One near-fatal Friday very recently, I had been stacking my meds and was feeling a lot of anxiety which is what happens when you take too much and/or don’t eat. Then something self-loathing in me decided it would be a good idea to smoke a blunt to kill the anxiety. I never smoke weed so had no idea where to get it, but I called a friend who called a guy and I was soon puffing quietly in my warm n’ cozy but mostly empty studio as the unrelenting rain softly pounded the pavement outside (which ironically and in hind sight was the calm before the storm).

About four hours later, I was seeing the proverbial light (it’s actually a light, no shit), accepting I was about to die and seeing flashes of my life, which were surprisingly vivid, as if someone had been shinning a stage light at me this whole time and I had never realized it. For whatever reason, I craved salt, and I had just enough energy and life to get up and walk three steps to the kitchen area to get it. A few licks and I started to come back to life. I found myself craving a warm home-cooked meal, made with love. My mind ran through all the people I knew who cooked delicious meals and I could only think of myself. I’m sure my friends make delicious meals too, it’s just that I rarely eat at my friends’ or invite them for meals. What if any of my friends survive an overdose and crave a home-cooked meal and they don’t know to call me ?! That right there told me what was wrong with my life and why I had been upside down my bed not long ago waiting to either go sick or die, or both. On the bright side, not having such close friends (or family) saved me from hurting them during my addiction. But there have been some casualties, especially my best friend whom I very nearly lost.

The difficult thing about recovering from addiction is repairing the mess in your life you will have inadvertently made. I’ve taken steps to deal with the abuse, like reaching out to people I consider “safe” to help me along the recovery, and co-opting a neighbor to keep me from abusing them. As soon as I can afford rehab or therapy, I’ll go. In lieu of meds, I run every morning, take cold showers, eat home-cooked meals, meditate for 20 min and read books instead of doom-scrolling (except sometimes I go to Twitter to see what’s up, and is how I came to my Bitcoin thesis). I’ve also decided to put everything Quant (h)Edge related and start a small business drawing portraits. Not because of some grand revelation after the incident, but because I stupidly gave my laptop to a payday loan to pay bills and debts and I can’t afford to get it back. I loved that laptop. It was a gift from best friend who loaned me the money to get it. Like I said, casualties.

So my life feels like hell, even as I recover from what was in fact hell. But this is an internal crisis (except for my best friend who never asked for this).

I have been feeling a lot of guilt, and perhaps to rationalize it, I’ve been asking myself: is addiction an internal or external crisis? I still don’t know, happy for anyones thoughts here. I take full responsibility for my actions and their consequences. Yet I feel sorry for myself. I see how I got here. How being bullied for being different thanks to ADHD, and holding myself to standards of living considered ‘normal’ by neurotypicals, made me think being productive, appearing well-put-together and working towards milestones along society’s definition of success were the way to live life. How trying to live according to this script while having ADHD made me unhappy with myself, and intolerant of my ADHD-specific challenges. How unrequited love and a heartbreak pushed me to the edge. Each time I abused my meds and was productive, I felt like the person everyone wanted me to be. By everyone I mean my bullies and would-be lovers. My friends like me as I am. I just need to remember to invite them for dinner, and insist they invite me over too.

You don’t really know who you are until you are in a crisis; nor do you know the people close to you until you’re together in a crisis.

A crisis undresses our souls, the values and beliefs that unconsciously define us, like a receding wave reveals mysterious creatures of the sea, that hitherto, had been living happily under the tide, cocksure that they could continue their existence unperturbed, indefinitely.

When I was seeing the light, I naturally wondered about the afterlife, if there is one. My religious convictions thus far are that I’m willing to acknowledge the existence of God, and pray when it’s convenient to me. But I will not read any religious doctrine or attend a church. I thought about God, and searched for his presence, and I guess I understand why religious texts say we are made in God’s image. It’s too strange to put in words but I’ll do my best. So my life was flickering before me, and I was questioning how I’d been living, what values I upheld, how I spent my time, and I realized that everything I call myself is actually some sort of constructed thing I came up with based on what I thought to be true, about myself and the world. And this could change. As a matter of fact, I hated who I had come up with to be myself. If anything, I will spend most of my life in search of ideas that change me for the better. My real self is hidden from me like the part of an iceberg that is submerged in water. I can only infer him, by self-awareness and self-reflection, particularly in moments of crisis or madness. This hidden part is what is made in God’s image, and to the extent that I infer him and integrate him to my construction of myself, then I can become who I truly am. I don’t know why this is a good thing to do but for me, the idea that I may not be my true self feels tragic. It felt tragic when I thought I was dying. This and a desire to make plenty of happy memories, alone and with others, is what I was left with. I have a wierd appreciation for life. Every moment. It all feels like a drama. Bad things don’t feel so bad anymore, and I have a bigger understanding of my ability to change myself, my life and the lives of others; those close to me, those I come into contact with, and humanity as a whole.

There are some missing parts in this whole story. People who helped that I can’t mention, and things I am not courageous enough to talk about yet. If you are reading this and I haven’t mentioned you, thank you so much for saving me from addiction.

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I went to the bank this morning to renew my debit card so that I can pay for the Quant (h)Edge site’s web hosting and other accompanying stuff like data. I bank with Cooperative bank here Kenya because I had their Jumbo Junior elephant piggy bank whenI was a kid, just right before I knew what different coins were worth, and the few coins I had put in there felt like all the money Id ever need which made me feel safe ( also my dad’s dad may have worked there, or KCB, I’ll have to ask). Anyway, 9am I’m at their Westlands branch looking like a racoon—or other familiar dumpster-diving rascal that comes to mind—in a hoodie from my unkempt dreads, poor sleep and good fashion taste. Despite a lot of annoying n pompous form-filling, which look horrible coz their just black and white photocopies of what I assume were colorful originals, whatshisname in a slightly-trying-too-hard, please-check-out-my-apple-watch (we chatted a bit, nice guy n I like him but c’mon) suit gives me the new card in a few minutes. I loved the speed n convinience, a rare oasis in a country where the default is nothing ever works properly so you’ve become accustomed to expecting and anticipating everything but what should actually happen. It made me wonder if I’ve been wrong to think Coop is a terrible bank and everyone else’s bank is better than mine; maybe they have a ridiculously bad-looking online banking gui but when it comes to the human-to-human stuff, they get it right. Maybe that and maybe they are still collecting interest from very old debts back when people respected banks and took loans seriously. Their new cards are lighter n feel a bit plasticky and cheap, but if you look keenly, it looks like they paid special attention to

all the crucial parts of the cards n cheaped out on everything else including the ink. Add good business sense to the mystery of Coop’s quiet continued success despite how behind the times they sometimes seem.

I put the card in my new wallet I bought so I can go back to carrying actual cash like a normal person and enjoy seeing people’s faces when I give them physical money rather than side-mouthing “nimetuma” while walking away after paying via phone to their M-Pesa based way of receiving business-specific transfers. Everyone smiles when receiving physical cash despite the fact I’m paying them for their goods n services.

I don’t know if it’s because the card is dark green but as I was deciding which slot in my cheap but beautiful (again, I have good fashion taste) Chinese made 2.5$ wallet will be it’s home for eternity, it hit me that the only reason I need this goddam card is so that I can change my KES to USD when paying for stuff outside Kenya where M-pesa’s reach ends. If KES is oil, M-Pesa is the pipeline monopoly (which unlike most African monopolies, is not state-owned, and that’s wht it works well enough but for the few mishaps that become legendary for how noticeable they are at the time, like late last year when everyones Mshwari savings read 0). So how much currency the Kenya shilling has depends on how far M-Pesa can reach, which for me, is not that far…

My first transaction was to send my buddy J. abour $10 in ETH so he could do his newly-discovered polymarket money-making skills. Maybe it’s coz I did a rushed haphazard search but I couldn’t find a way to just download an app, click ‘buy’ on ETH, and quickly breeze through the same M-Pesa deposit process I go through with FX brokers (who all turn ur KES to USD but only Pepperstone and Exness’s rates have agreed with my stomach of everyone I’ve dealt with). It sucked, but no worries, I had my trusty card. No cigar either, OTP for the 0 usd handshake when adding cards the first time failed. I again felt Coop must have an outdated system. Had to send J. the bad news but was also glad I wondering in the back of my mind how the polymarket-money sausage is made (I really don’t wanna know what you—and I say this endearingly—psychos are doing. So yeah, looks like my KES has less currency than I thought. If I can’t pay in USD from my M-Pesa or bank card, how am I supposed to use my ‘worthless’ money in my cyber-centered world where everything I pay for is in USD, and I’m not even thinking of Netflix and Spotify, who surprisingly and surreptitiously figured out M-Pesa millennia ago.

My mind immediately starts churning solutions to every problem I layout in my mind. Just use crypto to pay for everything dumbass, I heard. But wasn’t the government something-something locked crypto wallets.. Binance.. seems serious.. I said, recalling something I had quickly scrolled by on Twitter quite recently. I don’t want the government watching my crypto payments even though it would all be pretty mundane stuff that came up in my work, I retorted. It won’t matter coz everything will be on the up-and-up, plus.. it’s the only way, came the smug response. I understood what I meant by only. I didn’t mean literally, just that anything else would be too much unnecessary hassle which you would find yourself trying thanks to some aggressive marketing you’d been seeing but not paying attention to. I thought about M-pesa, the Kenya shilling’s preffered way to move, if no one wanted to bother intergrating M-Pesa, why can’t M-Pesa just do us all a favour and allow us to hold crypto in our M-Pesa wallets. It would be a nice addition to their swanky new OneApp or MyOne, something cliche involving the word One that your forced to gag or eyeroll so hard and immediately forget it, but it will stick from repetition someday, which will be a sad day but there are bigger problems in life than an annoyingly named app you use all the time in ur day-to-day living. It sounded feasible and not that hard to do in my mind. Isn’t crypto open source or something. Problem solved, easy peasy, dusting-my-hands, handshake with important bigger guy, pat-on-the-back job well done. I’m sure there are details I’m missing that explain why it hasn’t been done but I suggested it on Twitter still just incase I was wrong.

