Market cycles (Boom & Bust)

This is a must read for everyone. Such a good book by Howard Marks. Filled with alpha honestly. If you would like a free PDF copy, drop me an email.

The more I try to understand market cycles, the more intrigued I get and the more I realised how clueless I was one year ago. Aggressively buying alts in a downtrending market when the signs are clearly there. NGMI move

Let me mention a few worthy points that I have gained from reading this book

1. There are only 2 ways to position your portfolio. Either you’re aggressive or defensive. So the next question is when do you know which side should you be on?
2. Credit cycle is key. When there’s euphoria all around, capital is easily available. In these sort of environment, cash is abundant due to loose financial regulations. The symptoms of these euphoria conditions includes low interest rates, risk on behavior, meme coins doing 10-100x, euphoric behaviors and etc. These are the conditions where you should prepare to be more defensive. Easy said than done but there are guidelines for that in his book.

Good guideline

3. Next, everything happens in ascendency be it depression or euphoria which will then be reflected on the charts.

4. Good investing comes from diligently assessing where we are in the cycle and then responding appropriately

5. Cycle positioning: Process of deciding on the risk posture of your portfolio in response to your judgement regarding the principal cycles

6. Asset selection: Process of deciding which markets and specific securities or assets are overweight and underweight

7. IT DOES NOT MATTER whether or not you bought a quality asset, but what matter is HOW MUCH YOU PAID FOR IT (This is key to me)

8. Aggressiveness: The time to be aggressive is during intense depression, during these periods forget about the potential drawbacks and start focusing on the potential missing opportunities

9. Have an intrinsic value for the product that you are investing in and compare it its current market price, does it align? (This is important as it will guide your take profit targets in the far future)

Times are difficult now, but eventually greed will take over fear again. Buy in times of fear and you will reap the rewards when the time comes.

Even though previously I did buy in times of fear. But, I was not buying at the right part of the cycle. That was my downfall. My action plan forward is to nail the accumulation phase and bet with reasonable size during these periods.

I will nail it.

Narrative driven trading

1/n 🧵On Market Efficiency, Expected Value, News/Event Trading, and one of the simplest (but not easiest) edges you can acquire.

In this thread we'll discuss the Efficient-market hypothesis, its premise, why it's only very partially correct, and what edge you can derive from it.

— Tree of Alpha (@Tree_of_Alpha) October 14, 2022

This is honestly one of the best alpha in the space for anyone participating in narrative driven trading.

Completely agree.. exactly why I did well with OP and LUNC long when it first came out. Narrative driven trading can be extremely rewarding if you know how to play it right.

The key is knowing when to get out. Sometimes it can be as quick as 5 mins lolol. But the rule of thumb is that it shouldn’t take more than 1 day. If news is significant enough, price should move in proportion and quickly too.

Market is indeed an emotional entity driven by our very own psychology reflected on the charts. But having said that, TA isn’t everything.

My highest win rate (probable guess) on where price is heading usually comes from higher time frame. At least 1 week or 1 month in confluence with moving average. Lower timeframe not so much. Kinda suck at it tbh.

This is where narrative trading comes in. To be able to have an edge, you must first be able to decipher the information provided in a meaningful way and make a probable guess on how participants would react.

What do you interpret from these 2 news above? Would you long/short it? If so, which one?

It’s all probabilistic thinking imo. The quicker you react, the more you expose yourself to these various news and have skin in the game. The better you’ll be at it.

Only way to learn is to have skin in the game. No other way around it. Paper trading doesn’t work well because it doesn’t induce the necessary emotions. Only trading with real money does. Start small and slowly build your way up.

Crypto is a beautiful place to start and learn. The volatility is honestly unmatched. But free money doesn’t last forever. Make full use of it.

When you can trade these conditions well. You can trade any conditions. The key is knowing when you don’t have an edge and step back.

I don’t have an edge in these market conditions (Crypto wise). My TAs are barely working on alts given the current market sentiments. Hence I’ve been stepping back on TA based short term trading. But if a solid narrative pops outta nowhere, I’ll be going in. Until then, I’ll remain flat. No point giving back my gains.

Hope that you’ve learnt something of value from this. Atb anons!

Rogue trader (Reflection)

This is honestly one of the most insane true story to date that happened in Singapore back in 1990s.

Basically, Nick was a futures trader. Initially, he lost a tiny sum but was able to recover through gambling on futures. So, this prolly enhanced his self-confidence and made him into a true degen.

Took another big bet again but was unable to recover. Repeated over and over again just to cover the initial mistake. Losses kept piling up and eventually amounted to 1 billion in trading losses. Many have lost their life savings because of 1 man..

