Unlike the conventional trading wisdom, in reality our accounts are highly variable: 1. Income: we add (or remove) savings into account of choice every month 2. IRA: the IRA accounts are limited by regulator, taxation and account maturity limitation. It makes sense [taxation-wise] to keep IRA account for ETFs with zero risk of ruin and …
Choosing the right analysis methods
We have 4 predominant approaches to market analysis: 1. Common sense: Choosing the right blend of assets in the first place, buy with discount, not getting greedy, see where the market is going. 2. Psychological: Seasonality, Elliot waves, support/resistance, dead cat bounce, retail investor behavior, algorithmic slippage. 3. Fundamental: Accounting ratios, long term indicators and …
Rebalancing
To reduce the psychological pressure, we do not want to modify the amount of money committed to investment beyond the monthly saving/using rate. Instead we use rebalancing tactics. The idea is pretty simple. If we have a portfolio of assets, we could improve the alpha of the portfolio (risk-adjusted reward) by combining uncorrelated bets. If …
Time scale and risk element
We assume that the readers are disciplined and trust statistical tools. Furthermore diversification and tracking enables some higher risk tolerance. The factor that limits diversification is ignorance. The highest risk element is the trader’s psychology. Various personal biases cause illogical trade decision. To remove the psychological element we limit time scale exposure (opposing trends), and …
Classes of assets
Our strategy is built from generating classes of assets and tailoring the tactics per class. The criteria for classification: 1. Trading speed: position [slow, expected to hold for months], swing-trading [mid-speed, daily oversight required] , day-trading [highly risky, should be checked every 30 min or so] 2. Risk level: leverage, beta of the underlying asset, …
Gold prices
Gold is currently deflating. Approximately 50% of gold is bought by China for reserves and by India for private use. There is a danger Russia will use its gold if RUB is pressured. Gold tracks inversely with dollar due to inflation/deflation cycle. Mining companies and silver do not fully follow gold prices but have similar …