How could you have avoided the drop in the stock market?

2018년 10월 11일

For many conspiracy theorists familiar with the cover of an edition of The Economist from 1988, the 10/10/2018 is significant for being the date when a new world currency will be ushered in. It seems instead the date that traditional stock markets come tumbling down, with DJI down 1,300 points over the past two days and many other stocks following suit.

China's 100-basis-point cut to their reserve requirement ratio is likely to inject about 109B$ into their economy and could devaluate their currency, thereby allowing China to make goods and services cheaper compared to the US. This could be a sign of China struggling against the US's aggressive trade policies. Any rattling of their economic growth is likely to effect markets globally, as it's the largest developing economy at the moment.

Not only this, but the Fed's decision to raise interest rates means that the rate of borrowing goes up which dips into the bottom line of companies that need to borrow to finance growth.

Higher rates restrict economic growth. This has made investors wary of markets at the moment and could be seen as reasons for the decline in the market. Saying that, it's too early to know whether or not we're officially in a downturn.

Anticipating, and acting, on this news is difficult and risky. It's hard to beat markets with this tactic. The big moves always happen after the fact, but the smaller movements in the markets beforehand create ripples and divergences that can be spotted quite easily with algorithms. -=Simplicity=- God Complex is one of those algorithms that anticipates big movements as opposed to reacting to them.

The chart above details the last 10 months of price-action against the DJI and if we assume an initial 10k trading position and compound the returns, then these are the results. These trades are without leverage too.

1st trade: +9.3% / 10930$
2nd trade: +5.73% / 11556$
3rd trade: -0.46% / 11503$
4th trade: +0.46% / 11555$
5th trade: breakeven / 11555$
6th trade: -1.22% / 11416$
7th trade: -1.01% / 11302$
8th trade: -0.88% / 11203$
9th trade: +1.23% / 11341$
10th trade: +0.65% / 11415$
11th trade: -0.24% / 11388$
12th trade: -0.9% / 11286$
13th trade: +1.54% / 11460$
14th trade: -0.94% / 11353$
15th trade: +1.18% / 11487$
16th trade: -0.44% / 11437$
17th trade: +1.83% / 11646$
18th trade: +4% / 12112$

That's a return of 21.12% with the biggest loss being recorded at -1.22%. If you had of bought and held, you would have made about 5%.

Don't react to news. Act before it.

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docs.google.com/document/d/109M94DAEI3Cq0b1Yvwh8R7YjwpWQGowj71Grsm3tL10