Thomas Meyer, Editor
April 1, 2024
Email: algotrendtraders@gmail.com
Twitter: @AlgoTrendTrade1
Welcome to this week’s AlgoTrendTraders report. Before getting into this week’s report, be sure to follow me on Twitter: @AlgoTrendTrade1
I’ll post updates throughout the week. The data and charts shown in this report are not meant to be recommendations and no buy/sell information is inferred.
My Bitcoin Story
As mentioned in the past couple of issues, I want to give you an overview of my personal Bitcoin evolution. I personally invest in Bitcoin because I’ve determined that it’s right for me and my financial situation. I don’t know you and I don’t know your situation. This is not advice, it’s not an attempt to sell you anything. This is just what my thinking was in the past and the road I’ve taken in the past several years.
Like many in the mid-2010s, I had heard of, but didn’t believe in Bitcoin. I heard all the arguments against it. This is the 21st century version of the tulip craze, it’s just a fad, only drug dealers us it, and it’s too volatile for a serious investor. I’m sure you heard all these and more.
Of course, the price kept rising and the fringes of the mainstream started looking at it. The idea behind blockchain technology made sense and the thought of integrating this revolutionary technology into a variety of different industries also made sense.
Finally, in late 2017 or early 2018, a light went on for me. I began to change my mind and decided to study Bitcoin further. Here’s what caused the switch… Star Trek. Yes, the same Star Trek we all watched as kids and young adults. I’m not a die-hard Trekkie, but it was clear that Gene Roddenberry had figured out many of the issues dealing with society, space exploration and he seemingly had the financial aspect figured out as well. There were no dollars, coins, currency, gold or silver that changed hands. It was always “credits”. People were paid in “credits” and spent “credits”.
This got me to thinking about the history of money. We all pretty much know that humans started with barter, next were objects such as shells or other rare items in nature, then came gold and silver coins. The downfall of the Roman Empire was hastened by the government cheating their soldiers by lessening the amount of silver in each coin. Within the past couple hundred years, we’ve moved to paper currency, checks, credit and debit cards. Today, we still do business with banks, but most of us do our day-to-day banking through our computers and phones. We rarely use cash any longer. Also, though we are used to doing business with banks, the majority of the people in the world have never walked into a bank. They take care of their payments over their smartphones.
All of this caused me to rethink my negativity towards Bitcoin and look at it from a different perspective.
Is Bitcoin the next step in the evolution of money? Or is it more like gold? Maybe both? I want you to consider something.
What makes a good investment? Sure, we all want to make money, or lend our money out and generate interest. We rarely think about investments in the generational sense, but that’s what Bitcoin could be. Gold is definitely that way. Here’s what I mean…
No matter what the price of gold is, it has recognized value around the world. It has for many millenniums. Today, you could own the best piece of property in downtown Austin, Texas (where I live), but if you’re on a trip and something happens to you and you need money immediately, what’s that property worth? Nothing. It can’t get you out of trouble. But gold probably can. It has in the past and will in the future help desperate people get out of bad situations. Gold is an investment that doesn’t go away, it doesn’t deteriorate, and, most importantly, it has recognized value. Most every culture has recognized the intrinsic value of gold for centuries. We’ve all seen photos of people from Asian cultures with fine, expensive gold chains or earrings that they wear. They don’t just look pretty, but they’re also a store of value.
Of course, gold doesn’t pay you any interest or dividends. Gold is heavy and difficult to carry around. Gold bars have to be stored and then assayed if you choose to sell them. There’s a cost to owning gold bullion. Gold coins are easier, but they’re still heavy and you’re probably not going to take a handful of gold coins with you when you leave home.
This is the sweet spot for Bitcoin. You can take it with you. Easily. All you need is your phone and a secure wallet. As long as you have power and an internet connection, which is almost everywhere, you can access your Bitcoin.
Many people refer to Bitcoin as “electronic gold” for this very reason. There are many cryptocurrencies that are finding their way into daily business transactions. Ethereum and Solana are two examples. There are others and there will be others in the future. Bitcoin isn’t easy to use for day-to-day transactions. But it has value, it’s rare, and people want it.
Back to my story, In 2018, I saw an ad on either Groupon or Living Social from a company called Coinbits. Their ad said they’d give me $5 of Bitcoin if I signed up with them. That was a pretty good deal, I wasn’t going to invest much, just $10 or $20 a month. If they wanted to add a little more to my stash, that was great.
