A few years ago I explained how to do Market Timing using the DIAMAN Ratio as a predictive indicator of market trends.
It's possible to download the paper we published in 2015 on Wilmott Magazine at this link: https://www.phitoken.io/documents
I recently tried to apply the DIAMAN Ratio on the Crypto to check if even on this type of Asset Class can work and have a practical use.
To my surprise, (in reality, I expected it) without any kind of optimisation, I found that the DIAMAN Ratio is able to obtain better returns than the Crypto Currencies, reducing the maximum loss moreover.
Why did I expect it? Because market timing works excellent in times of market crisis, for example in 2003 and in 2008 those who benefited from our models lost much less than the market and therefore obtained a "risk-adjusted performance" (correct return for the risk assumed ) much better than the "Buy and Hold" strategy (buy and keep invested).
MARKET TIMING VS BUY & HOLD
There are many supporters that the Buy and Hold methodology is superior to a strategy of Timing, but I am convinced that our job is to reduce the risks to investors and therefore avoid making him lose, albeit momentarily, large amounts of money, because for Murphy's law, the client needs it just when the markets are negative.
It 's natural that this is so, as it is natural that a slice of biscuit always falls on the side of jam (because of the differential weight of the same), it is normal for an entrepreneur to serve the money when the markets go wrong because they no longer receive dividends from the company (just to give an example).
PRO AND CONTRA
Market timing in times of market growth, it is difficult to return the same returns of the stock market, because of the false signals, but it is a price to pay just to avoid the significant losses that sometimes happen on the markets.
For sixteen years we have gained substantial experience and developed robust models for market timing on stock markets, also establishing a statistical indicator, called DIAMAN Ratio that was presented at various international conferences and published on Wilmott Magazine in 2014.
The Diaman Ratio functions as a trend indicator, so if it is positive it means that there is a definite trend, if it is close to zero, it means that there is no clear trend, while if it is negative, it means that it is better not to invest in that 'assets.
To give an example, I took the price of Bitcoin in an unsuspected era, or in April 2011, during this period the Bitcoin has undergone a sharp rise with an evident trend.
The one-month DIAMAN Ratio, in this case, was clearly positive and therefore the signal was to invest in Bitcoin and this allowed to benefit from the sharp rise in price.
Then the price quickly came back from the highs, and then the 1-month DIAMAN Ratio soon returned to 0 and became negative, at which point the sales signal was triggered.
This signal was then confirmed in the following months, where the Bitcoin suffered a downturn and therefore the DIAMAN Ratio, as negative, continued to indicate that it remained out of the market.
This activity, carried out with rigor and continuity over time, leads to riding the positive waves of the Crypto Assets trends that are often incredibly profitable in a short time, able to avoid, even with some inevitable false signals, the negative patterns that in some cases have brought the price of Bitcoin to lose up to 90% of its value.
The reason why I really expected the timing on crypto assets to be profitable, is due to the enormous volatility and large recovery capacity of this particular asset class.
As explained in several posts on the Drawdown, such for example Deterministic maximum loss indicator a loss of 80% requires a recovery of 400% to return to the initial value, so it is sufficient to stop the damage at 50% to have a significant advantage compared to the buy and hold, albeit with non-perfect entry times.
The historical series of Bitcoin proves it, because, in its nine years of life, there were many opportunities for entry and exit, as well as the false signals, but if you look at the long term, the performance obtained with the Market Timing thanks to the DIAMAN Ratio it was enormously superior to the already incredible performance of Bitcoin.
If we consider the reduction in volatility and risk assumed (the maximum drawdown has gone from 91% to 65%), the so-called Risk Adjusted Performance is apparently in favour of Market Timing, as also highlighted by the Sharpe Ratio and the relationship between DIAMAN Ratio and Ulcer Index.
But how to use this indicator to make Timing on Crypto effectively?
Simple, just register on beta.exantecrypto.com, and you can check the DIAMAN Ratio to a month (faster and more useful for the daily timing) or the DIAMAN Ratio to three months of hundreds of crypto assets. So you will be able to understand in which crypto invest without having to passively suffer the massive losses that sometimes happen precisely because of the extreme volatility to which the cryptos are hurting.
To give a concrete example, today one of the few Crypto Assets in which it is worthwhile investing (apart from PHI Token of course) is Binance Coin, which has a positive DIAMAN Ratio and you can see from the graph kindly downloaded from EXANTE Crypto software as a trend in contrast with the rest of the crypto.
If you want to better understand the operation of our new free software for Crypto Asset Allocation, you can go to www.exantecrypto.com and download the user manual of the platform that will be provided free until September 21st and then always free of charge only to holders of the PHI Token.
For those wishing to have more technical information on the DIAMAN Ratio, you can download the paper from this link www.phitoken.io/documents
If you consider this post interesting, I invite you to help me share it with those you believe may be of interest and for this reason I provide a link to download the Excel Add-Ins: http://www.diaman.it/images/easyblog_shared/diamanratio.xla.zip
To exchange with you the sharing I provide the Excel Add-Ins for the DIAMAN Ratio Calculation:
Good Crypto-investment to everyone