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HOW TO EARN IN TRADING WITHOUT WATCHING THE CHART.Explore the fascinating investment strategy known as Shannon's Demon Theory. Unlike technical analysis, this method focuses on steadily growing your assets without the hassle of market timing, price fluctuations, or complex charts. I'll simplify it step by step, making it accessible for anyone to embark on a stable investment journey. Meet Claude Shannon , the genius mathematician and computer scientist born on April 30, 1916, in the United States. Known as the father of information theory and digital technology, Shannon revolutionized the way we comprehend and transmit information. Thanks to him, we can effortlessly send messages and share digital memories with friends. One of Shannon's remarkable contributions is the Balanced Portfolio Investment Theory, which we'll explore today. Imagine a simple coin-tossing game with a 50% chance of getting heads or tails. Shannon discovered how to profit from these random outcomes, showing that you can double your investment by winning with heads and only lose half if tails appear. In simple terms, if you invest $1,000 and win, you'll get $1,000, but if you lose, you'll only lose $500. Shannon emphasized the importance of not investing all your assets to mitigate risks. In reality, when tossing a coin multiple times, you'll often encounter situations where you get multiple heads or tails in a row, deviating from the expected 50-50 probability. However, Shannon argued that if there's an investment product that ultimately converges to a 0% return, you should invest in it immediately. He claimed that by investing only half of your money each time in this game, regardless of short-term results, you can achieve tremendous long-term returns. As you can see, by balancing your cash and investment in a 50-50 ratio, your returns gradually trend upward over time, even in a game that ultimately converges to 0%. This strategy can lead to incredible returns compared to investing all your assets. Imagine following Shannon's Demon method, alternating wins and losses for ten games starting with $1,000. With a natural 50% win rate, our initial $1,000 becomes an impressive $1,800, resulting in an 80% return on investment. To optimize outcomes, it's crucial to exercise caution and avoid excessive trading, which incurs transaction fees. Frequent trading can result in returns similar to long-term value investing or worse. Instead, adopting an appropriate trading frequency like rebalancing once a week or once a month helps maintain consistent growth in assets. Following Shannon's Balanced Portfolio Investment Theory may result in profits in a bull market or losses during unfavorable market conditions. However, over an extended period, the returns will ultimately follow an upward trajectory, regardless of the starting point. What sets Shannon's theory apart is its advantage in providing easy and stable investing without the need for market predictions. As you gather more trading statistics, you'll witness the significant difference in returns between simple value investing and Shannon's theory. Since the abandonment of the gold standard, the financial market has experienced significant changes. Money has become an infinite asset, while financial products have turned finite. Consequently, financial markets have exhibited an upward bias over the long term. With an ample trading dataset, Shannon's approach proves more advantageous in financial markets than relying solely on chance. Between 1950 and 1986, Shannon achieved an average annual compound return of 28%, surpassing Warren Buffett's returns based on statistics. By rebalancing between one week and one month, he reported no negative returns during those 36 years. Consistency and compounding lead to substantial profits and accomplishments over time. We can learn two essential truths from Shannon's Demon investment method: 1. You don't need to force yourself to invest in all seed money with every trade. 2. Long-term statistics are more important than short-term statistics. These two principles are like timeless rules in the world of investment. If you lack a deep understanding of technical analysis and market timing or struggle with risk management despite having some market timing knowledge, consider applying this theory. Follow and Boost for your financial success ! Write your thoughts in the comment section.
by Wealthy_Stats
Why Bitcoin Should be 1-5% of PortfolioHello World, I'll keep this post very short as the proof is is "in the pudding." Take a look at the five year percent ROI on Bitcoin vs. the S&P 500. For an asset that returns ~865% at its 2019 low point, which is over 8 times the return on the S&P 500, it may just make sense to keep 1-5% of your portfolio in Bitcoin to offset volatility or compliment the returns afforded to you by equity investments. While this post is about Bitcoin, I can't help but question why someone would want to own/buy bonds right now... Unless the nominal interest rates will go negative in the United States, yields only have one direction they can go--up! When yields go up, the prices of already-issued bonds on the market (at lower interest rates/yields) become worth less because now there are new bonds available that yield more. I just don't see how bonds could go up from here let alone hold their value. To the soon to be retiree, maybe you can get the best of the world of traditional finance and the new emergence of asset classes like crypto by allocating just a small percentage of your portfolio to Bitcoin. Doing so would provide more diversification and, given historical trends, allow the gains from the small Bitcoin allocation to supplement the returns of the entire portfolio at a scale that would be meaningful. These are just my thoughts--I'm not a financial advisor and this is not investment advice.