I signed up with them and began my dollar-cost averaging journey into Bitcoin. I increased the amount a little every quarter or so. I always enjoyed going to their website to see if I was making money (most of the times yes, but the bear markets were rough). I realized this investment could end up as a total loss so I didn’t put too much into it. Still, it was nice to see that I was starting to “stack Sats”.
In late 2022, I got an email from them that their custodian was not going to be operating in Texas and I had to pull my Bitcoin out. They walked me through the process of setting up my own wallet and transferring the Bitcoin to my personal custody. They took just as much time with me to stop doing business with them as they did when I initially started with them. I told them when they got a new custodian to please let me know.
And a month ago, they contacted me again. They’re back up and running with a new custodian. I’ve already set up my new dollar-cost averaging plan. I told them I offer trend-following signals in this newsletter, but I don’t personally trade Bitcoin. I’m a “hodler”. That means I buy and hold Bitcoin. If it goes up in value, that’s great. If it goes down in value, well, not as great, but I still hold it and buy a little more each month.
In the year or so that I wasn’t working with them, they were building out their services even more. Now they have it available that you can enter the address of your personal Bitcoin wallet and your purchases will automatically be sent out.
I recommend you check them out. Here’s a link to show them you came from the AlgoTrendTraders newsletter: Coinbits.app is the site. They also have their own newsletter so you might want to sign up for that as well.
I personally invest with Coinbits, but they might not be right for you. Do your own due diligence to determine if there’s a fit. I’m not being compensated by Coinbits and don’t have any financial interest in this, other than my own personal weekly investment. Their fees are reasonable, though they’re higher if you live outside the US. They only deal with Bitcoin, no other cryptocurrencies. If you’re looking to get started, they’re a great place to go. If you’re looking to make a significant investment, they have institutional consulting services. Check them out and see if they’re a fit for you.
I’m still interested in hearing what your Bitcoin experiences have been. Please email me and I’ll share them with our readers (anonymously, of course).
Thomas Meyer Investment Management
Anyone wanting to learn more about my management can check out the website for more information. Be sure to click on the “Let’s Connect” tab, fill it out, and we can discuss the next steps to have me manage a portion of your investable assets. By the way, I never hold your monies, they remain in your name and will be custodied at Schwab on the institutional side. Here’s the site: www.tminvestmentmanagement.com
I also have a client letter that goes out every couple of weeks. Let me know if you want to be added to that letter.
Exit Strategies Updated
All the stops have been updated for the current trades. Be sure to update your exits according to the rules you use.
An X-Ray of the S&P 500 Sectors – All Sectors Bullish!
The sector ETFs are now all bullish as XLU finally moved higher and above the yellow channel Transition Zone. None of the sectors are overbought.
XLB (Materials) – Bullish Condition
XLC (Communications) – Bullish Condition
XLE (Energy) – Bullish Condition
XLF (Financials) – Bullish Condition
XLI (Industrials) – Bullish Condition
XLK (Technology) – Bullish Condition
XLP (Staples) – Bullish Condition
XLRE (Real Estate) – Bullish Condition
XLU (Utilities) – Bullish Condition
XLV (Healthcare) – Bullish Condition
XLY (Discretionary) – Bullish Condition
Historical Results Are Underneath the Charts
The updated historical results for the tickers we follow in AlgoTrendTraders are listed underneath the charts. They’re currently showing the trades with closing prices through March 31st.
AI Answers About Trend-Following
For those new to AlgoTrendTraders, we have a list of questions we asked ChatGPT to answer about trend-trading and its advantages. Be sure to read those to better your understanding of what we’re doing here.
For those wanting to know more about Trend-Trading
The overview of the AlgoTrendTraders system is underneath the charts. Those familiar with our methodology can get right to the trades. If you’re new to trend-trading, be sure to read this introductory section. This will help you understand the concept of trend-trading and why it is so powerful.
Always have your exit strategies prepared before you enter into any trade.
The Composite Table for April 1, 2024
Be Sure to Read the Disclaimer at the End of This Report
Here are the latest charts…
Trend-Trading Overview
The long/short signals are based on trend-following principles. Very simply, stocks and commodities stay in trends… until they don’t. Trends can last a short time or they can last for months and even years at a time.
