Stability vs Instability.
While I was evaluating the most suitable trading strategy for me, I realized that it is possible to divide the trading strategies into two categories: stabilizers and destabilizers.
A stablizing strategy tends to push the price of the currency in the opposite direction to the trend and consequently to mitigate it. A destabilizing strategy, on the other hand, tends to accentuate the already present trend.
An example of a stabilizing strategy is rebalancing. Suppose we split our portfolio into 50% usd and 50% bitcoins. With the evolution of the bitcoin market price the percentages vary. The strategy is to buy or sell bitcoins periodically (for example once a day) so as to return to 50-50. Incidentally, a variant of the strategy that I prefer is the use of a threshold to perform the rebalancing instead of doing it periodically: for example, I can rebalance when one of the two percentages reaches 51% (obviously an automatic algorithm is needed to do this efficiently) .
An example of a destabilizing strategy is the trend follower. In this case I decide to buy bitcoins when it seems that the price has started to rise, hoping that the trend will continue for a while. In the same way I sell bitcoins when it seems that the price has started to fall, always with the hope that the trend will not reverse in the short term.
The great instability of the value of cryptocurrencies leads me to think that a large proportion of investors follow destabilizing strategies, which often offer a greater potential gain at the price of greater risk.
A final note on the two proposed strategies. The rebalancing(stabilizing) strategy is more effective in a highly unstable market. The strategy of the trend follower(destabilizing) presents a lower risk in a stable market.
Go against the current pay?
Thank you for reading.
Congratulations @pianese! You received a personal award!
Click here to view your Board of Honor
Do not miss the last post from @steemitboard:
Congratulations @pianese! You received a personal award!
You can view your badges on your Steem Board and compare to others on the Steem Ranking
Vote for @Steemitboard as a witness to get one more award and increased upvotes!