open interest and a bid-ask spread of $5 per share (so $500 per contract.) You'd need ~5 contracts per 120k so you're already eating $2.5k/$120k - 2% interest rate a year for that leverage. SPX isn't better, it's bid ask is 22 so you'd be eating $2.2k/$120k - 1.83% interest rate. It's doubtful you won't get much past the ask as its only market makers providing liquidity and guess what the market maker will do if you buy/sell the option? They will hedge with the underlying futures until their minimum profit is the risk free interest rate. Hedging Going long and short in various non correlated or negatively correlated assets to seek out a high sharpe ratio and have a higher risk free return that is market neutral. Basic hedge fund stuff. The variety and price efficiency of futures makes things pretty attractive in this area. SUBCULTURE Wallstreetbets is a community that has become infamous for the most wild west, moon or cardboard box trades on the planet earth. WSB is a place where you can take out thousand dollar loans, refinance your homes, cash advance all of your credit cards only to put it all on JNUG, and we will still love you. Your mother won't. Your father will never understand your spectrum of autism, but we will always love you. It is a uniquely beautiful community focused on praising its biggest losers as much as its biggest winners. To begin on the subculture, we should define some key moments in the sub's history. HISTORY: (As made by u/digadiga) + my additions 2012: Jartek [+1] creates /wallstreetbets, and word slowly starts to ooze out. 2013: americanpegasus discovers pennies. AP has seen the light, and is a penny stock evangelist. Jartek & AP have an epic options vs pennies battle - they both lose a couple of hundred bucks, but we are entertained, and WSB is officially born. AP blows up his retirement, swears off pennies and moves onto bitcoins. 2014: fscomeau [+3] discovers options. He repeatedly bets five figures on AAPL calls before earnings. FS claims a supernatural clairvoyance of AAPL. FS then posts about his chest pains and ER visits. He finally suffers an epic loss. Is he dead? Is he alive? Is he is mother? Is he banned? Who cares? 2015: Photos from the 3rd annual meetup are posted. Where a bunch of dudes hang out on the romantic beaches of Guerrero Mexico. In a completely unrelated event, the wsb banner is changed to thousands of ejaculating dicks. Modpocalypse occurs. Hundreds of random users are added as moderators for a few months. None of the new mods can change the CSS. The constant whining about how "wsb isn't what it used to be" continues. Someone attempts to show how selling covered calls is idiot proof, but gets lazy, bets all six figures on Apple, and suffers significant losses. Robinhood gets popular. Should you buy one share of AMZN or one share of GOOGL? Who gives a fuck. 2016: Everyone starts saying "go fuck yourself." Except me. Because I am what I am. And if you don't like it, you can all go fuck yourselves. u/World_Chaos performs one of the more impressive yolo's of the sub, starting with 900 dollars, and turning it into 55k. https://www.reddit.com/wallstreetbets/comments/414blh/yofuckinglo_900_to_55k_in_12_days/?ref=share&ref_source=link 2017: u/fscomeau preforms what he calls "The Final Yolo", a 300k trade against AAPL before earnings (that I, u/thor303456 inversed), supposedly supposed to net fscomeau 2.5 million or so, in which he will finally stop trading. FSC is featured on several market related articles and newspapers, showing up on yahoo, etc. Later we find proof during his livestream of AAPL earnings that he was paper trading. Even later, FSC writes a near 200 page book called "Wolfie Has Fallen" describing how he trolled the entire internet, some following him into that AAPL trade. Martin Shkreli visits the sub and proclaims that GILD pharma is worth over $100 a share and is deeply undervalued. KEY FIGURES: Donald J Trump - He is the Marmalade Manchurian, the Tangerine Tycoon, and our spray tan Stalin. Unbelievable night of election. WSB demographics show a primarily capitalist and right wing (or at least joking to be so) point of view, and thus we are generally pro trump. In actuality though, WSB is focused on pro-market, which Trump happens to be. u/Jartek - Founder of the sub, original yoloer. Believe he has retired from reddit for the most part. Mostly inactive. u/Fscomeau - The Canadian as some call him, and perhaps one of the most profound internet trolls of 2016-2017. A French-Canadian trader who deals with mostly options. The man has been called "The Great Inverse", and for a good reason. Nearly all of the trades or statements he made on WSB were completely wrong or mostly wrong. Truly the strongest technical indicator. Martin Shkreli - An idol to many WSBers, Martin stands as the master of the biotech sector. A very debated character for very stupid reasons. Martin regularly tweets about the stock market, occasionally does a youtube channel, and livestreams fairly regularly. u/theycallme1 - Educated trader, and mod of WSB. Roasts people often and roasts them good. Ask him the questions that aren't stupid. One of the most active mods. u/world_chaos - some fucking college student with some real net worth. Sits on 100k or so (needs verification), and was an inspiring yoloer to all, with his 900 to 55k yolo with options. Lingo, Terminology, and Nomenclature: The Faggots Delights - Truly the most suicidal, yet clearest shot to the moon. This term is usually used to define either weekly, or daily option plays on the SPY/SPX. Some users trade them very profitably, such as u/MRPguy and many in the past. Cuck - Truly the worst thing you could be. A cuck is a man who likes watching his wife/girlfriend fuck other guys. Weak, spineless, and a term often throw around here. The YOLO - You only live once. This is something that is, and should be realized as undeniably true. Why are you sitting on a 5k emergency fund that is making you less interest in a year than what I just made in 10 minutes? Why haven't you used all of the credit on your 5 credit cards or used your testicles as collateral for a loan yet? YOLO or YOLOING is as much a psychological decision to embrace absurdism, and win with everything you have while risking it all. Yolo is what it means to be a WSB trader. Bagholding or a Bagholder - When you're stuck with the most ass trade of your life, because you know it'll go back up. A bagholder is the 59 year old guy at the grocery store who won't quit his Job because he knows he only has to wait another year until he gets a return on his investment (of his life). Anyone holding SUNEQ is the definition of a bagholder. Autists - Something we embrace, something we call each other, something we all are. Autism isn't used in an offensive way as much as it is a generally accepted term that defines us. The best traders have autism because of their distance from emotion. I bet you never made it to this part of the reading because you're such a damn autist. Tendies - Tendies are what you get after you make a small amount of money. "I SOLD AMD TODAY FOR A $13 DOLLAR PROFIT, GOING TO MCD's TO GET MY TENDIES". Tendie money is usually shameful and insignificant, but at least it got you tendies. Chicken tenders at McDonalds are the least expensive for the most cholesterol. I know some of the writing was half ass, full of errors, or otherwise not the best explanation. But I believe this will serve its purpose, and maybe help to promote new ideas from moderately educated traders. WSB has very strong traders, and the most uniquely risky trading styles on the planet. Hopefully this can serve to better the overall community. You guys are all faggots, upvote this so we can get the noobs to stop trying to bite on our cocks. Also I'd really appreciate input on anything to add to this overall. It took my over 3 hours to write up, so I eventually grew tired and probably have missing spots. Enjoy your time here at WSB. EDIT: Added a shit ton of stuff, fixed errors. THANKS FOR ALL OF YOUR INPUT, ACTUALLY MAKING WSB GREAT AGAIN MODS: Can we make this editable by others mods or something? My fingers aren't enough. Seems like this could serve as a good "official" thing. Paging u/theycallme1u/CHAINSAW_VASECTOMY etc
I' m arguing that the effect of America on the market has largely been negative. I believe that the US was responsible for the 2017 crash, that they were responsible for creating the FATF regulations for banking secrecy, and they are deliberately enabling rehypthecation via the CME. They have driven the market abroad, stifled innovation, and are actively seeking to strip US customers of options and choices and leverage, working to shut down our access to global markets. They are enabling the rich consolidated wealth of banking institutions and silicon valley to have the entire say in the matter. The goals of FATF are ultimately dangerous to the network itself, as the US is implying that it will resort to threatening the network by whatever means necessary and effectively breaking bitcoin, in order to achieve its travel rule. This has led to an extended bear market, as we now realize that the price increase in May and June was likely only related to a chinese ponzi called PlusToken. The rest of the market implies an extreme lack of retail interest. The mainstream adoption we want is literally being held off and regulated into submission by insiders on wallstreet working with the SEC and CFTC and CME. The trading action and price action of bitcoin has slowly become egregious over the last 18 months. The CME boys are literally able to drop the market 6% in two 1 minute candles at this point. That's how bad the market is, that's how non existant retail and healthy diverse participation and organic movement in the market is, and it's the same volatility these alphabet agencies cite as an excuse to deny the ETF, yet it's the CME and they who are most responsibile, and it is not volatility. A market that does not move, is not responsive to algos that work in every legacy finance market, and is only able to bart simpson up and down when the CME institution managers decide they want to do it, is not a healthy market. There is no FUTURE in centralized exchanges. The US is trying to control volume of BTC with institutional paper fraud BTC that isn't physically settled. This is explicitly because retail uses centralized exchanges globally. The moment we as a community put all the volume on DEX's, they lose this power. This shit has to stop.