That would solve half the problem, a lot of people accept crypto already, it’s easy to setup your payments to accept all crypto, or so it seems because those who accept crypto accept a staggering amount of them that it feels like they take all crypto. The next problem would be switching crypto to usd. You’d have to send the crypto to another place then sell it in the other place for USD, and who knows what rate your going to get in a rather illiquid and volatile side of the money-world. Okay, I’m exaggerating, your money is not going to lose value in the 5 min all these conversions happen, but this is finance where theoretically and probably one day, it COULD

But assuming they did, and I had cryptocurrencies in my M-Pesa app ready to go at all times n for next to nothing, which is saying a lot because M-Pesa fees are quite cheap you barely notice Safaricom making half of their record-breaking 100bn shillings profit in real-time. Say I had the crypto, why would I need KES? Now you’d send everyone you’re dealing with crypto, both here at home and abroad. You would slowly forget the very quiet but familiar KES in the background as you used M-Pesa. It would be long forgotten but not missed. The only time you’d remember KES is when you needed to mentally appraise the value of your crypto. Whether KES was up or down since you last did this wouldn’t matter, except the small ‘yay’ or ‘boo’ ur heart did as part of our collective human behavior. But the convenience you gained and have since then experienced would make u say thank God it was done.

I stopped my thinking there but the parting shot was a strong impression that the USD will (probably or at least foreseeably) never see this fate even in the made up scenarios in my head. Regardless of where your money comes from, if you want to spend it in the real world, you will have to buy dollars, and even if you don’t, you’ll agree on the price for your wierd little transaction by referencing the Dollar.

This is not a new narrative. I’m sure I’ve read it in some form several times in different newsletters. But I had never really felt it. With AI happening, and everyone can now do everything if they want to, with the help of AI, all of us are paying for the same stuff, in USD. And if I, who had to send very many emails back-and-forth with Wise to prove my residential address, and who had roughly $20 in my account this morning but, after much deliberation and sacrifice, decided to pay painstakingly find a way to pay things needing USD, then everything they’re saying about the dollar’s imminent (and currently ongoing ) collapse is wrong.

And then you have an economy that just won’t quit.

Again, let me remind you that this is only meant for entertainment and is not at all trading advice. And I mean that, no hints to mean otherwise from my end. It’s just creative writing.

Sorry for the typos n other stuff I should have edited out before clicking send. I wanted to tell you a story, n I think I did.

So switched to a different hosting services, fixed some bugs (not all of them) and DNS configured the domain. Result? Quant (h)Edge is live. Check it out here!

PS: You can’t make an account and log in yet. Haven’t configured my email service.

Now I can focus all my attention on deploying the models and backtests I have on deck. This is going to be fun (and profitable)!

I am still short the funds I need to pay for data APIs and the hosting (I’m using Railway’s 30-day free trial). I sent out an email asking 8 of you to subscribe to the substack for $25 annually forever so I could raise the funds. One of you did and I’m super grateful. If you’ve been reading Quant (h)Edge and like what this is all about, or just want to help me with this, here’s that discount link again. It expires tomorrow.

Become a Quant (h)Edge founder

You will get full access to the substack and the website. The prices on the website will be higher so take advantage.

Right now I’m not trading. I recently had a MavenTrading 5k instant account which I got for three reasons. The first is I simply love trading. It’s my number one favourite thing to do in the world. But I like to do it correctly, and when I don’t have capital, I miserably do other things with myself, bidding my time until I do. Secondly, since I was writing my market thoughts on discord, I felt it would be wrong to spout things I’m not wearing myself. Thirdly, I wanted to raise the money I needed for the data APIs and hosting.

I got close. I wrote about the whole experience on X (read it here). I got my account up to $5108, and was $42 shy of qualifying for payouts. But a silly mistake cost me the account. On Fed night, after the presser, I got short dollaryen and after assessing the rate-differential narrative (ECB had to hike, Fed wanted to dovish-hold), I got long EURUSD.

But metatrader keeps a memory of the last size you used on a trade. In the morning, I scanned the charts to see RSI bullish divergence on Gold.

RSI divergence is one of my favourite entry signals. Right now Sugar is posing some serious RSI divergence and I would love to short it. But I also know that supply-constrained commodities are virtually the only thing rallying in this market so I’m hesitant.

Anyway, metatrader kept the 0.05 size from my EURUSD long and I blew the account in 10 pips because I violated the rule that you can’t lose more than 1% on a trade. It sucked. Really hard. But it was also the first time I was trading a prop account and I had a learning curve.

Anyway, since then I’ve been coding Quant (h)Edge, and my own portfolio website (which is pretty nice if you ask me). Btw if you need to hire a quant or data scientist you can just do it on my website. I’ve made the hiring experience awesome, even included NDAs and contracts and anonymity and whatsapp updates and many other stuff. You can also check out my art and my current fav music there.

A good friend of mine and Quant (h)Edge subscriber told me about the good things going on in FTMO and I set up a trial account for a 100k account. I have a few weaknesses to iron out before I get back to trading real money.

I don’t totally suck tho. Here’s an oil trade ideaI posted on the discord the night before I blew my prop account(two trade ideas actually).

And today, I posted this.

Of course Bitcoin and co proved me ‘wrong’ immediately. I add quotes on wrong because my post clearly says to have it on the radar, and this is a good example of why I said that. You want the market to confirm your idea, give you a good setup, then you take the shot. That’s what I’m waiting for.

I did post a live trade tho. Long gold.

Then I went on twitter and found I wasn’t the only one thinking this way.

Great minds think alike, as they say.

I’m sharing this coz I want more of you to join and be active in the discord. Especially those who like myself are looking to develop their skills and grow their accounts. It gets lonely in there, me talking to myself. But like I said, trading is the thing I love most and if there was not a single person there, I’d still keep posting because it is a form of keeping myself accountable even to myself. The discord is free.

Which brings me to Quant (h)Edge’s raison d’etre. Quant (h)Edge is for traders. It’s supposed to give you Quantitative Edge or help you Quantitatively Hedge; to give you insights you can’t get anywhere else. I made it for myself first of all. I am super curious, especially about markets, and I love numbers and coding. But at heart I am a trader. What coding and number skills give me is a different set of eyes. Eyes that can find something in the data other’s can’t. Then I use my trading skills to make use of the insights. But you have to remember that I have a B.Sc in Financial Engineering, I’m soon getting my CFA 1 and FRM certs (not that I need them, I already know all that stuff, but need the papers to buttress my backwater University degree). I equipped myself with all the I’d skills to find edge quantitatively. From linear algebra to Stochastic Calculus. And I never cared about exams, I knew I was doing all to help me make money in the markets. Thanks to Claude Code, Codex, and Perplexity’s computer, anyone can now make a dashboard and put all the quanty stuff they want on it (and showboat it on X), but that’s not what Quant (h)Edge is. Quant (h)Edge is me learning LLMs from scratch so I can build you guys the perfect AI assistant for your trading and for getting insights from Quant (h)Edge. So consider joining now while the price is low.

PSS: For what could be the last time, I will let anyone who wants to subscribe at a price of their choosing. Click here and I will handle the backend stuff.

Pay what you want

Join the discord

See you guys on Sunday with the Weekly (h)Edge. Have a good weekend. Lift something heavy, cook something nice and kiss someone you love.

Lago Brian,

Founder and Analyst, Quant (h)Edge

Hey guys,

I’m so excited to be back to working on Quant (h)Edge fulltime and I’ve dedicated that time to developing the Quant (h)Edge website, which is nearly done. I say nearly done but really the hard work is just beginning. What I really mean is, soon, you’ll be able to access the live models I’ve been promising since forever. Some are even real-time. I have about 10 of them ready to go, 3 are on the site already, and 1 is real-time. These models come from work I’ve shared here before apart from one which is a nifty index high-frequency options trading AI model. Here is an early look at the site so far. There are a few bugs here and there. I have utilized a Claude Code pro trial to get a lot done in the part couple of days but a lot of this has been slowly and painstakingly developed since Feb last year. A lot of the stuff on here is placeholder. I’m learning as I go and using AI tools to ease the work load. So I often make some boilerplate stuff then fill it in with what I wanted. Saying this so you don’t go thinking this is the exact way it will look when it’s launched.

I did this because I saw information gaps that could only be filled quantitatively for people active in the markets. An example is Crypto Breadth. Here is the Crypto breadth as of yesterday(ignore the asymptote at the end, data error, will fix).

I pasted this chart into ChatGPT and asked it where I can get such a chart, ready-made. It gave me a tradingview indicator, which I found to be inaccurate;

a website that uses ByBit data, which isn’t comprehensive. Here’s what ChatGPT had to say about that:

and allusions to ‘niche’ sites and blogs.

None of these are going to be helpful to you if you are putting real money on the line based on say a breadth expansion.

My guiding principles in my work are accuracy and clarity, and Quant (h)Edge will always give you accurate models and backtests, that you can trust, and use with confidence. The real beauty about this is that each model on there will have stemmed from research and been put to the test in markets by real traders, starting with myself (some of it will be automated but that’s much later and only in the case where a human would be disastrous at it. Think replicating a crypto 100 index with a short-period rebalancing. No human can trade those many coins and keep track of the weights needed each day, week or month).

I’ve moved the blog there too. All set up an everything. I did that mostly for my own sanity. Substack is afterall a social media site so it comes with the negative effects of social media when used in excess, and if you are writing a substack, you will use it in excess. I borrowed what I liked from here, and discarded what I didn’t, but for a time, I will post any writing on both platforms.

