Performance, Persistence, and Personification
Industrial aggression creates performance pressure on each retail $ by rearranging your market priorities, in addition to ‘capitalizing’ on psychology and Big Data — profit by reduction therefore means dividing out the human element.
This initiative attempts to take the lessons from the success stories of “live one more day” to the esteemed Warren Buffet of cash in crisis and resilience through risk management in macro, and applying them in micro to create a safer harbor than an unstructured plan, trading flexibility for certainty in practice. It is a little involved though, and requires some context.
In a previous Medium, we talked about the human propensity to have absolutely no clue how to ‘picture’ numbers past a certain point, and by the time the bigger picture rolls in, other players have cleaned up on the momentum, indecision, and ripples created by retail- the biggest ‘hedge fund’ there is.
The flipping culture of NFT’s is a great exemplar of this, but in fact, any kind of perceptual change in the gestalt “view” of an opportunity is generally the determinator of worth — as we all know, rating abstractions in an information desert is how the big players make their money, as the determinations of value are brought on supposedly by ‘supply and demand’. “Every metric” is considered that can be, and each loss learned to the individual should result in some soul-searching and fact-finding to resolve what went wrong, how it did, and what to do in the future.
For example, let’s take look at the 2008 situation -
1) Bad loans were given good ratings by an agency incentivized for such.
2) Insurance was taken on said loans for default, incentivizing more bad tranches
3) When the margin calls came, they were ignored until the players could rearrange the pieces in such a way that the ‘free market’ succumbed to a structured demolition.
Ignoring the system of corruption and how we got there, it raises some questions like how industry risk-management is either ignored, handwaved (literally ignoring calls of Margin from the bank- recently seen with Credit Suisse/Archegos), and makes a clear conclusion : unfortunately, the system is gamed — and arguably, it’s always going to be an uphill battle for a lower strata to play in a bigger pond. But they had to have some good foundations to get to that point.
So to properly frame the driving performance priorities, and how application of risk management is dealt with, we will look at some numbers, and then we must unpack the human experience a little, because this default state is more than likely how most proceed without intervention or education.
However, what is important is the following :The understood ‘short investment’ is generally considered 1 year for capital gains. The understood ‘short investment’ by venture capital is, typically, 5 years. Yet, since starting Aug 1, the sum total trades completed is 117,359 resulting in $97,360 in value gained total — an average of 82 cents a trade. This is because we recognize that the timeframe for Institutional risk appetite has to do nothing with daytrading, per se (High-Frequency Tradings would be their analogue), and has everything to do with capitalizing off of true sentiment shift, and having the capacity to withstand the drawdown. Quite surely, if the American financial industry side of things had regimented risk management, we would not be in the situation we are today with runaway inflation worldwide- so that tells me that they were Greedy with a capital G — the human Element.
On the other side of the computer, a lot of us were taught some of the same ‘rules’, as in, risk X %, then DCA with Y%, and don’t go over that, cut at K loss or Y deviation. Solid principles — and ones that a lot of traders find themselves to be profitable with, with a solid 1:3 or greater risk to reward, it is certainly a great foundation to build on — the philosophical takeaway is that a consistent approach, though inflexible, will deliver results within an anticipated range, instead of being reactionary to the situation. So we have part one of our pillars of performance : a consistent system that exists within its parameters, and not outside of them.
Immediately identifiable is the ‘inflexible’ — so what tools is there available to deal with that? Well — earlier — we used an acronym that should be familiar to a lot of us — ‘DCA’ — or Dollar Cost Average. Put simply, it just means that if you add X to your position, your average price versus the difference is resolved to be proportional to the amount put in. The strategy originally came from Martingale, becoming the ‘Martingale System of Investing’, and on paper, it is very appealing : keep adding to your position, and eventually a favorable exit theoretically should be obtained — barring fraud in the market or acts of God.
Historically, this method has some flaws as well — firstly, how much to put in, and when, are deeply debated issues, but ultimately the flaw is that money runs out at some point — but this is a risk all participants face. This leaves then begs the question of how to use things a little more intelligently than simply throwing money at the problem.. Which then begs the question of how to perceive the market from a value based perspective — the whole thing- which is answered in the so-called ‘Pareto Principle’ : 80% of movement is determined by 20% of sources.