What does the US government shutdown mean for ETH?
edit: Government shutdowns are a somewhat regular occurrence and not usually catastrophic. However, this shutdown is certain to delay any government regulation of crypto in the US as well as delay any approval of derivative financial instruments. This article further speculates the possibility that distrust in government may inspire trust in decentralized currencies as an alternative History shows that when anarchy breaks out, Bitcoin's value skyrockets. But does ETH's value jump? Will the government shutdown in the US be reflected in crypto prices?
TL;DR - ETH has not historically been used as a "safe haven" asset when anarchy breaks out. Bitcoin was the defacto "safe" crypto that Zimbabwe and Venezuela relied on in 2017. Based on that, a government shutdown is most likely to positively effect Bitcoin price if it affects crypto prices at all. ETH price is historically correlated to Bitcoin price and will likely track BTC price movements
When economies become unstable, Bitcoin instability seems more palatable and Bitcoin becomes a substitute currency. Obviously, if a national currency might fall 90% in a year, Bitcoin's 30% tumble in a week seems pretty tolerable to that nation. We saw this in Venezuela and Zimbabwe in 2017. In the past, people looked to gold as a "safe haven" asset for when sh#t got cray. Most informed investors don't store value in gold for its stability (everyone has seen the charts and knows its volatile). They stored value in it because of its supposed lack of correlation to other financial asset. The belief is that if modern markets fail, the USD crashes, banks meltdown and anarchy ensues, then gold will retain its value because gold has decentralized trust in it's value - proven by thousands of years of decentralized currency exchange. Similar to the anarchist value of gold, Bitcoin has value in anarchy. That's why it skyrocketed in price when financial anarchy broke out in Venezuela and Zimbabwe. But here's the thing: When utter hell breaks lose, you can't buy gold - gold became centralized when the central banks and exchanges became the only way to buy or sell gold. But if you can connect to the internet, you can buy Bitcoin. And so many Zimbabweans and Venezuelans did when all else was falling apart. You can see that the needed stability to be a good "store of value" isn't just about current price volatility, but rather, in an implied trust that somebody, somewhere will be willing to buy my Bitcoin's if I f*#cking need to sell them f%!king now. Can ETH have the same anarchist value? I don't know. Historically, ETH isn't a currency of choice in times of chaos but it does tend track BTC price. In the future, it depends on Dapps. A Dapp network that supports Crypto Kitties doesn't seem too valuable when your own real cat just got blown to pieces by insurgents. Let's hope that 2018 brings smart contracts that we can rely on when we can't even rely on our own government
Want to stay updated on the most current news, market trends, and analysis? Subscribe to our daily SwissBorg Insider!
