Crypto: Will there be real developments in 2018?

It is not easy to keep an eye on the “long game” during periods of mania like the one we are experiencing. The attention of the world is on the currencies, but people like CNBC are missing the point. The bulk of the iceberg lies below the water. The same is true with crypto. That is where you should keep your eyes as well.

via 2018: The Year the Crypto Sh*t Starts Getting Real at Never Stop Marketing…

Tips for successfully using stop loss orders

A few highlights from the post 10 Great Tips For Using Stop Loss Orders Successfully at StockTrader.com.

1. Never use stop loss orders for active trading. For investors that watch their screens all day and are involved in day trading a stop loss order serves little purpose.

4. For the original placement always give the stock atleast 5% of space to avoid market maker abuse. If the stock is trading at $100, a stop loss should be no higher than $95 initially as intraday price swings may cause the order to trigger prematurely

9. Set the trigger price at common price increments. Prices like $100 or $60.50 are far more common to be traded at than $123.47. By placing the trigger price at a common increment there is a smaller chance of the stock “trading through” the order trigger.

Stop limits kicked in on nearly my entire portfolio this week as the market has dropped relatively significantly across the board. A few stocks have popped back above my selling positions, though overall it’s saved me from a lot of losses. I’m still unsure if this is the best practice moving forward, since some gains were lost and some items sold at “flash crash” type prices, possibly engineered by Wall Street in some way.

Valuing cryptoassets when data can be wrong or fake

CoinMetrics with a post on how reliable crypto data may be among various sources. Despite access to a lot of raw data, there’s a lot of issues with interpreting that data. It’s part of the ongoing problem of figuring out how to value cryptoassets:

So to conclude, on-chain volume and transaction count can both be faked and can be tricky to estimate. Exchange volume must be viewed fairly skeptically. Market cap has a whole host of methodological issues. Generated coins and fees, however, are much more concrete.

via On data and certainty at Coin Metrics

Planning for market corrections

Hopefully, you had an action plan in place before yesterday. Many people have been talking about the potential for a correction for a long time, which helped inspire us to tighten up some stop loss orders.

There’s no telling where the market goes from here. As Ben Carlson writes, it’s good to have a plan in place.

Large gains in your portfolio are a good problem to have, but the good news also comes with psychological baggage. Holding onto gains is better than the alternative, but investors still have to come up with a course of action for dealing with them. Here are some options for those sitting on big winners this year:

via What To Do When Your Stocks Are Soaring? at A Wealth of Common Sense.

Bitcoin has proven a point, even if it fails

Nassim Nicholas Taleb on Bitcoin:

Which is why Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.

He concludes that Bitcoin may fail, but that it’s proven useful regardless.

Finally, Bitcoin will go through hick-ups (hiccups). It may fail; but then it will be easily reinvented as we now know how it works. In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated expresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency, for now. But it is the first organic currency.

But its mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future.

via Bitcoin – Opacity – Medium at Medium

Coinbase earned over $1 billion in revenue in 2017

Coinbase, the bitcoin trading broker that has exploded in popularity as cryptocurrencies surge and nose dive, has encountered an unusual problem for a Silicon Valley startup: Too many investors are trying to get in. The six-year-old company crossed $1 billion in revenue last year, Recode has learned from industry sources, a tremendous rise fueled by layman interest in both bitcoin and competing virtual currencies that users can buy and sell through the app.

via Bitcoin broker Coinbase booked $1 billion in revenue last year at Recode

Paying for performance

Matt Levine on charging higher fees for increased performance. It’s not looked upon well, which doesn’t make sense.

One mental model you might have is: Shouldn’t the active managers’ share of the pie be reduced by competition? If Fund X outperforms by 60 basis points but takes 44 for itself, shouldn’t Fund Y swoop in and offer to outperform by 60 basis points but take only 30 for itself? Just asking the question makes it obvious that the answer is no. Sure, right, if lots of active managers could predictably outperform, then they might compete with each other on price. But as long as reliable outperformance is rare, investors should rationally prefer to pay a lot for outperformance rather than to pay less for underperformance.

Full post Is Paying for Performance Bad? at Bloomberg.com

Findings from 3 research papers on stop losses

From a 2015 post at Quant Investing, a look at 3 research papers on the use of stop losses.

Study 1: When do stop loss rules stop losses?

What they also found was that the stop-out periods were relatively evenly spread over the 54 year period they tested. This shows you that the stop-loss was not just triggered by a small number of large market movements (crashes).

Study 2: Stop Losses, Trailing, and Buy & Hold compared

Trailing better than traditional
Only at the 5% and 10% loss levels did the traditional stop-loss perform better than the trailing stop-loss. At all other loss levels the trailing stop loss out performed, most notably at the 20% loss level where it performed 27.47% better over the 11 year period.

Study 3: Stop Losses in Momentum Investing

The stop-loss momentum strategy also completely avoided the crash risks of the original momentum strategy as the following table convincingly shows.

Click image to enlarge

Note that if you followed a stop loss strategy you would have made a small profit when the momentum only strategy lost nearly 50% and 40%.

The studies actually convinced the author to change is opinion on stop losses:

This has been a rather long article to come to a very clear and simple conclusion: Stop-loss strategies work

As you have seen:

  • When applied to a 54 year period a simple stop-loss strategy provided higher returns while at the same time lowering losses substantially
  • A trailing stop loss is better than a traditional (loss from purchase price) stop-loss strategy
  • The best trailing stop-loss percentage to use is either 15% or 20%
  • If you use a pure momentum strategy a stop loss strategy can help you to completely avoid market crashes, and even earn you a small profit while the market loses 50%
  • Stop-loss strategies lowers wild down movements in the value of your portfolio, substantially increasing your risk adjusted returns

via Truths about stop-losses that nobody wants to believe at Quant Investing for Value, Momentum, Quality and Growth stocks

Robinhood fact of the day

From the always excellent Token Economy newsletter:

There are currently almost 900,000 people in line to get early access to Robinhood Crypto.

If you don’t read it already, check out the Token Economy #33: Dogfooding at Token Economy

Shamcoin finds lots of similarities in ICO whitepapers

Interesting use of IA to analyze upcoming ICO whitepapers from Shamcoin.

It’s easy to find patterns from the matrix, and as next steps we would be adding more signals to make relative comparisons even more interesting.

Overall, there was a lot of homogeneity among this set of ICOs, which they also found when they looked at past ICO projects.  They are doing some impressive things to uncover fraud in ICOs.

Check out the charts and full post Whitepaper analysis of upcoming ICOs relative to existing coins at Shamcoin