BLong
by Tim-Noordewier
USDJPY <-> The World; Carry Trades, Safe Havens on the VIX ScaleThe Title Chart is a representation of the impact of each 1% change in the (SP500) VIX on various currencies' (and Gold; Bitcoin) to tend to more (or less) toward Risk (instability) or Safe Haven (stability) characteristics . I.e. It depicts the relationship between market uncertainty and exchange rate movements of safe haven currencies (and currency "equivalents") An important note on: Context! View this article in the light of two, undisputed facts; Margin debt – the amount of money that investors have borrowed in order to buy stocks – is now at the highest level in history, not only in absolute terms, but also relative to U.S. GDP. The present ratio of U.S. total equity market capitalization to GDP is 2.63. The historical norm (not the low!) is 0.78 . - Which is about 70% below the current level. In light of the above facts the central question remains the same; Can business as usual continue (and for how long?) or, is there is a global, catastrophic financial collapse on the horizon?... You decide. (This post may help; ) The remainder of this article is based on various notes and research, taken at a RIETI Conference (Research Institute of Economy, Trade and Industry), a couple of years ago - before the Covid Pandemic. However, I shall omit most (if not all) of the technical details, calculations and such here, for brevity and clarity's sake. Introduction The Japanese yen and the Swiss Franc are often called a safe haven currency—a currency that appreciates when the risk-averse behavior of global investors and the uncertainty of economic policy and outlook increase, while the U.S. dollar is regarded as the most reliable international currency as an anchor. The safe haven status is usually observed for a country that has the current account surplus, low interest rates—the funding source of carry-trade opportunity—, and the investors’ perception as the safe-haven currency, resulting in suffering from the deterioration of the trade balance during a crisis. That may improve the trade balance of the country’s trade partners and competitors, especially if their currencies are vulnerable to a shock. The yen tends to rise during periods of increased financial market volatility. This tendency—clearly evident when the currency surged after the Brexit shock—has strengthened since mid-2015. While widening yield differentials between the U.S. and Japan are a force to weaken the yen, the currency is vulnerable to sudden gains on higher risk aversion The Chinese renminbi (CNY) is a rising star. Its internationalization is on the fast track .The renminbi’s inclusion into the SDR basket represents its internationalization, making the renminbi a reserve currency alongside the USD, the JPY, the EUR, and the GBP. Still, the renminbi was depreciated by 4% between its announcement on November 30, 2015 and actual inclusion on October 1, 2016. Recent political uncertainty generated unexpected shocks—from the U.S. presidential election to Federal Reserve interest rate decisions and political events in Europe—that could affect sentiment toward the yen, the renminbi, and relatively vulnerable Asian currencies, increasing safe-haven demand for alternative assets such as gold and bitcoin. The yen’s safe-haven status may signal in advance shifts in risk appetite in the foreign exchange market. The skew in risk reversals on yen-dollar currency options, which turns negative when bets on yen appreciation outweigh bets on depreciation, tends to follow, or is at least associated with, the index. For example, 12 weeks after the start of a VIX spike, net non-commercial positions on the yen on the Chicago Mercantile Exchange are 20 billion U.S. dollars longer than would be the case absent the rise in the VIX. In the European sovereign crises of 2011, the yen was purchased aggressively as a safe asset3 and finally reached the historical high value, 75.54 yen per dollar and remained around 80 yen. Thus, just after the East Japan Earthquake and the meltdown of nuclear power plants, the highest value of the yen is hard to be explained by economic fundamentals. In January 2015, the Swiss National Bank (SNB) abolished its exchange rate cap against the euro, meaning that the SNB stopped intervening by purchasing the Swiss franc against the euro. As a result, the Swiss franc was appreciated against U.S . dollar by 30% within 10 minutes . At the same time the yen and the Singapore dollar were appreciated by 1% as investors needed to sell the euro and buy some safe currencies instead of the Swiss franc that was limited liquidity and capacity compared to the euro. So, not only the yen and the renminbi, but other currencies in the Asian emerging market may be in transition to the safe-haven status. Here, one