I’ve also been quite active on the Quant (h)Edge trading discord server. I post everyday. It’s a lot easier for me to write my market thoughts there than whip up a new substack post each day. And I think I’ve been helpful. I even traded a funded account on there, but blew it on a very silly mistake (read more about that experience in a thread on X). One thing I found out is that with prop firms, you can’t have too good a day, or else you’re never going to meet the consistency rule (20-25% in most firms). But they are helpful to learn, develop your game, and make some extra money trading, especially if you are undercapitalized. I think my discord would be more beneficial for active but small traders like myself who want to grow their accounts, develop their skills, and get a more hands-on trading community. If that sounds like you come hang out on the server. It’s still just me thinking out loud for the most part, but I’ve made good calls over the past three months, I dare say. I would post screenshots but those usually precede a slum in form so I won’t do it. See for yourself. The discord is and always will be free. I’m not a trading guru or expert of some kind, I just enjoy trading and I’m happy to share what I know. I also encourage people to develop their own techniques, methods, ideas etc. At the end of the day, that’s what’s most important in this game.

Lastly, I made a portfolio website to show prospective clients. If you need a quant hit me up.

If this all sounds exciting for you, and you’d like to become a premium Quant (h)Edge member, or just support me as I develop the site. I got a sweet deal for you. You can pay-what-you-want for an annual subscription, and you will get: access to the archive here and all my past research, premium access on the new site and access to paywalled posts in future. The cool part is you will lock in that price forever. I could really use some funds to pay for the hosting and data subscriptions.

Become a premium member

I messed something in prod so the online version doesn’t have access to the database, which means you can’t see the models or blog posts, nor can you sign up or log in. The bug is actually because I ran a cron job on render free tier. I think they limited my account or something after that. Anyway, you can see it here. From tomorrow, you can use quantitative-h-edge.com to check on the progress. It’s not yet launched so if you make a profile you will have to do it over and over again. And I can’t send you emails because I’d need to add you to Amazon SES sandbox. But, if you would like to be an early tester, reply to this email or comment below. Your thoughts about the user experience and different features are very welcome.

In other news, I got a pet chameleon I named Frank. It’s a welcome change from my hyperactive nature and fast-paced life. I didn’t know chameleons had so much personality!!

I’m touched you guys stuck around despite the long hiatus and poor posting habits even before that. Perhaps you saw the potential Quant (h)Edge had, and I guess this post is to say thanks and show you that you weren’t wrong.

See you soon, hopefully from the other side.

Lago Brian

Founder & Analyst, Quant (h)Edge

Okay, so on Friday, the Yen did this (against the USD)…

Incase you weren’t glued to the screen, don’t feel bad. Everybody missed it because the move came after a surprise rate check by the New York Fed. But a few hours before that, there was another smaller move lower after the BoJ held rates at 0.75% but the pause was deemed a ‘hawkish pause’ because a) they had recently hiked in December and they needed time to see what the effects were before hiking again, and (b) given the fragility of the JGB market, a hike would have been disastrous. BUT… there was one dissenter who voted for a hike to 1%! This detail is really interesting and seems lost to many because it tells you that there are fears among some (well, at least one) members about being behind the curve on inflation (like the Fed were) and letting it get out of hand. Anyway, hawkish pause, markets breathe a little, then the NY Fed call CitiBank and BAM!

About that call, everybody believes that the NY Fed acted on behalf of the BoJ, and there are good reasons to assume that, but there’s no way to know for sure so it’s a bit irritating how cocksure some of the news outlets are in reporting this. People think this is the case because the BoJ often use the NY Fed to do spot checks in the US session, and if you recall how the last yentervention went, all attempts to intervene were faded by the market, so if they want to intervene this time, they need a coordinated effort with at least the Fed and maybe other banks. Nothing would be more catastrophic for the BoJ right now than a failed intervention attempt given how fragile the JGB market is, and they need to maintain their credibility to spook bond vigilantes. But that said, there are no reports of such an agreement and any rumors of the same can be safely ignored because they crop up every now and then but nothing ever happens.

It matters who asked for the rate check because it shows who is worried about the Yen falling further. If its the BoJ, nothing to worry about, but if it’s the NY Fed or anyone else, that’s a big problem because someone out there could be very worried about contagion risk from JGBs. In this post, I want to give some background helpful in understanding what’s going on with JGBs and then explain the contagion risks and what role the Yen plays in all this plus how I’d trade it right now. Quick disclaimers: 1) Yada yada not investment advice, and 2) I’m not a Yen expert (no one is especially right now) nor a macro expert etc. I’m just sharing what I know and think.

Read more

In April, Crypto fell along with other asset classes during the Liberation Day tariffs-led market rout. On the 21st of April, 21% of cryptocurrencies were back above their 50-dma, signaling that it was a good time to buy Bitcoin. Here’s Bitcoin since then. It’s up ~28.5%.

The 100-dma and 200-dma are slow. While the 100-dma also gives profitable signals, the returns are lower than the 50-dma’s signals. The 200-dma is completely useless. Here are the respective charts.

Read more

In this edition…

• There’s nothing about what happened between Elon and Trump.

🌐 Economic Releases

The main takeaway from last week’s slew of data was the blowout NFP figure, which the market took and ran with. This disconcerted some who pointed out that the data, while good on paper, hid some signs of labor market weakness. First of all, revisions showed that employers added a combined 95,000 fewer jobs in March and April than previously estimated. Also, while the unemployment rate remained steady, it masked a 696,000 drop in employed people according to the household survey, which was the result of a decline in the labor force participation rate from 62.6% to 62.4%. But it is believed that the NFP is a better survey because it can capture the effects of undocumented immigrants, which the household survey can’t. A study by the NY Fed found weak statistical significance of this effect, but their results relied on a complicated estimation procedure that had wide error margins. So it’s just wiser to take the NFP as gospel for now.

The NFP figure was a surprise because earlier in the week, ADP figures had shown the slowest hiring pace in two years, and unemployment claims had risen to a seven-month high.

💵 Central Banks

Author’s note: Didn’t manage to put together last week’s comments by central bankers. It takes quite a long time, and I’m trying to write a script for it. I hope I have it done by the next edition.

💱 Currencies

Here’s how currencies performed last week. Yen underperformed after Japanese bonds caught a bid despite a poor 30-year auction.

Here’s a week-by-week comparison for the last three weeks.

And a similar week-by-week volatility comparison.

📉 Stocks

Stocks closed the week on a positive note after Friday’s post-NFP rally, which was mostly led by tech stocks. The Nasdaq was the best-performing index, up 2.18% last week.

Why tech stocks performed well, according to GS’s John Flood.

Investors continue to ask if these stocks are overvalued.You even get the word “bubble” thrown around. We see it differently. These companies just reported outstanding earnings, beating estimates by 13%. With rising earnings and falling stock prices, valuations are becoming much more reasonable. We’ve seen the Mag 7 valuation premium fall dramatically. These companies are also set up well from an economic perspective. They are less reliant on economic growth, which means they can become defensive during uncertain times. — John Flood, Head of Americas Equities Sales Trading, Goldman Sachs

Stocks up, VIX down shows that risk-on is fully back, and this is confirmed by indicators like StateStreet’s institutional investor risk-appetite gauge, which is back near pre-DeepSeek rout levels.

If you believe the AI theme is back, then this tech-led rally has further room. Companies like Apple, Amazon, and Google have further room for gains.

Apple recently got downgraded by an analyst from Needham, who prefers Google and Amazon. In her own words:

“Apple does not own a Cloud business so this becomes a cost center, rather than a new revenue and margin upside driver, which should result in a valuation discount to Google and Amazon over time” — Laura Martin, Needham analyst via IBD

While many say the AI theme is back, I think Laura’s comment shows that people are starting to see how different companies can benefit from it, separating the wheat from the chaff. So this time it’s a bit different. FactSet data shows, for example, that fewer companies are citing “AI'“ on their earnings calls.

It is interesting to note the number of S&P 500 companies citing “AI” on earnings calls declined by 14% quarter-over-quarter (210 vs. 243). Eight of the eleven sectors recorded a quarter-over-quarter decrease in the number of companies citing “AI” on their earnings calls, led by the Industrials (-7) and Consumer Staples (-6) sectors. - John Butters for Factset

Another reason the rally could continue is pointed out by JPMorgan, which is being called the ‘dual equity pain trade’. The argument is that institutional investors sold in April to retail and corporate buyers, and a lot of capital exited US stocks in favor of other places like the EU. These two factors support the idea of big money chasing the market up.

There’s some weight to this idea. The chart below shows how stock markets in different countries performed Jan-May. US stocks are slightly down while RoW stocks are up.

The only big money in stocks seems to be speculative, as the chart below shows.

Furthermore, if you believe Mag 7 is back, then retail is underinvested despite the rally.

Now that tariff worries have subsided and rates have steadily declined, small-cap stocks also have room to rally. Bloomberg reports that June is a good time (60% of the time) to buy small-caps based on seasonality data going back to 1990.

One of the potential headwinds to this rally is rising yields. The higher yields go, the more stocks lose their fundamental value, making them more overvalued. But GS data shows that rates need to go really high before that becomes a factor.

💰 Bond Markets

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Finance is a steaming melting pot of risks and opportunities constantly being served to investors and traders everywhere to partake as much as their risk appetites and wallets can allow. Each expenditure is beneficial or costly with no forewarning, compelling participants to act solely based on their best guesses while hoping for overall benefit. When is it trading or investing, and when is it gambling? It sounds trivial, but it’s an age-old question that is difficult to answer because when risk is involved, outcomes alone do not distinguish skill from luck, and to further complicate things, skill and luck often do intersect.