This is not a “get-rich-quick” scheme
If you’re looking to make a ton of money in a short time, you’re going to be disappointed. Trend-trading is not fancy; it’s boring, and takes time to be successful. This is a system that relies on a historically proven process to generate solid returns on winning trades and avoid large losses on losing trades. We’re definitely the tortoise, not the hare.
Trend-following systems don’t try to guess what the next move in the markets might be. Instead, we measure the markets each week and use our algorithms to determine the current trend and the exit strategy for the current trades.
The key to the winning trades greatly outperforming the losing trades is the risk management system. If a trade moves against us, we’ll get out of the trade with a small loss. But if a trade trends higher for months at a time, we have the ability to build up substantial profits.
AlgoTrendTraders uses both trend and momentum to generate the trading signals. The yellow channel you see in the center of the charts is called the “Transition Zone”. When a stock is above the yellow channel, it’s in a Bullish condition. When it’s below the yellow channel, it’s in a Bearish condition. When it’s in the middle of the channel, it’s in a Neutral condition and there is no trade.
Selling is More Important Than Buying
Every trade has a pre-determined exit strategy. This is based on the normal volatility of the underlying ticker. Each stock has its own unique volatility. And, volatility is dynamic. It’s constantly changing. Each week, we look at the previous 52 weeks of price movement to come up with its normal weekly volatility. This is called the “Expected Move”. The Expected Move equals one week of the normal volatility of the stock or ETF being measured. Every week, the exit strategy for each ticker is updated.
The system is based on the weekly closes of the underlying tickers. All trading information and volatility calculations are based on weekly volatility. By using weekly calculations, the system ignores the day-to-day noise in the markets and is able to give better signals.
It’s easy to see the periods of time that volatility increases and decreases. As the yellow channel Transition Zone widens on the charts, the volatility is increasing. The opposite is true; when the Transition Zone narrows on the charts, the volatility is decreasing.
The best time to enter a trade is when a new signal is given. This gives you the greatest opportunity to get into a trend that could last a long time. Though it’s possible to get into a trade after a trend has been in place for a while, the risk in that trade is elevated. Consider using 1/2 or 1/3 of your normal investment for these situations.
This report gives signals that can be followed by both novice and more experienced investors. Novice investors can use these signals to help them manage their 401(k) and retirement plans by adjusting the signals for SPY and QQQ to match the mutual funds in their plans. Though you won’t be able to short these indices when they become bearish, you can move to cash and avoid the devastating losses from bear markets.
Experienced and sophisticated investors can use leverage or options, but the risk is substantially greater. Never risk more money than you can afford to lose.
Disclaimer:
The information published in this newsletter should not be used to make personal investment decisions. We do not know your personal financial situation. Investments should be made only after consulting with your professional investment advisor and only after reviewing the prospectuses or financial statements of the companies in which you’re considering investing.
Returns of AlgoTrendTraders Trading Signals Through March 31, 2024
ChatGPT Questions and Answers About Trend-Trading
What are the advantages of trend-trading in the financial markets?
“Trend trading is a popular strategy used by traders in financial markets, and it involves identifying and following the direction of market trends in order to profit from them. Here are some advantages of trend-trading in the financial markets:
1. Potential for High Returns: Trend trading can offer high returns in a short period of time. This is because traders can enter a trade at the beginning of a trend and exit it at the end, capturing a significant portion of the trend's movement.
2. Reduced Risk: Trend trading allows traders to reduce their risk by avoiding counter-trend trades. By following the trend, traders can avoid the pitfalls of trying to predict market reversals and can stay in profitable trades for longer periods of time.
3. Simplified Trading: Trend trading is a relatively simple strategy to implement. Traders only need to identify the trend direction and enter trades in the same direction, making it easier to execute and manage compared to other trading strategies.
4. Objective Decision Making: Trend trading is based on objective technical analysis, which takes emotions out of the decision-making process. This helps traders to avoid making impulsive decisions based on fear or greed and stick to a disciplined approach.
5. Wide Range of Markets: Trend trading can be applied to a wide range of financial markets, including stocks, commodities, currencies, and bonds, allowing traders to diversify their portfolio and find opportunities in different markets.
However, it is important to note that trend trading is not foolproof and carries some risks, including false breakouts and sudden trend reversals. It is important to manage risk by using proper stop-loss orders and position sizing techniques.”
What limits the widespread adoption of trend-trading?