tries to measure whether the yen, the renminbi, other currencies, and alternative assets have a safe-haven or vulnerable status. Introducing long-term and short-term gauges help judge if the safe-haven status is temporary or consistent. The results shows that the yen consistently has the safe-haven status, the renminbi temporarily obtained the safe-haven status in early 2010, but has been returning to a vulnerable currency. Increasing political uncertainty in the global market and weakness of the renminbi may increase demand for traditional and innovative alternative assets, though the size and liquidity of the markets haven’t developed well, yet and they are vulnerable to regulatory changes. A bitcoin price surged in late 2016 as the renminbi depreciates, but it tumbled to $789 on January 11, 2017, down 28% from a peak of $1,091 on January 4, 2017. The proximate cause – signals from China’s central bank that they are paying close attention to irregularities in the market. The still relatively small size of the market makes bitcoin impractical as a channel for large-scale capital flight. Gold could be considered as a good asset in the diversification of Chinese portfolios. Wong and Zhu (2015) find, however, it is only for risk-seeking investors and in crisis periods on the Shanghai Gold Exchange in the diversification of Chinese portfolios. So, there are very limited indications that bitcoin and gold could be presently regarded as a safe-haven assets, and while their safe-haven tendency might be increasing, it is particular and limited to relative to the renminbi, under high policy uncertainty. Safe Haven Trades - Short-term Perspectives There are standard and widely available models that captures the safe-haven status of a currency in the short-term and they rely on the assumption of capital flows driven by excess returns from the currency carry trade, rather than uncovered interest rate parity (UIP). The carry trade hypothesis defines the currency carry trade, which consists of selling low interest-rate currencies “funding currencies” and investing in high interest-rate currencies “investment currencies.” They find that carry trades loses money on average, in times of rising VIX. While the UIP hypothesizes that the carry gains due to the interest-rate differential is offset by a commensurate depreciation of the investment currency, empirically the reverse holds. The investment currency appreciates a little on average despite with a low predictive R2 (Fama1984). This violation of the UIP – often referred to as the “forward premium puzzle” – is precisely what makes the carry trade profitable on average. To be able to successfully solve the UIP “forward premium puzzle” (successful carry trade), the addition of a gauge of market risk sentiment to predict the future spot exchange rates is essential. To predict the change in the expected exchange rate is usually explained by a change in interest rate differentials and the market risk sentiment. To capture the impacts of a change in the market risk sentiment on exchange rates, a rolling OLS regression of a daily change in the VIX and the two-year yield differential between local currency and the U.S. dollar on a percentage change in local currency per dollar is used. Normally, The VIX is a good measure of investors’ risk sentiment. Increases in the VIX are associated with higher volatility in Japanese and Germany stock prices, as measured by the Nikkei VI and VDAX, as well as in the yen’s exchange rate to dollar. The VIX correlates, under normal circumstances, to the Nikkei VI at 0.83, to the VDAX at 0.87 and to implied volatility on 1- month at-the-money yen-dollar options at 0.71, with the addition of the two-year government bond yield differential. A standard model would go something like this; dLn(LCY/USD) = a+b1d(USDLCY_2Y)+ b2 𝑑(𝑉IX)+e where "LCY" means the local currency, USDLCY_2Y is two-year government bond yield differential, the VIX denotes the implied volatility of S&P 500 index options6, "e" is an error term. The UIP assumes the sign of the coefficient of USDLCY_2Y is negative, while the carry trade hypothesis sees its sign positive during a normal period. So, the determinants of its sign are answers to an empirical question, rather than a theory. The coefficient of the VIX is defined as the Safe-haven Currency Index (SCI) and assessed the safe-haven status as follows: SCI > 0: Period and country specific "safe-haven" type tendency. SCI < 0: Period and country specific “vulnerable currency" type tendency. SCI = 0 or insignificant: exchange rate movement doesn’t follow a specific tendency. Safe Assets – Long-term Perspective The safe asset indexes indicate mostly three currencies – the Swiss franc, the yen, and the dollar – out of the 13 currencies which mormally maintain safe-haven