So far, attempts to make this distinction often involve scanning a trader’s behavior for several of the gambling symptoms listed in the DSM. But this isn’t satisfactory. Firstly, trading and gambling are eerily similar and the higher the risk, the more luck affects the outcome, making it harder to tell the difference. Secondly, this process isn’t really suitable for self-assessment since it requires self-awareness and introspection which are not universal human traits. Finally, by the time gambling symptoms are noticeable, the financial and psychological damage are usually quite severe. The investment community needs to find a better way to tell and my thinking led me to a tentative quantitative framework.

What we’ll go over:

• A universal definition of risk for all risk appetites

• To what extent are trading and gambling the same

• A mathematical framework to distinguish them

• The four types of edge as revealed by the framework

• Why position sizing is not a risk consideration per se

• How to size bets to promote good trading psychology and discourage gambling

• The mathematical case for bold bets even when and especially if you are gambling

The typical dictionary’s definition of risk is the chance that something bad happens. It’s a nice simple definition for everyday life, but it implies that choices and their outcomes are simple. Presented with a risk, you either take the chance or you don’t, and there after, the bad thing either happens or it doesn’t.

We can describe this mathematically. In mathematics, whenever you hear simple think of indicator functions ( an indicator function is a function that takes some input and gives you 0 or 1 as output). Indicator functions are god-tier because they allow you to very precisely shape the output of more complicated functions. Say you have a big, scary function f(x) defined on large (possibly infinite) or ‘unwanted’ domain and you only care about the function’s behavior on a very specific sub-domain A. All you need to do is multiply an indicator function to f(x).

1A(x) is the indicator function that gives 1 if x is inside A and 0 if not. Apologies if this is too abstract. Let me use an example. Think of an options payoff. It depends on what the strike (K) and underlying’s price (S) are. So you could say for call options, the sub-domain you care about is A = S>K and for put options A=S<K.

With this in mind, let’s go back to the dictionary definition of risk. Suppose A is the event take the risk and B the event bad thing happens. Mathematically, the outcome is

This function is what someone implies when they think like this:

This is the wrong way to think about risk. At the very least, we know that risk is a chance. The kid in the post (or anyone who thinks this way) assumes that the chance itself—the probability of the event happening—either exists or it doesn’t, which is different from thinking that the event either happens or doesn’t. It’s a subtle difference, but a crucial one because it reflects the perspective from which you are looking at things. The question of whether chance itself exists or not is like asking ‘Has the uncertainty been resolved?’. Since you can only answer this in hindsight, then the flaw in the kids thinking is that he assumes knowledge you can only have once the outcome is certain (ex-post) is a knowable fact before the affair is settled (ex-ante).

Author’s note: For those who care about the probabilistic explanation. Any random variable, regardless of its probability distribution and regardless of whether this distribution is continuous or discrete, collapses to a Bernoulli trial upon realization i.e. the event either occurs or does not. So all random variables are, ex-post, the same as a single instance of a Bernoulli distribution with the space {0, 1}, X ~ Bernoulli(p). But p is still determined by the random variable’s original distribution. So the only mistake the kid makes is assuming p=0.5 always. In other words, he thinks that since the thing either happens or it doesn’t, we are certain that the outcome is binary which should mean the probability of either outcome is equal (1/2). But, even though we are certain that there are two final outcomes, we don’t know their probability and can only infer them from the random variable’s probability distribution before it collapses to a Bernoulli trial. In short, he assumes knowledge you can only have ex-post as an ex-ante fact. (See video below)

Framed this way it sounds very stupid, but you will find it among people who should know better. Gambler’s often think things like: “I almost won last time. I’m likely to win this time.” or, “The last five coin flips have been heads, the next one is surely tails”. It’s a phenomenon known as the Gambler’s fallacy. In fact, you can define all of gambling by this process of substituting resolved uncertainty for ongoing uncertainty. In gambling, your concern is with the probability that you win and don’t win a bet, the bernoulli trial, rather than the probability distribution that tells you which choice would make you a winner. It is as if you believe you know the future outcome of a risky event for sure—a godlike certainty that inspires godlike feelings… until reality hits. You skip the latter mentally; the part where the real risk exists. In this sense, either you never actually consider the risk but instead consider the ex-post outcome as fixed based on a set of subjective and incomplete assumptions, or you take your model of the risk event’s dynamics and impose your subjective assumptions of the probabilities to arrive at a post-event (ex-post) state, before the event(ex-ante) happens.

Wait… read that again “…or you take your model of the dynamics of the risk event and impose your subjective assumptions of the probabilities to arrive at a post-event state before the event has happened” Isn’t this how risk management is taught? Isn’t that what the professionals do? Yes. So the difference between gamblers and professionals is that the latter guess their probabilities in a sophisticated way? Yes. Basically this meme.

The uncomfortable truth is that professional risk management and gambling are the exact same process—assigning subjective probabilities to future outcomes. Continuing with the analogy of the reddit kid, the kid assumes all outcomes are 50/50, a risk manager tries to guess better 50 is more likely by focusing on the distrubution of the random variable when the uncertainty in ongoing—when the risk is active.

It is said that the line between trading and gambling is incredibly thin. But, it does exist! If we can define it, we can have a clear heuristic to know when we are gambling and when we are trading/investing. This is important because to the extent that you are not gambling and are actually trading or investing, you have a higher chance of being profitable. Besides, a whole career path—risk management—depends on where this line is.

Let’s be a bit lenient and call gamblers ‘naive risk managers’, so that we can simply call this process of arriving at subjective probabilities risk management. Let’s then go back to our definition of risk: risk is the chance of something bad happening. Both naive risk managers and professional risk managers (henceforth professionals) want to minimize this chance by estimating probabilities as close to their true but unobservable ex-post values. This introduces a new risk (that is independent from the event risk)—the chance that you are wrong. Gamblers assume they are right, assigning a probability of 0 so in their minds this risk event collapses to a resolved state. Professionals also estimate this probability and use it to update their probability estimates for the main risk event. If they think they are far from being right, they recalculate their probabilities and update their previous event risk probabilities if the new probability that they are wrong is lower. This reiterative process is the sophistication layer that distinguishes the professionals from the gamblers.

But we still haven’t found the line that distinguishes pros from gamblers. The problem lies with our definition of risk. Hitherto, we have been concerned with the chance that something bad will happen. mathematically, we have operationalised this as best as we could. If we want to go further, we need to redefine risk. Let’s try to modify the definition without changing it. How about: risk is the chance that something good will not happen? While this definition sounds purely semantic, it isn’t complete because the opposite of something bad happening is not something good not happening. For example, if I tell one person ‘the driver didn’t crash the racecar’ and another person ‘the driver didn’t win the race’, I haven’t relayed the same exact information. To convey the exact same message, I need both statements: 'The driver didn’t win the race and he crashed the racecar'. The combined statement contains the full information we want to convey and it brings some added benefits you will see later.

Formally, we have gone from risk = P(bad) to :

We now have two perspectives. A defensive one that focuses on minimizing loss ( P(bad)) and an aggressive one that focuses on minimizing lost opportunity (P(!good)). The reason this is a better definition of risk is because it recognizes that the existence of risk implies opportunity, otherwise there’s no reason to even think about taking the risk. The default behavior on encountering risk would be to completely avoid it, which is what the original definition implies you should do. Our new definition provides context. We cannot decide whether to take a risk without context. But is this definition for everyone? Yes. Say you are an extremely risk averse agent, maybe you are selling puts. You only care about P(bad) = P(payout a lot of money). Your only benefit is the premium so P(good) = P(get premium). But P(!good) = P (don’t get premium) = 0 (you are paid upfront) and our new definition collapses to the original one. If, on the other hand, you are extremely risk seeking, like say an F1 driver. Then P(!good)= P(don’t win race) and P(good) = P( win race). Since there can only be one winner, P(!good) is 19/20 or 95% so that P(!good) = 1 - P(good) = 1 - P(win). Also, P(bad) = P(crash and injured/die) so risk = P(bad) + P(!good) - P(bad).P(!good) = P(crash and die) + P(don’t win) - P(crash and injured/die).P(don’t win). Since you are good enough to be in F1, and there are safety measures put in place and all sorts of in-race safety procedures, we can assume that P(crash and injured/die) is in general very small, so that you only need to minimize P(don’t win)—to reduce missed opportunities. Our definition therefore allows you to define risk regardless of a risk-taker’s appetite. It proves that risk itself is objective and is based on the context. If you can’t completely define the context, what you have is not risk, it is uncertainty and therefore cannot be managed. But, even though risk is objective, risk perception is not, and the unobservable nature of risk makes risk management purely subjective. In other words, despite your best efforts, you are still guessing.

Risk is not directly observable. Even ex-post, when you know the outcome, you can’t say anything what the risk really was. This is an important concept to internalize. Remember the Gambler’s fallacy and how gambler’s substitute ex-post knowledge for ex-ante facts? A lot of quantitative finance does this too! Volatility estimates are often based on past volatility assuming it predicts future volatility; All quantitative strategies are based on the idea that past patterns will repeat; Backtesting is done with the assumption that a good Sharpe will carry on into the future; Monte Carlo simulations generate distributions by obtaining parameters from past returns; Portfolio optimization assumes that past average returns and average volatility will continue on; Factor models assume that past factor loadings will persist into the future. In other words, the most sophisticated tools we have are still subjective and therefore not fundamentally superior to a random guess (gambling). Why then bother at all?

What makes the difference, and what makes all the modeling worth it, depends on a small but crucial change to our definition of risk. Right now, we have that:

The term P(bad and !good) prevents us from double-counting the overlap.