Barings bank became insolvent and went bankrupt solely due to this incident. This story really drives home the importance of risk management. If you dont manage your downside, the market will manage it for you.

That’s the thing about trading, many glorify it to be a beautiful art where you can eventually achieve financial freedom and everyone gets to be happy. But truth to be told, every single dollar that you gain came from someone else. It could be their life savings or their child’s education funds.

So, is it really something to be proud of? To put it bluntly, sounds like glorified stealing to me. But, it is what it is, natural selection at its best. I believe that there are still whales out there manipulating the market like Nick. As a retail investor, you’re already at a disadvantage given the knowledge disparity. So, the least you can do to protect yourself is to arm yourself with knowledge. Only then will you be able to discern if this is pure BS or it actually could mean something.

Most importantly!! Manage your downside. Once you manage your downside well, the upside will eventually follow suit.

Due to many of such incidents within the centralized financial industry, many sought to take refuge in a decentralization and this is where crypto comes in.

Unfortunately, Crypto being a new asset class, with many inefficiencies is a recipe for exploitation. This is where many begin looking for loopholes. E.g. hacks (Bridge exploit), scammers (paid group), NFT rugpull, illiquid shit coins and etc.

I was a victim previously too. So trust me when I say I understand how it feels. Invested in illiquid honeypot where you can only buy but not sell and many other failed crypto investment.

But, I believe that everything happens for a reason. Because of these incidents, I have decided to learn how to trade, read charts, understand fundamentals and global outlook.

If these unfortunate incidents never happened, I would never have learnt the valuable lesson of capital protection regardless of size. If you can’t manage a small account then you have no business trying to manage a large one. Start small and slowly build your way up.

Wow, can’t believe that I have been in Crypto for more than a year. Anyway, this was the post where I got scammed. Barely had any viewers back then..

For those that have been following my uneventful journey, really appreciate it. Started small, 3-4x my account. Got euphoric. Lost majority of it back to the market. But, will keep learning and hopefully eventually the gains will come.

LFGGGG

Good read

Don’t fight the big money, always follow and ride the trend.

Completely agree with this, many crappy NFT projects did well during the NFT craze period. Followed by crappy ass metaverse projects (Alice) doing well during the metaverse szn.

Identify the trend and hop on potential projects under the same category. Hard to go wrong tbh with this approach.

Always take profits in FIAT and have an exit strategy.

One of the mistakes I’ve made, conviction can be a double edged sword. Always look at price action. It’s the most important indicator.

I’ll leave a link here so y’all can read it yourself. Good short thread tbh.

https://mirror.xyz/0xC93E43c5a02fc3801f03f40993B96b028D9a8BCa/BPQQy7L7RYkRPbB7YnM4ITfYp94hb1D-zXHyh7RDeso

Good readdd

https://theknower.substack.com/p/breaking-away-from-cyclicality?s=w

Same thing, I will extract out interesting points!

Whales manipulation exist everywhere be it Tradfi or Crypto. Only way to break out of this is through acquiring more knowledge.

Slaving for 50 years and dumping most of your $ into SP500 as your sole investment would not have been a bad idea tbh, just look at SP500’s chart and the direction it is going. You’ll understand what I’m talking about. Sure, working for 50 years might not be ideal for most, but that will be the life of many and prolly yours too, like it or not. That’s why it is important to like what you are doing!

And Yes, BTC narrative has always been to fight against inflation, having said that, it has not been behaving the way it should because Crypto as a whole is still a relatively young market. Give it time to mature, perhaps eventually it will fulfil what it is meant to do.

I do agree with these statements

TA only works to a certain extent in Crypto. Always analyse and assess possible narratives. If prices are being attractive and going close to your support levels, sometimes it’s wise to snap on that opportunity because you never know when it’ll bounce and how much it would.

Defi blue chips like CRV being valued below 9 figures mcap is honestly mind-blowing while other L1s being valued at 9 figures mcap with dying TVL.. lolol. SMH. Would never understand why.

But it is what it is. CRV is extremely undervalued in my eyes. Eventually double digits imo. Give it time.

Next article!

https://theknower.substack.com/p/the-decomposition-of-attention?s=w

Sometimes the best way to make money is to buy/DCA and forget about it. Easier said than done of course!

Sad but true

Months in Crypto is equivalent to idk how many years in Tradfi context lolol.

Bear market is a different ball game.

Truly this! If you want something, you gotta put in the effort. No excuses..

Created a sub-category for good reads! I’ll be posting up my thoughts together with interesting perspectives more in the future! Hopefully y’all can gain something outta this. Market has been going down since Nov lolol. This is the time where you should be reading up and learning as much as you can. Knowledge will always be your advantage, make good use of your curiosity!