First of all I want to begin with a piece of research I did in October 2018 on the relationship between the US stock Market, the US Dollar , US Treasuries and Gold Bullion ( ).
I analysed if there was a relationship that High Net Worth Individuals adhered to when moving their assets. In particular I was looking at the Rockefellas over the last 120 years. I found a relationship between the 4 main assetclasses (Equities, FX, Bonds and ). This relationsip can clearly be observed on the Monthly timeframes, and lower timeframes and provides a very insightful look at where we are in the grand scheme of things. Let's begin:
Observation 1: When the Stock Market crashes (DJ30) Gold also went down. This happened in 1929 to 1933 (DJ30 lost 90%), 1937 to 1938 (DJ30 lost 45%), 1970 (DJ30 lost 38%), 1974 (DJ30 lost 42%), 2000 (DJ30 lost 30%) and 2008 (DJ30 lost 50%).
Observation 2: When the Stock Market Crahses HNWI's move into Dollars when they sell of the stocks causing a rise in the dollar, and then they move into bonds - US Treasuries. The US dollar Index increases prior to the crash and then the big money goes into bonds. All the stock crashes have come after decade long stock rallies. When the stocks are rallying hard the attempts to cool down the economy by increasing interest rates - which is what we have seen the Fed do since December 2015. When the Coupon HNWI's can get on Bonds becomes reasonably substantial and they have made alot on the stocks they prefer the risk adverse trade. Basically they can lock in a good amount risk free on billions of dollars and they know if they don't sell off the stocks the Central Banks will raise rates again. So even if one HNWI doesn't immediately bite at the Treasury Bond Yield there may be other HNWI's that do and that will cause the stocks to fall. So these HNWI's know it's inevitable and act ahead. As more and more of the money comes out the stocks crash. Dollars go up, then that goes into Bonds whilst the market tanks.
Observation 3: Where is the stock bottom? Once the market crashes we reach the end of the Business Cycle. HNWI's then sell apercentage of the bonds and put money into the stock market again. This time they will hedge their bet. They will typically invest 90% into stocks and 10% in Gold . Which is why Gold rallies after the crash as they use Gold as a hedging tool when reinvesting back into the market.
Observation 4: Gold increases hand in hand with the stock market for a number of years until the stock market makes a new high. Once the stock market makes a new high this gives the HNWI's enough confidence to sell of their gold and move that additional money further into Stocks causing a second wave rally in the stock market to greater highs. Whilst Gold stagnates. This happens almost every time and happened recently.
I the looked to see if this observation could be seen in microcycles on lower timeframes such as daily as opposed to monthly - and yes it can.
Where are we now in the cycle?
Stocks have just rallied over the last decade, bonds are now appealing so HNWI's are moving out of stocks into USD and bonds. Gold will go down with the DJIA over the next 2 years. BREXIT and Europe's PIIGS will trigger systemic risk. Big Players are now shorting UK banks ahead of the BREXIT turmoil. There also needs to be new technology near fruition for stock marke growth. The tech industry has hyped up there AI abilities - yet the Singularity is said to be in 2030 not 2020. Thus it makes sense we will go into a Recession and then rally after towards the AI Singularity.
So where does this leave cryptocurrencies? I believe cryptocurrencies will behave like and also go down with Gold . The last thing that Central Banks need is Bitcoin rallying back up to 20K in the next 2 years whilst the Recession hits aswell. I also believe that bitcoin will over react to the drop and will drop far below 1000USD. I expect this to play out over the 2 years until we reach a bottom.
So how does one make any money in these kinds of markets?
We spent the last 8 years Researching how Financial Derivatives behave. We built a financial model that applies Universal Equations to model any instrument into 9 states. Those states are the steady trend (1), the reversal (2), the strong trend (3), the super trend (4) and the flat market (0). We then calculated the second derivative of the model and used it with momentum to work out where price is heading next.
We wanted to avoid paying commission on our trades so we only review our portfolio at the end of the day or at a specific time each day. By minimising the commission costs we have become far more profitable. A strategy that makes 200% in 10 trades is better than a strategy that makes 200% in 200 if the commission cost on BitMEX is 0.4% all round trip.
Coming from an FX market background we have always preferred diversification - rather than only trading XBTUSD we opted to trade all 8 MEX contracts. For example if we have 10 BTC in our account we will allocate 10% for each trade as the initial margin. We use 10X leverage on our trades but only invest 10% of our account - some of our trades will be long and some will be short. Very rarely we are completeley long or completely short. 6/8 of the BitMEX contracts are relative to XBT so the movement is also not as much as the USD markets when levered.
We keep our stop losses at 5%. Typically once trades have gone into profit BitMEX automatically delevers them - so our trading margin on our whole account is usually 5X.
Our results from 2018 and 2019 show that we can generate about 10 to 35% per week on average. With some weeks in October 2018 generating substantially more depending on the of the market. As a rule of thumb we make 10 to 35% every week.
I am 100% against 'drawn in' analysis - unless the author can create a Financial Model or a mathematical theory or proof that can be shown to generate abnormal returns from atleast 1990 to 2019 on the 4 main assetclasses (FX, Equities, and Bonds). TA strategies consisting of ( , Flags, Fib Retracements, Waves etc) can be coded into the TradingView platform. I do not believe trading is an 'art', I believe it is quant based with many Wall Street Hedge Funds running the show such as Two Sigma, Bridgewater Associates and Renaissance Technologies. The 'art' of was something which was invented in the 1920's. We are now almost in the 2020's. Drawn lines on charts were first invented in the Roaring 20's - this was prior to the Digital Age. People would collect quotes and plot them by hand on paper back then. As Technology advances further and further the TA you are learning is will prove to be obsolete.
On our website we have two free downloads - Empowering and Getting Started.
The first one is about our story and who we are, while the second one shows you where to begin and what you need to do.
If you have any questions don't hesitate to DM us. We only trade the 1440 for crypto and 770 timeframes for FX, and Stocks.
2018 to 2019 Results: 5927%
Head of Grey Trading