If there is no overlap i.e. the two events that define risk are independent, then P(bad and !good) = 0. If they are dependent, then P(bad and !good) gives the interaction between the two events and it is removed from the joint distribution because the joint distribution will already have this information due to implicit conditional probabilities. In simpler words, if the events are dependent, then P(bad) and P(!good) are just P(bad| !good) and P(!good|bad), and P(bad and !good) removes the overlap. The term P(bad and !good) can be rewritten as P(bad) * P(!good | bad), so we can update our definition of risk to:

Note that the last two equations are equal; you can flip the conditional probabilities. This definition changes everything!

What the definition implies is that the moment we know one of the events, we get a more accurate estimate of the joint probability; of the risk. Our probability estimates then become better than those of a gambler. How do we know? Remember when we introduced the risk we were wrong aka model risk? The conditional probabilities mean that once something becomes known, we can say for sure that we have minimized model risk. Even if the realized outcomes eventually favor the gambler, our process was superior because as we learnt new information, we updated our probabilities towards the true ones, and therefore had superior guesses. We have an idea of what we know and what we don’t know and our perception of risk moved closer to reality.

We are getting closer to our line.

Our risk function assumes that risk doesn’t change, but in finance and other games of chance, risk is dynamic. We need to think about risk(t), where t is some chronological index like time. We therefore need:

As time moves along, we get to check if a conditional event has happened. We can therefore redefine the function using indicator functions so that we can take advantage of the chronological nature of time. Let’s say that X = 1 if the bad event occurs, and X=0 if not. Instead of P(bad) we have E[X] = P(bad). Instead of asking “What is the chance that something bad happens?”, we are asking “Do we expect something bad to happen or not?”. At any point in time t, we can consider all the available information that tells us if X can happen or not—the sigma-algebra Ft. Since time is chronological, we the filtrations F0​⊆F1​⊆F2​⊆⋯FT. Even though our filtrations are indexed by time t, ‘time’ simply means when the information is published, or when you find out. The +1 then doesn’t mean ‘the next day’ or ‘the next interval’, it means ‘the next time there’s new info’. This allows us to model dynamic risk that is ‘fixed’ like the results of a sports game. Each new point in time either introduced new relevant info or not thus equating the new sigma-algebra to the previous one. F0 means we know nothing (or time hasn’t started) so E[X |F0] = Pt(bad | F0) = P(bad). We are therefore interested in estimating E[X |Ft] = Pt(bad | Ft)—we want to find out what is the right guess not what is the right outcome!

E[X |Ft] is a special kind of process called a martingale which we can denote as Mt. Martingales are such that E[E[X |Ft+1] |Ft] = E[X |Ft]. This just means that once you know all there is to know, your best guess today will be your best guess tomorrow unless there is new information—there is no hidden edge in the information. Why ? Because any exploitable information asymmetry is quickly eliminated. New information spreads to everyone quickly causing prices to adjust almost instantaneously to reflect currenly available info. No one can learn something from the available information that others haven’t already gleaned and priced in, so markets won’t move until there is new information. Margingales converge to the outcome (Doob martingale convergence theorem) :

Since F0​⊆F1​⊆F2​⊆⋯FT, and our expectations updated as new information comes out, our expectations improve in accuracy. Therefore, you will converge to the correct expectations as you consume new information and refine your guess. And this happens before you know the outcome!

Our risk function becomes:

or in martingale form:

We can now say that the line we are looking for exists and where it is. If the outcome becomes fully known at time T, then there exists a point in time where all the available information at your disposal can give you a close enough guess. At that point, your estimates of the probabilities involved are close enough to reality for you to be generally right about things. You have an edge.

We therefore have a clear line to distinguish naive risk management (gambling) and professional risk management (trading/investing). You are gambling if you decide based on insufficient information required to make the right guess that can be made from the available information (whether or not you win or lose). The problem is that you can’t tell whether you’ve crossed it or not i.e. whether you have absorbed sufficient information to make the right guess. You therefore have to consume as much of the available information as you can and make your best guess.

Is this definition is robust enough to fully distinguish gambling from professional risk-taking? Yes. There are only three ways you can be insufficiently informed to make a good decision. Either you have all the data but not all the information because you didn’t gather all the information available from the data (incorrect interpretations due to biases, for example), you haven’t obtained enough data to be adequately informed, or you act before there enough data available (impatience or you misjudged how much you needed to know). There are therefore only three core sources of edge: superior data gathering (knowing what others don’t), unbiased assessment (correct interpretation of the data), and optimal timing of decisions relative to information arrival. And this assumes everyone has perfect analytical skills (no one can read the data better than others). This isn’t true of course so you have to add experience/education as another source of edge. Trader’s who learn from their mistakes outperform those who don’t.

Our line between gambling and professionalism is agnostic to bet size. You are not gambling simply because are staking a large portion of your capital. This is why the magnitude of one’s profits or losses says nothing about their skill. But bet size can compromise the quality of your decision-making, which is why you should decide on the bet size after you’ve decided whether to take a risk. You will be more risk-averse if you stand to lose a lot, making you more sensitive to P(bad), and more risk-seeking if you stand to gain a lot, making you more sensitive to P(!good). This distortion can prevent you from making the right guess, so you want to size your bet to compensate for your sensitivity to risk and push you back to neutral. Since the bad event is the one that causes harm, you can improve your decision making by making yourself more sensitive to losses (P(bad)) than missed opportunities (P(good)). This is why you should generally bet as big as your risk limit allows. If you stand to lose a lot, you will avoid gambling.

In fact, a paper by mathematician Kyle Siegrist showed that when faced with unfavorable odds, you would be better off making bold bets even though you could potentially lose everything very quickly. Timid bets guarantee ruin, but bold bets have a chance. In fact, depending on how much you start with, you can vary your bet size based on things like how much you have left, or how close you are to your target, leading to infinite variations of the optimal strategy.

With timid play, the gambler makes a small constant bet on each game until she is ruined, or reaches the target. This turns out to be a very bad strategy in unfair games, but does have the advantage of a relatively large expected number of games. If you play this strategy, you will almost certainly be ruined, but at least you get to gamble for a while.

With bold play, the gambler bets her entire fortune or what she needs to reach the target, whichever is smaller. This is an optimal strategy in the unfair case; no strategy can do better. But it is very quick! If you play this strategy, there’s a good chance that your gambling will be over after just a few games (often just one!).

CAVEAT!

Amazingly, bold play is not uniquely optimal in the unfair case. Bold play can be rescaled to produce and infinite sequence of optimal strategies. These higher order bold strategies can have large expected number of games, depending on the initial fortune.

From Siegrist, K. (2008). How to gamble if you must. AMC, 10, 12.

So whether you are gambling or trading/investing, it is optimal to size as big as possible.

Feedback and criticism are welcomed.

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This is one of the most beautiful pieces of music I’ve ever heard.

One thing that unifies us as human beings is our universal individual search for meaning… for a purpose, our specific purpose, our raison d’etre, why we exist, why we were made, or rather born, and put in this world at this specific time and in this specific place. Sometimes, when all is quiet, this question pops into our head, but for the most part, it lives rescinded beneath our conscious mind, and in its place we feel a lingering sort of unease—the so-called existential angst. Only when we do something that we truly feel we were meant to do does it ever go away, and in those moments, we feel truly alive, fulfilled even. We feel like we are who we think we are, or are becoming who we are meant to be; like we are in the right place, at the right time, doing exactly what we were meant to be doing. It’s one of the most profound feelings we can ever have. Its memory sustains us by defining, strengthening and sharpening the image we have of ourselves.

The most direct path to this experience is through our work. The problem is that most of us don’t do the work we feel we were meant to do, most of the time. A large part of this is because we work to get the money we need to survive. This dynamic creates a false sense of purpose that can temporarily overpower our existential angst. Survival mode gives you clear external problems (bills, landlords, business/work competitors, e.t.c, ), simple goals and a sense of direction. Also, you get all the happy chemicals when you hit your milestones, which can be a good enough temporary substitute for actual fulfillment.

Two problems. While this may quieten your existential angst, it doesn’t replace your fundamental search for true meaning. Your existential angst will grown louder and louder and you will find yourself looking for outlets for self-expression. Second, this sense of ‘purpose’ is reactive—it depends on external things. You are driven by necessity and whatever is urgent. Suppose one day you make it, you succeed. You will be in grave danger of suddenly and quite unexpectedly falling apart since there are no urgent bills, no external goals, no fires to vanquish, nothing to push you to achieve something, anything. In the past, any time you came close to success, you probably self-sabotaged because your subconscious correctly predicted this state.

The problem with being rich is that you have to grasp harder at meaning since you don’t have the distractions that comes with survival mode. Survival mode affords our psychology a lot of shortcuts. For example, if you do a shoddy job, you can blame it on something that stood in your way. Urgent bills pushed you to do what you needed to do to survive, under normal circumstances, you would have done a much better job, you tell yourself. When you are rich, you don’t have the luxury of such an excuse. A bad job stares you in the face and scoffs at you. You feel more like a failure when you fail at stuff. After all, being rich means you are resourceful, so you really have no excuses. That means you have to work harder, much harder than you would have if you were merely on survival mode. It’s not just longer hours, and more sweat. It’s doing everything you can to uncover insights that help solve a particular problem. The kind of hard work you do is the kind that brings you face to face with yourself. Another problem you have is that since necessity and lack of money are no longer there to give you guardrails, you have no choice but to develop self-discipline. This often happens naturally because you quickly realize how badly you fall apart when there are no guardrails, and discipline is the only guardrail you can have when you are rich. That and your morals.

The funny thing is that at this stage, you are working harder and are more self-disciplined, which results in more and more success. This is one of the reasons rich people keep getting richer. Some of it is because of how finance works—you have more capital, for starters—but some of it is simply the result of this self-reinforcing dynamic. At this stage, most rich people realize that they can do anything but create time. They also realize that health is the one thing they cannot fully control. Most become obsessed with fitness, and some even try to find ways to live longer. But other than that, their search for meaning manifests as a strong drive to leave their mark in the world. To have an impact by doing something truly great for humanity. You will often find rich people at this stage working on projects they believe are ‘important for humanity’, whatever that means for them, even if such projects are not financially successful.