status. Although the Swiss franc has the strongest safe-haven status on average, its status has been weakened from 2007 until 2011 – the period of the Global Financial Crisis and the European Sovereign Crisis. That is likely because Switzerland has suffered from rapid currency appreciation against the euro and thus, its safe-haven demand relative to the dollar seemed to be limited. In contrast, growing dollar demand during the crises had strengthened the dollar’s safe-haven status. The yen has consistently kept the safe has status during previous risk-off episodes. However, the currency status of some currencies has been switching between a safe-haven and a vulnerable currency. The British pound had had the safe-haven status until early 2000s, but it fell into the vulnerable currency status from 2007 until 2015, followed by a rapid depreciation due to the Brexit shock in June 2016. On the other hand, the Singapore dollar was the vulnerable currency until 2011, turning into the safe-haven currency around 2011. Thus, the safe-haven status doesn't necessarily last forever, and it does change overtime. Higher frequency data provides the detailed transitional status in the short-term perspective. The safe-haven status seems to be associated with the internationalization of the currency. The dollar has about 90% of the total share (200%) of turnover of Over-The-Counter (OTC) of transaction from 1995 until 2016. The yen’s share is about 20% throughout the same period. The shares of the European currencies such as the euro, the pound, and the Swiss franc have peaked in 2001; they have been gradually shrinking ever since. In contrast, the Asian currencies have been consistantly emerging, in the meantime. The share of the renminbi, the Singapore dollar and the Won reached 4%, 2%, and 2% from 0%, 1%, and 0%, respectively. Safe Haven versus Vulnerable Currency – Short-term Perspective Uncertainty represented by the VIX affects exchange rate movements on a daily basis, given limited fluctuatuons in the two-year interest rate differential between the local currency and the dollar. Zero interest rates are applied for alternative assets. The Yen The Safe-haven Currency Index suggests that the yen has kept its safe-haven status during the global crises. The results of the ordinary least square rolling (OLS) regression in daily data supported this scenario. The yen’s safe-haven status has been held firm since 2007 except for a period of the aftermath of the Great East Japan Earthquake and the downgrade of the U.S. sovereign rating d by Standard and Poor. Still, even when the yen had its vulnerable status period, it still wasn't significant. Since market participants tended to expect higher possibility of massive monetary easing as the part of the Abenomics in late 2012, the yen’s safe status has been strengthening. The index shows that each 1 percentage point rise in the VIX is associated with a 0.13% appreciation in the yen as of January 26, 2017, while 1 percentage point increase in two-year interest rate differential between the U.S. and Japan is accompanied to an 11.4% appreciation in the yen. The negative coefficients of U.S.-Japan interest differentials held virtually for ythe entire period. Removing the yield differentials strengthens the absolute impacts of a change in the VIX, but it doesn’t change the robustness of the yen’s safe-haven status. These results support the carry trade hypothesis rather than the UIP. A shift in the monetary policy framework helps explain a change in the yen’s safe-haven status. Lower interest rates increase opportunity for the carry trade, strengthening the save haven status. The structural breaks for the safe-haven status are tested with the Schwarz criterion in global information criteria. The test signals July 21, 2006, August 31, 2010, and January 31, 2013 as the timings of structural breaks. These dates are relevant to significant changes of monetary policy framework in Japan. The Bank of Japan lifted the quantitative easing policy in March 2006 and the zero-interest-rate policy in July. The BOJ introduced ‘comprehensive easing policy’ in October 2010, and the BOJ introduced asset purchase programs in April 2013. The coefficient of the VIX was around zero in late 2012, but it dropped to -0.25% in early 2014. Further monetary easing appears to enhance the yen’s safe-haven status. During the same period, Japan’s net foreign asset relative to the GDP has been highest in the world, but it has decreased in the dollar terms. Consequently, investors’ risk appetite and their perception for the yen’s safe-haven status would play a vital role in the determination of exchange rate movement. The strength of its status may rely on excess profits from the carry trade rather than economic fundamentals such as net foreign assets and