Interestingly, this was demonstrated live last year with certain stocks, as even though the short sellers had diluted the shares through increasing the number of them in the market, ie reducing the individual share price, ultimately the last 20% of movement is still determined by the remaining other participants in the market. Therefore, we can weaponize this to colloquially understand that , very generally, it is unlikely any given asset will decay more than 80% without the loss of faith of the holders. Past 80% indicates that long term hodlers have given up, which, again very generally, means that the use-case has been devalued and no longer provides the same opportunity.
This means that we can identify several ‘plateaus’ of decay that represent different risk levels, and use those accordingly to create a value-based positional add. We can also, using the sentiment changes, create a better profit opportunity based on a total risk assessment from the start — our second pillar, Performance Through Process, is a measurement of not profitability, but survivability. Profitability is the derivative of risk, not the other way around and risk can always be added, or diversified.
For example, say that we open a profile and we are not in a very tumultuous time — very technically, a smaller deviation change profile, that is to say, one that spends the majority of its margin allocation in a tighter band, say between 8% to 20%, is going to output a higher throughput of daily profit than one that has, say, a 60% allocation band. Simply, they risk more in a tighter area, and are therefore rewarded for it. Again — risk=profit, so this brings us to our next Pillar, and the reason why Futures is “risk-within-reason”, is that it gives you a concrete assessment.
In our previous example, when sentiment shifts, and the 20% bands are out of place, they will fill up on their Risk level a lot faster than the 60% allocation band, as the ‘weight’ of those contracts are proportionally higher as they were risking more in the first place. This creates anxiety of purpose and psychological pressure to ‘do something’. However — we discussed that the human element is not ideal for making these kinds of decisions — so the third pillar is Marginal Management, or ‘Risk Level’.
There are three failsafes in place, one to stop proceeding on opening new deals, one to remove the open orders, and one to eliminate deals, one by one, until returning to safe levels. If this final safe hits, it will not proceed on new deals until under the first failsafe. This “closes the loop” on the system, accounting for the unknowns, as the risk formula accounts for what is known — ie, your total margin and allocation used.
With this tool in place, it opens up a number of options for the Risk formula to diverge- a more aggressive actor may proceed to Overallocate, and at X risk level, it will proceed to do what it needs to do..whereas a more passive actor will hit these failsafes a lot later in the market sentiment. The whole spectrum of risk used in this manner has positives and downsides, and it brings me back to the opening thought : “wen lambo?”
Realistically, each programmed spread has its own risk allocation strategy that can certainly be min/maxed, with the truth of if we have not hit the First Failsafe, then there are surely more deals that can be done, ie, “more risk = more profit “ — but you raise the ‘glass floor’ conversely. Earlier, we mentioned that as the deal moves with the sentiment, funds are added — and that is where the biggest money makers are, some deals that take a week, month, or four (in the case of some deals opened near the top!) to close.
A spot profile — for example — will deeply fluctuate in USD value, whereas the amount of coin theoretically is what is going to drive the profit, whereas a futures profile will deeply fluctuate in *margin used*, however, each $ of profit will actually add to the margin total and the available USDT — creating a virtuous cycle. So an aggressive profile will gain more Margin, but also use more Margin — and it will break margin at a faster rate. The oft quoted ‘statistic’, “90% of traders will lose 90% or more within the first 3 months” and follow it up with a lesser known one, “you cannot realistically call yourself a ‘trader’ unless you have survived (and profited!) at least two years through daily trading.”
Going into this, the base risk model has the philosophy that there is nothing more valuable than time, and we spend a lot of time in front of our information centers often doing a lot of nothing, and getting anxiety as a result. Therefore, it is with these thoughts in mind that the Standard Programme is based on allowing peace of mind. In historical context, it produced results that were client satisfactory when combined with zero loss over the duration of the trade deal — as in, it never exceeded its Marginal parameters going up and down with the market, and was able to resolve itself over the test of time while still allowing the gained funds to be safely accessible by clients.
The more aggressive profiles gained more — sometimes up to 30% in a single month — but conversely they were the most stressed about things, taking away from the core philosophies of giving back your agency and time in return for a safer strategy than manual management. In trading, certainly in futures, common thought is that some degree of loss will happen at some times, and the core idea is to minimize giving back to the market as much as possible. If there is a lower accepted loss, over time, than it gives the opportunity for your growths to be compounded and enjoyed so much more regularly.
Therefore, measuring profit per month is not actually an ideal yardstick, as the inflexibility and rigidity noted above was a weakness, so allowing additional formula into your Programme provides flexibility for proactive/reactive market movements, and allowing additional Risk into your Programme provides flexibility to fine-tune Profit versus Risk expectations.