Over time, you start to discover that the biggest impact you have to society is when you give. It doesn’t have to be money. It can be your time, your knowledge, your influence, lending your reputation; whatever you have that helps a situation. The change that happens is that before, you packaged whatever you gave society into products and you benefited materially from it. And while your products may have been useful or entertaining or even much needed by society, they didn’t have as large an emotional impact on people. You quickly learn that generosity has the bigger emotional impact, and it rewards you too emotionally in ways that are more profound than material rewards. Also, the fulfillment you experience from being generous trumps any fulfillment you experience through creative acts.

The funny thing about richness is that when you are not rich, you think that being rich must be really amazing. The reality is of course different. Not to say being rich isn’t awesome, it’s just not as awesome as many people think it is. That amazing feeling most people associate with being rich is something you only feel when you are generous with your money. Why only money? While you can be generous in many ways, many rich people discover that they are in a unique position to give more than anyone else, and that their generosity can have a profound emotional impact on others and on themselves. Furthermore, when you are generous with anything other than money, you rarely feel properly appreciated. So the emotional reward of other forms of generosity are not usually as strong. It can feel so good to give away your money, that you want to give as much of it as possible. Giving makes you feel rich because it is the one time you can feel the effect of your money. In this sense, in the same way you are as old as you feel, you are as rich as you are generous.

You don’t have to wait until you have a lot of money to experience this. Start by being more generous with your friends and loved ones. If you are particularly stingy, it’s going to be difficult at first, but you have to push through your initial resistance. Part of the reason you are stingy could be that you are afraid of opening up your heart and experiencing something profound. Generosity also pours water on our egos so your initial resistance could be an ego defense.

This quote is kind of related to this post somehow I think but anyway I like it so here…

“Don't aim at success. The more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side effect of one's personal dedication to a cause greater than oneself or as the by-product of one's surrender to a person other than oneself. Happiness must happen, and the same holds for success: you have to let it happen by not caring about it. I want you to listen to what your conscience commands you to do and go on to carry it out to the best of your knowledge. Then you will live to see that in the long-run—in the long-run, I say!—success will follow you precisely because you had forgotten to think about it”

—Viktor E. Frankl, Man's Search for Meaning

Paul Graham on good writing [Link]

I have been working on the Quant (h)Edge website and it is about 70% done. It is a Next.js and Django website that hosts the blog just as it is here on Substack (Weekly Market Report, Research, Supplementary Stuff, Anything Else, and the Market Comics, which I’m considering changing to something else but still artistic because drawing comics is very challenging for me at the moment). The website also has a backtests section where I can post backtest results in a more robust format than just an article. Most of the backtests I do produce a lot of output that can’t fit a single article and would take a lot of pages to post, but on the website, I can use a dashboard with menus that change the page to show backtest results for different assets, timeframes, strategies etc. For example, I did a backtest of CFTC data that had several strategies, several assets, and several timeframes, and it would have been a nightmare to post on Substack. But on the website, I can use a dashboard that allows you to go over the results for the assets you want and the different strategies and timeframes.

The website also has live models such as the crypto breadth indicator, sentiment indicators based on posts from different sites like WSJ, Economist, Barrons, Nikkei, CNN, Al Jazeera, BBC, and more, and Google Trends. I will add twitter sentiment too but the API is quite expensive for me right now. I have thought of other live models like one that shows the market reaction to specific news using an Event Study approach with a bit of a twist, and an LLM that can produce Monte Carlo simulations of Trump Tweets, Fed speeches, etc, and their market reactions to prepare for different market outcomes.

Other features of the website include user profiles that allow users to comment on posts and request author status to make guest posts. I am also considering adding a jobs section so that users can apply for quant and trading jobs, and recruiters can quickly access a pool of talent for the same.

Coding has been a challenge, but it’s going well. But I would appreciate some help speeding it up and covering some of the costs. If I do it by myself, it will take a lot longer. I am currently working on a few projects to raise some cash to run Quant (h)Edge for the rest of the year. I intended to work on Quant (h)Edge stuff full-time, but I had to take on some work to raise the funds needed for the website’s expenses, data, help when needed, and my living expenses.

I thought I’d put this out there in case some of you would be willing to come in as founders/investors. First of all, anyone who has subscribed to Quant (h)Edge already will keep the price of their current subscription forever and be able to access all the premium features on the website, which include the full backtest results, live models, and any paywalled content.

Founders will receive all this forever for a one-time purchase. If you are interested, you can use the ‘founding’ section of the subscription page here on Substack and set any price you want with a floor of $450. I’ve set a low price-cap to encourage anyone who would be willing to support, but I encourage you to be generous so I can get a lot done. :)

Become a Quant (h)Edge Founder

If you would instead like to invest in Quant (h)Edge for equity and revenue share, we can discuss that too. Just reply to this email or email me directly.

I think Quant (h)Edge offers something unique that you can’t find anywhere else and there’s a lot of demand for what it has to offer. There are a lot of way better people who can give you market commentary, so the weekly market report is more for me to develop my own market analysis, but the research, backtests and live models are truly unique and add value to anyone who trades the markets. Someone sent me link to a MarketWatch article that features something I posted back in January and I think it goes to show that Quant (h)Edge can bring something fresh and unique to everything that is already out there. Once the website is up and running, I think you will be able to appreciate the vision that I had when I started all this and get more value from Quant (h)Edge than just the blog.

Thanks for all the support,

Brian

Requirements

1. Typing Speed

   The first thing you need is a fast typing speed. If you type slowly and have to look at the keyboard as you type, writing a 10,000-30,000 word paper is going to be slow and difficult. I therefore suggest you take some time to play around with a typing tutor. You just need a few days to get fairly good.

2. An easy-to-type-on keyboard

   The best keyboard I have found for typing is the Logitech MK295 silent keyboard. Its keys are very quick and comfortable on the fingers, and it is a full keyboard—the kind that has a number pad.

   

   If you get this keyboard, it comes with a mouse and you can use the Logitech Options+ software to increase the mouse’s speed which also helps.

   An honorable mention is the Logitech K380. It has round keys that are spaced apart, but the keys are a bit harder to type on, especially if you intend to work for long hours. But it has a very distinct tactile feel that is quite enjoyable. I’m sure there are others out there which are equally good, just find one you like.

   

3. Optional: A tablet

   There’s a lot of reading required for technical writing. A tablet helps a lot because you can pull it up anywhere you go and read a bit when you find some time in between other things during the day. It’s also quite exhausting to sit at a computer to read.

   If you do decide to get one, go for one with a pen. My recommendation would be a Samsung Galaxy S6 mini. I find it to be the perfect size for reading, and it has a good S-pen. Plus you can get a keyboard for it too if you need one. A better tablet is the Samsung Galaxy S9, or an Ipad (the one with a pen). Samsung tablets are great because of S-notes which is awesome for note-taking, but you can also just use OneNote. OneNote is great for reading very mathematical work because you can basically paste the entire pdf as a ‘screenshot’ into a OneNote doc and then take notes as you read along. That really makes the process of reading mathematical work enjoyable.

   Other software you might need are notion, dropbox/google drive, and a pdf reader.

4. Optional: At least a 2k monitor.

   Text looks bad on most monitors under 2k resolution. I have a hard time writing on a 1080p monitor because of how jagged the text looks. The best size for a 2k monitor (for text work) is 24inch/25inch. Text also looks bad on a 27-inch 2k monitor because 27-inch 2k resolution is basically 1920x1200 on a smaller monitor.

5. A comfortable chair. Gotta watch out for your back.

6. Writing software

   MS Word is the best there is, however, if you need to write in LaTeX or markdown, you will need a suitable editor. I prefer OneLeaf for LaTeX and Typora for markdown. You can export markdown to word or pdf using Typora. Most people who write their papers or books in LaTeX have trouble formatting the document. OneLeaf helps a lot with that; you can create a format for your document before you start. If you don’t know how to format your document, just ask ChatGPT to create a format for you.

7. A citation manager

   I prefer Zotero since it has a connector for most browsers which you can use to download your citations directly to Zotero, and it has a Word and Libre Office plugin which you can use to cite and add a bibliography. Here is a good tutorial on how to use Zotero to write literature reviews.

8. Dropbox

   To make it easy to get through all the papers you need to read, you can use Dropbox because it syncs all your documents across your devices. You can copy the pdfs from your Zotero to Dropbox, read them and then copy them back to Zotero when you are done.

9. Optional: Obsidian.

   There is an Zotero-to-Obsidian plugin which I find very handy to synthesize your notes. It can extract the highlights and notes from your PDFs into Obsidian notes. In Obsidian, you can open up all your notes and then quickly peruse them when you need the info and put together your thoughts. Since Zotero notes are in markdown, you can open the markdown with all your thoughts in Typora and export to word. This speeds up the process of reading, annotating and compiling notes. I will create and share an Obsidian template for this later on.

Step 1: Format Your Manuscript

Once you have everything set up, the first thing you are going to want to do is format your document. If you are using MS Word. Start by specifying the font, font size and font color for each of the different styles of text (Normal, Heading 1, Heading 2, … Caption).

To do this, simply right-click on a style and then click ‘Modify’, then specify the properties of the style.

If your document requires numbered Chapters and sub-chapters, you can set that up at the onset. To do this click on the numbers icon in the paragraphs tab as shown below.

Then click on ‘Define New Multilevel List’, which should open up a panel as shown below.

Click on ‘More’ to open up all the options.

You can set the ‘Text indent at’ to 0 and click ‘Set for All Levels’ so that your numbers start at the margin of the document, but you can set it to your liking.