“Despite its advantages, there are several factors that limit the widespread adoption of trend trading in the financial markets. Here are a few:
1. False Breakouts: False breakouts can occur when a market appears to be trending in a particular direction, but then suddenly changes direction, resulting in a loss for the trader. These false signals can cause traders to lose confidence in the trend trading strategy and abandon it altogether.
2. Emotional Bias: Even though trend trading is based on objective technical analysis, traders can still be affected by emotional biases such as fear, greed, and overconfidence. These biases can lead to impulsive trading decisions, which can result in losses.
3. High Volatility: Markets can be volatile, and sudden price movements can trigger stop-loss orders, resulting in traders being stopped out of their positions. This can happen even if the overall trend remains intact, leading to missed opportunities.
4. Time-Consuming: Trend trading requires constant monitoring of market trends and technical indicators, which can be time-consuming. This can be a challenge for traders who have limited time or resources.
5. Limited Returns: While trend trading can offer high returns, it is not a get-rich-quick strategy. The returns are often gradual, and it may take time to build a profitable trading record.
6. Unpredictable Market Conditions: The market conditions can change unexpectedly, and market trends can reverse suddenly. This unpredictability can make trend trading a challenging strategy to execute, as it requires traders to be agile and adaptable to changing market conditions.
In summary, while trend trading can be a profitable strategy, it is not without its challenges. Traders need to be disciplined, patient, and able to manage risk effectively to succeed with this strategy.”
How do you trust trend-trading algorithms?
“Trend-trading algorithms are computer programs designed to identify and follow market trends, and they are increasingly popular among traders in financial markets. Here are a few things to consider when trusting trend-trading algorithms:
1. Backtesting: Before using a trend-trading algorithm, it's important to test it thoroughly using historical data. Backtesting involves running the algorithm on past market data to see how it would have performed. This can give you an idea of how well the algorithm works and how much risk it carries.
2. Transparency: A trustworthy trend-trading algorithm should be transparent, with clear rules and parameters that can be easily understood. The algorithm should also be able to explain its trading decisions and provide a clear rationale for why it takes certain positions.
3. Performance Metrics: When evaluating a trend-trading algorithm, it's important to look at performance metrics such as Sharpe ratio, drawdown, and win rate. These metrics can give you an idea of how well the algorithm has performed in the past and how much risk it carries.
4. Independent Verification: A trustworthy trend-trading algorithm should be independently verified by a reputable third-party. This can help to confirm that the algorithm works as advertised and can be trusted.
5. Regular Monitoring: Even if a trend-trading algorithm has a good track record, it's important to regularly monitor its performance to ensure that it continues to work as expected. Traders should also be prepared to make adjustments or switch to a different algorithm if necessary.
6. Robustness: Trend-trading algorithms should be robust and able to handle unexpected market conditions, such as sudden volatility or news events. They should also be able to adapt to changing market conditions and adjust their trading strategy accordingly.
In summary, when trusting trend-trading algorithms, it's important to consider factors such as back testing, transparency, performance metrics, independent verification, regular monitoring, and robustness. By carefully evaluating these factors, traders can choose an algorithm that they can trust and rely on for their trading strategies.”
Who are some of the best trend-traders over the past 125 years?
“There have been many successful trend-traders over the past 125 years, but here are a few notable examples:
1. Jesse Livermore: Jesse Livermore was a legendary trader who made a fortune by following trends in the stock market in the early 20th century. He was famous for his ability to read the market and his patience in waiting for the right opportunity to make a trade.
2. Richard Dennis: Richard Dennis was a trend trader who became famous in the 1980s for his Turtle Trading experiment. He recruited a group of novice traders, taught them his trend-following strategy, and they went on to make millions of dollars in the financial markets.
3. Ed Seykota: Ed Seykota is a trend trader who is known for his technical analysis skills and his ability to develop trading systems that follow trends. He is also known for his philosophy of "ride the trend" and letting profits run.
4. Paul Tudor Jones: Paul Tudor Jones is a hedge fund manager who has made billions of dollars by following trends in the financial markets. He is known for his macro trading strategies and his ability to anticipate market trends before they happen.
5. Stanley Druckenmiller: Stanley Druckenmiller is a billionaire investor who made his fortune by following trends in the financial markets. He is known for his macro trading strategies and his ability to anticipate changes in economic trends before they happen.
These trend traders have different styles and approaches, but they all share a common philosophy of following market trends and letting their profits run. They have shown that trend trading can be a profitable strategy when executed with discipline, patience, and risk management.”