Passive Programme is a risk formula based on less than your Margin using the largest Deviation band. This will profit the least, but will be the safest and accommodate the widest load. Generally, more deals would be added over introducing a smaller deviation band to provide a consistent risk profile to provide more risk for profit, generally it is also a Long-Only profile to allow deploying sub-tranches of the allocation as the market moves instead of using the whole profile at once. Using less than 100% allocation means it is unlikely to hit the first Failsafe, but if it did, it hit it much later than its trading peers.
Standard Programme is a risk formula based on your total Margin using a larger, but not the largest, deviation band to allocate your margin and spread your risk. This risk formula has gone through no less than four iterations, spawning the other profiles from what its left behind. This profile attempts to maximize its agility by allowing shorts if the user wants, and very generally when programming more deals the Standard Programming Rules allow a different deviation band to be selected in an attempt to be proactive, or reactive. It is likely to hit the first failsafe in times of trouble, and the second in dire times. It has not yet reached the third under any profile.
Aggressive Programme is a risk formula that is assessed as a Programme at between 110%-140% allocation, and very generally will favor an aggressive and tight Margin Profile. Some months it could make very little — as its out of sentiment — whereas other months it will be on fire. Still, the goal is to minimize giving back, and both of these things increase that risk. It very generally hits the first failsafe about 1.5x faster than the standard programme at same allocation, and it hits the second failsafe about 2x faster. The 3rd failsafe is a very real possibility, so users often reset the account each month to the initial.
These configurations would not be possible in any manner without the marginal reading, and in addition, the flexibility of being able to react to a given situation through predetermined allocation, and risk assessment, would be much lessened without being able to take and enjoy profits as you go. Very generally, being able to put up a sum of monies and harvest the gains, without it leaving your account or requiring your constant attention — and those gains being reasonable and proportional to your account each month — with loss minimization, or zero’d, and market sentiment considerations — I would implore you to let the system work for you.
A last note on performance and Futures — The best opportunities come through properly applied risk, as discussed. No industrial agent will use ‘all their eggs in one basket’, hence why they are able to wait for sentiment to work for them. Therefore, it is my pleasure to educate that anyone with Sub-Accounts have a great opportunity — though a $50,000 account works on the same principles as a $10,000 account, if one has five $10,000 accounts through Sub Accounts, we can provide a much more nascent and direct Risk Management by allowing Tranches that activate under a time-delay, or alternatively, activate them all at once, but under different Risk Configurations to allow for a wide range of results under expectation.
Emotion and gut certainly have a big part to play in the human experience, certainly out of the box thinking has value — but to do all things with one tool means you are using a square peg for a round hole in some cases, whereas others you get it just right. Proper planning prevents problems, and therefore, there must be a way to take a look at some key differences to plan for.
This leads into some bigger thought experiments that must be resolved before wecan drill down to figure out the part of the equation that matters. That is to say, we have something before us that says, Solve [(x1+xy)/1b] = C , or something equally WolframAlpha or intimidating… leading to the question “how does one account for what they do not know?” One cannot! You can only keep up with what you KNOW — therefore one must play around the unknown very methodically, or be caught surprised.
In a very simple way, risk = profit. Everyone knows someone who ‘struck it big’ on a huge leverage, yet on the other hand, watching Cryptoface throw away big bucks has a schadenfreudic joy to it, because ultimately when you are risking outside reason, you are simply gambling.
What are the dangers of gambling? Winning.
We live in a world where the top 1% has some 50% of the total wealth. Surely, one would think, some gambles are necessary? And you’d be right. Calculated risk management is why topically there are only “errors” in tickers with idiosyncratic risk — because sometimes a ‘sure thing’ ends up blowing up in your face!
However… If you lock your money into an investment instead of an opportunity, and you are honest with your intentions and goals, you can divorce yourself from the pressure of performance, and allow a structured, thoughtful system to proceed within parameters on your behalf, while you get to close Tradingview and maybe get a little bit more time with your partner, your kids, your dog, your gym. Automation!!!
Prosperity over profit, risk within reason — these are the guiding thoughts — but if someone wishes to min/max, we have all the tools to work together.
Ciao ciao for now from the #Jupiverse!
About Cyber Drops DAO
Cyber Drops DAO is the industry leader in decentralized algorithmic trading. We are a community driven DAO built on Ethereum. The future is a decentralized, autonomous, and transparent world. Together, we are working to build the Jupiverse.
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