‘Follow number with’ specifying what comes after your number: a tab space, a space or nothing.

The most important part is the ‘Link level to style’ which specifies what the number or letter is linked to. Typically, you want 1, i for Heading 1 (Chapters), 2, ii or a for Heading 2 and so on. Once you are done click ‘OK’.

Finally, write out all your Chapter headings and sub-headings. This helps map out the lay of the land, and you can then focus on one small part each day. You do not have to start from chapter one. If you are writing a book, you can start on any chapter work on different chapters without getting lost or confused.

Step 2: Set Up Your Citation Style

As I said, Zotero comes with a word plugin that you can use to insert citations and add a bibliography.

What you want to do is click on ‘Document Preferences’ and choose the citation style you want to use.

Step 3: Read

There’s going to be a lot of reading. The quickest way to find papers is to search for them on Google Scholar. Once you find a paper you need, open the link and then import them to Zotero using your browser’s Zotero connector. Here’s an example of that process.

You can then copy the pdf to Dropbox to read and annotate on the go, then copy it back when you are done. You can also just read it and annotate it directly on Zotero.

Step 4: Synthesize Your Research

Once you’ve read a bunch of papers and articles, and you have some thoughts you need to note down, you need to synthesize your research. I use Obsidian for this. It’s quite a process to setup Obsidian to link to your Zotero, but I will share a ready-made template for this.

Say you have an annotation as shown below.

In Obsidian, you can type the hotkey ‘Alt’ + ‘X’ to import the annotations from Zotero.

And you will get all your annotations and notes from the chosen citation.

You can then open as many as you need to write down your thoughts. Once you are done, you can open up the synthesis in Typora and save to word. To do this, right-click the synthesis and click on ‘Show in system explorer’ as shown below.

Then right-click again and open in Typora.

From the Typora menu you can export to Word

Typora is great because you can also write markdown which helps if your work has lots of formulas.

The only downside to this is that Zotero won’t pick up your citations automatically so you will have to insert them to the document again using the Zotero Word plugin.

Synthesizing information from various sources is often the hardest part of writing a technical paper, so this process really speeds things up.

Pro-tips:

If you do not have time and/or don’t feel like reading so many papers. You can upload then to google’s notebooklm and then ask it some questions and it will retrieve the necessary information from the uploaded papers. I often use it to decide which papers are worth reading in their entirety.

Another tool that is useful for synthesizing research is Notion. I use it as my daily driver for market research, which I then compile into the weekly market report, and use for trading ideas. It prefer Obsidian because of the ability to import Zotero annotations, but I find writing in Notion much nicer.

Step 5: Edit Your Manuscript

Scholars often get criticized for writing stale and boring papers which make reading them a chore. The first place you want to go to do your editing is grammarly. It quickly checks your grammar and suggests edits that correct spelling mistakes and grammatical errors. But, be careful not to automatically go with all of its suggestions as some of them make the writing a bit bland. Still, it at least gets the obvious errors out of the way.

The rest of the editing is up to you to decide how you want to write your paper. There are some things I have learnt over the years that make technical writing more lively. I’ll share two things.

1. Write in present tense.

   Don’t write ‘This study examined the role of volatility…’, write, ‘This study examines the role of volatility…’

2. Turn nouns into verbs

   Instead of ‘This study examines the role of volatility…’ write ‘This study examines volatility’s role…’

This kind of writing makes the paper more vivid. Basically, try as much as possible to turn the subject of the study into the noun and then everything else into verbs, adverbs, etc.

This covers the basics of getting any technical writing done as fast as possible. Some other tips to make work more enjoyable are:

1. Write whichever section you feel are in the mood to write. A lot of people think you have to start from the beginning and then work your way to the end, but if you get stuck somewhere you can derail progress. It is better to just write whichever section excites you at the moment. If you format your manuscript at the start, you can identify a section that arouses your curiosity any time you open the doc.

2. Try and write every day. If you try to cram the writing into blocks where you think you will get a lot done, you may feel overwhelmed when it comes time to write. It is better to keep reading and writing everyday.

3. Save all the editing until the manuscript is done. Editing can discourage you if you find too many mistakes, also, it is easy to turn editing into a way to procrastinate actual writing. You will lie to yourself that you are being productive when you are really not making any progress.

4. If you don’t feel like you are in the mood to write, try ‘junebugging’. A june bug is the bug that is attracted to lights, especially artificial lights and often rams into lightbulbs, lightshades, chandeliers etc. Junebugging means putting yourself in the work environment and knocking things about until you get going. In writing it often involves starting to type out stuff until the mood/inspiration kicks in. It’s quite effective for my ADHD which brings about its own struggles initiating tasks I really don’t feel like doing.

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So, gold. It just keeps going up! Why?

A lot of ink has been spilt on explanations all along. They make sense. But the market runs on emotions, and the best explanation why gold is going up right now is simply because of FOMO. People look at the thing, and even when there are good reasons to short it, they chicken out, so they wait until it’s time to buy it again. It’s happening in crypto too.

If you know behavioural finance, you can probably explain what is going on. But quants hate behavioural finance because even though you can put together some sort of a hypothesis, you can’t operationalize it, and thereby test it. It is like astrology to us but at least you can mathematize astrology. So to all your behavioural science tosh we say Cool story, bro and then go back to actual science. (I’m being overly critical. Yes I have read behavioural science books and found then helpful. But this is a quant blog. To be fair, quantitative finance is not a real science either, it’s just very scientific.)

Anyway, I am writing this because I think Gold exemplifies a new (?) phenomenon in the markets. People see a chart going up, their get all hot and bothered, they buy it, or wait for the dip to happen. No one wants to short it.

If I’m right, then you can tell when it is time to short it. You just need to figure out when no one is left to buy. Easy peasy.

It’s not so easy. But gold’s VIX (GVZ) can help kinda, sorta, maybe. I will need to backtest this, but a rising GVZ and a rising Gold is not good for Gold. Here’s a few cases in point.

Now here is the recent XAUUSD hourly vs GVZ.

Concerning.

I was short gold not too long ago. I made a few attempts. The first was too early, the second was quite timely, but not without some headaches. I have a short bias because I think DOGE are doing a great job, and the US 10yr is going to 3.5%, so unless Gold is hedging a recession (data says that is unwise), then I don’t understand the current price action. But the thing about a bias is, you usually find reasons to hold on to it. I’d welcome an pro-gold argument that changes my view in the comments. Anyway, my job is to give you a heads up not financial advice so usual disclaimers hold.

I have a rather soft voice for a man. It's noticeable when I’m surrounded by other men, shooting the shit. That’s the one time I wish I sounded like Rambo. It’s also a semi-inappropriate voice for a 31-year old man. I sound kind of like Bill Gates. People often mistake me for a much younger person. I should probably smoke and drink whiskey straight to toughen it up, but I’m not that insecure about it. Besides, some people like it. Some girls have said my voice is ‘soothing’, whatever that means. Anyway, it’s therefore quite surprising that I’ve never had my manhood questioned, even by people who hate my guts. Never in my life have I heard the words ‘Man up!’, in any situation. But, even if I did hear those words, I wouldn’t know what to do. Maybe I’d stand up straighter and try to look more threatening. Its like when you are doing something that requires waiting, say in a queue, and someone tells you to ‘hurry up’. What are you supposed to do? Wait faster?

For a long time, I didn’t know what it meant to be a man. Men and women, specifically young men and young women, have very different views on what being a man means. Young men think its about strength, power and justice. That’s why young boys love superheroes—they represent the epitome of manliness in their young, naive minds. Young boys imagine themselves growing up to be strong and capable of damn near anything. They will run the fastest, jump the highest, date the most beautiful girls, and beat every other man in combat. Most importantly, they will beat the bad guys and save the day. Young women think being a man is about confidence, decisiveness and some ephemeral quality that can only be described as ‘swag’. They think being a man is about taking charge, and the more of these qualities you have, the more you become the leader of other men; the alpha male; the top dog. A lot of young women are fooled by confidence in a man, whether real or fake, in the same way a lot of young men are fooled by a beauty in a woman, real or contrived. Anyway, generally speaking, if a young woman tells you to ‘Man up!’, she means be more confident, or make a bold decision, but if a young man tells you to ‘Man up!’, he means toughen up and kick some ass. But neither of this have anything to do with what it really means to be a man, even though they are both within the ballpark.

Men are supposed to provide and protect. If you think about these two roles, you will notice that both of them involve taking away someone else’s pain, or preventing someone else from experiencing pain. Often times though, men have to stomach some, all, or even more pain themselves to make this happen. That right there is what it means to be a man. Maybe as a father you need to get a second job, or work longer hours, to provide for your family. That’s painful to some degree. It means missing out on important moments at home, getting less sleep, having more fatigue, and other bullshit. Or, God forbid, a guy breaks into your house and as the man, you have to take actual physical pain to take him down. There are many other scenarios in between these two extremes, but you get the idea. The dark side to this is that you are required to do it without complaining, and on top of any other responsibilities. You still have to be there for your wife and kids emotionally. If you don’t, none of the other stuff matters.

What is not often talked about is the emotional side of this. Because unfortunately, men are not machines. No one likes pain. Our whole MO as a species is to pursue pleasure and avoid pain. So there’s a place in your mind you have to go to, to prepare yourself for what’s coming. I haven’t done the research on this, but I’m willing to bet that this is why men’s bodies are built the way they are, and why testosterone is the main male hormone. I think it prepares the mind and body for pain. When someone says ‘Man up!’, what they are actually trying to say is go to that part of your conscience where you become more tolerant of pain and discomfort, so you can do what needs to be done. You also have to give up some things to get there. You have to put your personal feelings, ambitions, and aspirations aside. You have to give up that part of you that is still a little boy.