Friday, 25th May 2018
→DOJ’s Bitcoin Price Manipulation Probe a ‘Good Thing’: Mike Novogratz Billionaire investor Mike Novogratz is optimistic that the US DOJ's recently-launched probe into allegations of bitcoin price manipulation will contribute to the LT health of the crypto market. → Revolut App Adds XRP, Bitcoin Cash to Crypto Options - CoinDeskMobile banking app Revolut now lets users buy, sell and hold Ripple's XRP and bitcoin cash, in addition to bitcoin, litecoin and ether. → Singapore Warns 8 Exchanges Over Unregistered Securities Trading - CoinDeskSingapore's central bank has warned eight digital token exchanges and an ICO issuer to stop trading tokens deemed unauthorized securities. → Ontology And NEO Announce New Huge Partnership Yesterday afternoon, we saw reports of a huge partnership between Ontology and NEO hit the headlines. Daily Performance https://preview.redd.it/u52izib4f0011.png?width=1024&format=png&auto=webp&s=90e65d617691193aef057ac2e1b13ae9531a79c7 Market 25-05-2018 Over the past several days the market has softened up significantly, losing about USD50 billion from the beginning of the week, stabilising today at USD340 billion. However, the down move has been an orderly one, and there has been no clear catalyst for the sell-off, other than the typical uncertainties and noise surrounding regulation. There has been no noticeable pick up in volumes, which remain light at around USD20 billion. Option volatility have not budged from the high 70%s despite the sharp down move, and high correlation across cryptos still indicates that the entire market is moving up and down in tandem with BTC. There simply seems to be a clear lack of conviction in terms of market direction. The above parameters continues to show a consolidative range trade for the near term. -----------------------------------------------------------------------------------------
→ No Investors Affected, Hard to Charge Cryptocurrency Exchange UPbit Experts in the cryptocurrencies of South Korea have stated that it will be difficult for the government and local financial authorities to file charges against UPbit, given that no investors were affected. → Bank of England Issues Working Paper on Central Bank Digital CurrenciesThe Bank of England released a staff working paper, laying out various scenarios of possible risks and financial stability issues of central bank digital currencies (CBDCs). Daily Performance Market 22-05-2018 The cryptocurrencies' market continued to consolidate at current levels, with today seeing a small pull back across the board. Volumes continue to be on the low side with only 16B USD changing hands over the last 24 hours. ETH/BTC spread seems to stabilise at around the 0.083 level for the past week, which shows there are no strong forces in play. High correlation across large cap names all moving up in tandem also indicate a lack of news and conviction in terms of market direction.Also, realised volatility on BTC has dropped further, with implied vols softening up further (ATM< 80%). Both correlation and volatility indicate that for the short term, the overall market is subdued but is likely to drift towards the path of last resistance, which is higher. Having said that, quiet low volume environments are vulnerable to sudden external shocks - be wary of sudden large gaps in market movement! TECHNICAL ANALYSIS BTC
After last year’s massive rally, Bitcoin is currently consolidating the gains inside a large range of $6,505-$10,044.
Interestingly, the realized volatility spread for 1 month ATM for ETH-BTC fell sharply; more precisely it dropped to 15 percent from 35 percent just a day earlier, this could be indicative of the fact that Ethereum was in much lower volatile state than Bitcoin because the market participants expect that halving will lead to some sort of price movement in terms of Bitcoin. This simple script collects data from FTX:BVOLUSD to plot BTC’s implied volatility as a standalone indicator instead of a chart. Implied volatility is used to gauge future volatility and often used in options trading. Bitcoin has continued extending its recent uptrend despite facing multiple strong rejections at $7,800 yesterday. One trend that could suggest another large movement is imminent is that the crypto’s implied volatility has dived to its pre-crash levels. Bitcoin’s implied volatility has been caught within a consistent downtrend throughout the past several weeks This comes as global instability mounts and as BTC’s mining rewards halving fast approaches Following the massive volatility seen in mid-March when the cryptocurrency declined from roughly $8,000 to lows of $3,800 in an unprecedented movement, Bitcoin’s implied volatility has […] Bitcoin’s implied volatility has been caught within a consistent downtrend throughout the past several weeks; This comes as global instability mounts and as BTC’s mining rewards halving fast approaches ; Following the massive volatility seen in mid-March when the cryptocurrency declined from roughly $8,000 to lows of $3,800 in an unprecedented movement, Bitcoin’s implied volatility has ...
Dwindling Bitcoin Volatility Could Lead To Decisive Move ...
One can look at volatility and TPM for a strong gauge to when the market is overbought/oversold and likely to reverse. Get the Guide to Order Book Trading here, which comes with access to our ... Presentation from the Pacific Northwest Trading Workshop (November 2019) on the new and enlightening Implied Volatility and Expected Move capabilities of EdgeRater PRO 2020. Bitcoin price exploded through resistance at $10,000 and has flipped it into support that’s thus far held strong. The support level has proven just as unbrea... This is a historic time in Bitcoin and we will see the all time high taken out very soon...then we will kick into full bull market mode and off to the races How To Trade Bitcoin Volatility - MOVE, BVOL, Futures & Options Tutorial This video is a tutorial for all traders wanting to trade Bitcoin volatility product...