Friday, I opened a position in BITO with a single share. It dropped a penny, and I added another. Again, a penny drop and --again-- another add, four times in all. So now I was owning 4 shares with an avg price of 24.21 (compared to a close at 24.94 the previous day and 30.13 the previous month). So, I was buying lower. But was I buying low enough?
Prices kept dropping. So I had a decision to make: chase? or admit I had misread the market action? I opted for a compromise and submitted a lowball bid for 4 more shares at 24.00 and --surprisingly-- eventually got a fill. So now I was long 8 shares at an avg price of 24.105, which was much closer to where the market was, but still pretty much above where prices would close for that day at 23.84. But I had decided that $200 was enough to risk on the experiment and had stopped bidding.
Today, prices gapped up a bit at the opening, and I was immediately ITM (in the money) on the trade and starting to feel smug. I was tempted to take my profit and get out, but decided to let the position ride. (“If they’re buying, why sell?”) In a move I should have anticipated, prices reversed a couple minutes later as traders filled the flood of opening orders and then began betting against the weekend warriors who had come into the market. Immediately, I regretted not exiting earlier. Then, in yet another move I failed to anticipate, prices began recovering as the algos began kicking in.
As prices tagged my avg entry price and climbed higher, I had another decision to make. “Where to set my profit target?” A greedy, 2% gain would have me submitting a limit order at 24.59. But I didn’t think market action warranted that. A more modest 1% gain would be an exit at 24.34. So I wrote and submitted that. But market action failed to justify that as well, and I dropped to 24.25. But even that was too high and a clear sign that I was over my head and didn’t understand how BITO traded. So I hit the current bid, and got out at 24.21.
‘In’ Friday at 24.105 and ‘out’ Monday at 24.21 is one market-day gain of 43.6 basis points, and --actually-- decent money. (43 beeps/market day is roughly 109%/year) But it’s not good wages for the work and grief involved, which is why ‘trading’ is a hobby for me and not how I try to make a living. (That’s Quill’s gig.)
My takeaway from the experiment is this. BITO (and GBTC) are tradable. In fact, the pair offers some interesting opportunities as they diverge and converge. Plus, --intraday-- they offer a lotta “juice” due to the range of their movements. But the real reason to be buying the cryptos is as an offset to the $US. But currently, the $US is rallying, making shorts of the alternatives (the Yen, the Euro, etc.). And that’s the easier, less worrisome trade, and I’ll make 51 beeps today off of my $US dollar long, which is a trade I have to check on only once a day after market close (because I’m doing the trade through a mutual fund, which are so retro, it’s fun to re-discover just how good a vehicle they are if one’s intentions aren’t zipping in and out of markets).
So, here’s my pitch for exploring mutual funds. Right now, Schwab is running a promo. " Open and fund your account and get $101 from Schwab to split equally across the top five stocks in the S&P 500®, plus education and tools to help you take the next step." The funding requirement is a measly $100 bucks. So, instantly, you’ve doubled your money. As soon as the stocks are in your account, you can trade out of them. (Else, if they’re doing well, let 'em ride.) Meanwhile, due the matching funds requirement, you’ve got a $100 bucks of cash to work with, which is tiny, tiny money. However, here’s the kicker. Schwab offers a full range of its own funds, and those funds have the low, low initial-purchase requirement of just $1 and NO STORT-TERM TRADING FEES. All of those funds are ‘longs’. But Rydex, ProFunds and Direxion offer inverses on the major investing objectives, and their mutual funds also have no short-term trading fees, though they do have $100 initial mins. But between the four fund companies, a person ought be able to find something worth buying, even in today’s jittery and downward market.
Why explore mutual funds, especially the inverses? Because all of us are looking at a coming crash, bigger than anything we’ve seen before. Due to their end-of-day pricing, mutual funds inherently enforce the use of longer term-holding periods, but don’t necessarily require them. Hence, they lend themselves to being used as both strategic and tactical tools in ways that stocks do not.
Arindam
https://www.schwab.com/investing-starter-kit