reserves. The long-term government bond yields contain more risk premium than short-term yields. Still, the yen’s safe-haven status, which reflects invertors’ risk appetites, is robust even if adding in a change in the yield curve: the ten-year, two-year spread between the U.S. and Japan. An increase in the spreads means the U.S. government bond yield curve is getting steeper relative to the Japanese government bond yield curve. The coefficient of the VIX remains significant overall even if a rolling regression is implemented with the yield curve variable. These results suggest a higher level of VIX predicts higher returns for investment currencies and lower returns for funding currencies, and controlling for VIX reduces the predictive coefficient for interest-rate differentials. That is consistent with the carry trade hypothesis. Renminbi’s Shift to Vulnerable Currency Status The SCI suggests the renminbi is a vulnerable currency except the period of 1997-2001. As capital flows from and into the Mainland China are restricted its interest rate differential to another currency and the VIX haven’t well tracked the movement of onshore renminbi (CNY). In order to capture the investor’s risk perception under uncertainty, the offshore renminbi (CNH) might be the more appropriate gauge of the safe-haven and vulnerable status. In fact, during the risk episode such as the U.S. sovereign credit downgrade, CNH tended to depreciate more rapidly than the CNY did. The tests for safe-haven status of the CNY are neither stable nor significant, not only against the Dollar but also the Euro. In contrast, the CNH’s vulnerable currency status against the dollar and the yen is readily observable and consistent. All the while its status relative to the Euro was regarded as a safe-haven until April 2014, significantly shifting to a vulnerable currency by May 2015. These results are consistent with structural breaks, overall. Alternative Assets: Gold and Bitcoin Those two asset classes reamin relatively fractional to global risk assets and stock market market capitalization. As of this writing, they remain miniscule to even consider them as alternatives in light of the $75-$220 Trillion (depends who is counting) total, unfounded, global liabilities. Conclusion All of the above suggest that the Yen is a safe-haven currency as well as safe asset and it's status as such is unlikely to diminish in the foreseeable future. Its safe-haven status is stronger on average than other safe-haven currencies such as the Swiss franc and especially far outpacing that of bitcoin and gold. The offshore traded renminbi (CNH) maintains a very much vulnerable status to the U.S. Dollar and the Japanese Yen and this is has also minimal impetus to changes in the foreseeable future. Higher market uncertainty with policy swings may increase safe-haven demand for alternative assets such as gold and bitcoin but there are certainly no tendencies at present that, given these alternatives' very limited liquidity, they would factor as substitutes for the Yen or the US Dollar in the foreseeable future.
by Nemo_Confidat
3
After drastic drop, what's next for NasdaqI published idea of 'Nasdaq key zone violated, buyers may come around 13081-13000' two days ago. Now it's clear 13000-13081 couldn't hold(price came to the swing low 12750 and bounced back) In my career, I've through a lot of market downs, so the recent drastic fall doesn't make me uncomfortable. I got a client who texted late last night, seeking my view on recent falls. I asked him 2 questions: 1. May I confirm the your investment horizon is still 3 years as we discussed last week?(I got a confirmed yes) 2. May I confirm with you the invested amount is less than 5% of your assets? (I got a confirmed yes) Then, I asked him why bothered the the recent 10% drop. Instead of cutting the loss, we should stick to our investment proposal . (This is a typical asset allocation case, not a trading case) My point is that if you're trading Nasdaq, you gotta follow your trading plan and action timeframe is supposed to be less than 2H(refine timeframe is even smaller, say 15m). So yesterday, after the 13000 being violated, you should look for short setup to take some quick profit . If you are an investor, don't bother the recent fall. Ask the below questions: 1. Did fed stop the open market operation(Is the easing monetary policy changed?) 2. On daily and weekly chart, are the trend changed? 3. Are key zones on weekly and daily being violated? If your answers to the above questions are No! Don't be panic! We have to deal with volatility as a trader or investor. Pay attention to the volatility in the key zone! which is 12250-12480. I will watch how price react to the zone and pattern formed afterwards to determine the next action! At least now, I'm still bullish!
FX:NAS100Long
by JICPT
1
I knew it... And I sure am not coming back to crypto!Bitcoin is not a currency, no companies are doing business with it and using the market to hedge. There is no commercial whales moving money around, and no central banks regulating it either. And so the price behaves differently. Gold doesn't have a lot of import/export currency management, but alot is similar, central banks and sovereign funds are major players. As gold goes up I expect it to behave more in a "speculative way". EURSEK did "top at 6000" as it should be! They call FX a "complex and efficient market" no that is wrong. It is simply a - well yes more efficient market but - a market without hordes of bagholders and bottom chasers. I think that 95% of the time the Forex market is random, but the rest of the time it's pretty predictable I guess. Much less noobs, and this is why regulators hate Forex and want filthy casuals to avoid it entirely. This is just 1 price move I know, but it is yet another example of how BTC is different. What is the point of learning to trade crypto? 90% of what you learn will be lost and can't be transmitted to other assets when the ponzis fall to zero. Or perhaps that knowledge and skill and experience can be useful... Trading hyped stocks and future speculative bubbles with very high retail participation. I'm not a stock expert and clearly I'd rather continue to OTP FX (+ macro commodities), althought I plan on one day investing long term in stocks maybe even speculate short term on those. I would even go as far as saying... Someone reminded me of Pacific Ethanol today, good memories. They were in the news recently, more money problems. Markets are abstract, speculating is the most abstract activity there is involving markets. 90% can't understand something as simple as buying high and selling low. "Ooga booga first degree you have to buy low and sell high tihi it's obvious" Simpletons like this do not stand a chance in stocks & crypto already, so Forex that is "harder" they don't even stand a crumb of a chance. "Muhahaha every one thinks Bitcoin is going to zero but I noticed that last time it went up haha I am a genius visionary no one thought of that I outsmarted them all" I don't know if it's sad or funny. As Jean Claude Van Damme said "they are not aware" ;) If you want to learn more about this you have to be sneaky and ask or search for something like "when intuition is wrong" not "morons that don't understand abstraction" or so, "oh it's ok to be wrong it doesn't mean you are stupid" because no one will ever admit they are an idiot and no one thinks they are anyway. It's like in South Park where 99% of the town men have a certain part of their body "well above average" 😆 Every one's above average, sure, this shows how smart they really are. "Every girl is beautiful, well above average" kek. Maybe there is a girl that is so terrifyingly ugly she drags the average down, is that what they mean? Euphemism and comforting lies, always. But when you're too smart to believe those... Have to look for dumb beliefs centuries old because most people dumb beliefs of today are actually the ones that are correct.... Lmao takes the average person literally centuries to understand something. I'd like to meet the magicians that have plenty of signals in choppy markets. They're so good that they aren't more active during major trends, they produce just as many ideas in dead choppy markets as in ultra trending ones. And they almost all sell something. Jesse Livermore about 'experts' and 'teachers': "makes his money from selling trading books because he can’t make money in the markets." The simple facts that these signal services are not more or less productive in changing market conditions, and their systems don't change, is just so hilarous and a huge red signal. I might short Bitcoin Monday but I'm not "coming back", just taking a look here and there. Made some money when I bought 10 days ago with 10k as a target, got kicked out way before 10k because I trade it as Forex and run for the exit quickly. Crypto Bagholders are right about something: money is made by holding. They don't understand exactly what they are saying. They are right that crypto has big pullbacks, in either direction, and to stay in and extract as much as possible from trends one has to sit through very big pullbacks (ewwww). Reward is large but risk too, there are no free lunch. But where crypto investors trully amaze me is that while they "understand" that crypto has really deep pullbacks, they rush in to buy at the slightest dip. Should I just short the pair? What's even left of the non swedish europe? I think I'll just make a small bet, been right and missing out alot lately.
Education
by MrRenev
18
$US10Y $US03MY $SPY $SPX $DIA $QQQ Inversion ContinuesAs investors continue to feel nervous about the health of the global economy, the $US10Y-$US03MY curve continues to invert, with the spread plunging below its Monthly Support Level of -0.457 (blue) to reach -0.502, a level that has not been seen since March 2007. Investors should continue to remain cautious when it comes to their asset allocation, as dark clouds continue to gather over the global economy and financial markets.
TVC:US10Y
by EconomicsGlobal