The truth is, most men don’t spend much time in that head space. It is always there, but you have to get yourself into gear. This is why women who ask ‘what are you thinking about?’ often get the response: ‘nothing’. Because as men, when there’s nothing going on, our minds wander off into all sorts of dumb thoughts that can only be described as ‘nothing’. Neither do you want to access this side of you full time. Again, haven’t done the research, but I am willing to bet that some cortisol and adrenalin is involved when you are in that state, which can become toxic if you stay that way for too long. You need to cool off at some point. You need to grab a beer and yell at a referee, live or on TV, until your cortisol levels are back to normal. Better yet, you need a wife, girlfriend, or life partner. You need someone to call home. Someone to go to with whom you can remove the mask and costume that your responsibilities require you to wear. You need someone who lets you become a little boy again, who lets you dream and be ambitious and aspire for stuff. Someone who takes you out of your world into another world where the most tragic thing to happen is that the barista got their coffee order wrong.

Being a man means being in many situations where you have to experience pain and discomfort for the sake of… your loved ones, the future, humanity, your country, I don’t know, but something bigger than you. I used to wonder why people kept pictures of their wife and kids in their offices, until I fell in love. One look at my girl’s photo reminds me why I do anything I do. The great thing about this is that its hardwired in you, so in a very profound way, you fulfill yourself when you take responsibilities. A lot of unhappy men would be a lot more happier if they took on more and more responsibility, not less. Nothing can ruin a man more than comfort. But this makes the idea of comfort seductive to a man. We dream of an are motivated by the idea of finally becoming wealthy so we can move somewhere warm and cool and next to the beach, even though we would probably be bored in a week if it ever happened. We are also attracted to women who look like they have never worked a day in their life. The ones that seem to exist only for fun. The more responsible you are as a man, the more attractive such women are to you. I’ve heard stories of men and women losing attraction to each other after moving in together. Chances are, for the man, his partner stops being an object of his fantasies after he sees her doing chores and other work, and for the woman, her partner stops appearing ‘manly’ to her due to many small, innocuous acts that are at odds with her idea of masculinity. They may still love each other, but they no longer make each others blood hot.

Even though a mans job is mainly to take on pain for the sake of others, the funny thing is that most women have a higher pain tolerance than men. I think that’s because, as I said, most men are not ‘being a man’ most of the time. I don’t know if you’ve seen that meme of the differences in reaction to the pain when a guy gets a flesh wound in battle versus a getting a cold. The reaction to the latter is more dramatic. That’s what I mean—in battle, you have to ‘Man up!’, but a cold catches you when you are just being regular you.

It took me a while to realize that taking financial risks is a very manly thing to do. I don’t mean ‘manly’ as in ‘only for men’, but as requiring strength and courage. I find that the courage and pain tolerance needed for investing and trading are not things many people have. Even men and women who are courageous and tough in other areas of their life struggle with this. You really have to cultivate that in you. You will often find that the best traders are people who have had to be tough and courageous in some way during their life, and then they bring that memory with them and cultivate the highly specific courage and toughness needed for financial risk-taking. The best traders were, in a previous life, sports people, wrestlers, entrepreneurs, veterans, actors (it takes some level of courage to be an actor), or some other thing that required courage and toughness. In other words, in the past they did something that involved the potential for pain and suffering.

You need courage to take financial risks when good opportunities arise, and you need toughness to manage the investment or trade. You can have the best ideas, and excellent risk management, but if you aren’t tough, you won’t be able to manage your trades well. You will cut profits too early out of fear, or move your stop losses to avoid pain, or some other dumb mistake, that will lead to poor results. A large part of good trading is making good decisions, which involves overcoming difficult emotions, biases, and thoughts, and trying to decide from a place of mental clarity. You have to overcome all the other bullshit. In other words, you have to stop being a pussy and man up!

The kind of market we’ve had for the past few weeks separates the wheat from the chaff, the boys from the men. If you haven’t been paying attention, the men are not the one’s who went out and took risks, they are the ones who maintained composure, and made good decisions.

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We know how to deal with other people’s attacks and criticism, but it’s different when someone who is meant to love you hates you—It catches you completely off-guard so even the smallest hint of malice does a lot of damage. It is like your own shadow stabbing you in the back one day. But there’s one upside to it too: you become largely immune to outside criticism. My own experience of something similar made it so I find it cute when people try to give me a hard time now. I really do. I’ve seen people suddenly get a shiver down their spine when they realized that I’m completely unaffected by their malice. Their attacks just don’t register as pain because I’ve heard way worse—not necessarily in terms of content, but in terms of who delivered it. It took a lot to get there emotionally, but it was perhaps due to, or as a result of, my sense of humor. Every time you overcome pain, it expands your sense of humor. 1

I’m not saying that I’m this cyborg that doesn’t feel emotional pain. I do. Pain is universal. Let me give you an example of just how fragile I can be. Nothing in life prepared me for my first unsubscribe. It stung! I logged into my email one morning and saw ‘substack’ and ‘subscriber’. For about a second and a half, my heart skipped a beat. I though it was a new subscriber. Then I saw those two words ‘email disabled’—gut punch. My heart sunk and I immediately tried to positively reassure myself. “Maybe they don’t want emails because they prefer to read via Substack.” “It’s not personal, they are probably getting a lot of emails and just want to reduce their overall subscriptions.” But I decided, correctly or not, that they were probably a pissed off reader. I couldn’t help but think I must have done or said the wrong thing and pissed them off.

I’ve grown a lot since that day and nowadays, I’d much rather someone unsubscribe once they realize Quant (h)Edge isn’t for them, and more so if I hit a nerve. The late great comedian Patrice O’Neal used to say that everybody laughing at a joke is not a sign of good comedy; out of 100 people, 50 should be laughing and the other 50 should be horrified. I think good writing or art is like that. It comforts the disturbed, and disturbs the comfortable. What you as a reader don’t want is someone who says and does the right things to keep the readership happy. Even if such a thing is possible, it would simply be dishonest. I’ve come to learn that all I can do here is be honest in my pursuit of edge, and in writing about what I see in the markets, or what I think about different stuff. The same place where the good ideas come from also churns out crap like this. Anyway, point is, I bruise just as easily as anyone else, but not on direct attacks or criticism. If you ask me, I think having had to overcome the pain of being attacked by so-called loved ones expanded my sense of humor so I can take a personal hit.

A sense of humor is something real inside of you. It’s not only about what you find to be funny, but is part of your general outlook on life and how you process life’s events. The beautiful thing about a sense of humor is that it operates beyond your usual defenses so it is authentic to our true selves and our true emotional experience of things. A sense of humor is primal, instinctive and completely honest. You can’t help what you find funny. I don’t know if you’ve seen that Simpsons episode where Homer laughs at a college professor. Here it is just incase.

I’m convinced that the reason we find something funny is because we feel complete power over or safety from it. Take Homer in the above clip for example. You could say he finds the idea of someone who is supposed to be the paragon of order making a silly and childish mistake. But another explanation could be that he can see himself as the professor and imagine the absolute pain and humiliation of something like that happening to him, but then he realizes that actually it’s not happening to the real him but to someone else. A good sense of humor comes from empathy. Psychopaths for example don’t have a good sense of humor. Their sense of humor is different. If you want to make a psychopath laugh, you are better off putting on the scariest and most violent horror movie you can find. Jeffrey Dahmer’s favorite movie was “The Exorcist III”. But in terms of being able to find humor in themselves and their life, they don’t have much of that.

It is said that laughter is the best medicine. Even in finance that is true. Any time you put on a trade, or buy a stock, you invest two capitals: your financial capital, and your emotional capital. Sometimes, the financial capital is small, but the emotional capital is enormous. Money is funny because we value it based on our feelings. A dollar is a dollar anywhere, but then again not really. No matter how much of it you have, you always think that more money would solve your current problems. A group of Harvard researchers asked 2,000 millionaires with fortunes ranging $1-$50 million how much money it would take for them to be comfortable. Their response? Twice what I have. But of course it isn’t true. Every new tax bracket you cross comes with new problems and those problems make you anxious, which will make you think more that money could help.

Jared Dillian put me onto the idea that money problems are the best problems to have. He is absolutely right. Money problems are good because they are for the most part solvable, kinda like math problems. In math, you define your problem and if your algebra is good, you will at some point put two dashes and write down the correct solution. Problem solved. Money problems are the similar. Whatever it is, you can always think of a few things you could do or stop doing to solve it. You can even write them down, put an equal (or an approx.) sign and write down a range of expected outcomes. Better still, the success of your solution often depends on your ability to do what you need to do, and you can control you. Nonfinancial problems are way more difficult to solve. Relationship problems are hard because you can’t solve them alone—you need the other person to do their part too. Business problems depend on a lot of factors, many of which you have little to no control over. Health problems depend on so many things from your attitude to the quality of healthcare you have access to, and most importantly, whether there’s even a cure or not.

A few people I’ve explained this to have couldn’t help but chuckle at the iron-clad argument. I think the humor is in the realization that what makes financial problems hard is how absurdly emotional we get about them. Once you realize this it cuts the problem down to size, and that right there is the power of a sense of humor. It changes your perspective on things and helps you transform pain into power.

In Harry Potter there are these things called boggarts that shape-shift into your worst fear. It’s usually something obvious like a spider or your favorite Professor telling you that you have failed an exam. But in real life, a boggart would be way scarier because few of us really know our biggest fears. Here is where I marveled at J.K Rowling’s brilliance. Since Harry Potter was a book about magic, she could have invented any kind of magical spell, charm or potion to counter a boggart. But she chose laughter as the main component—something basic to all humans and not exclusive to witches and wizards. All someone needs to do to thwart a boggart is think of something that makes them laugh really hard, invoke the Riddikulus spell to conjure it up and once the humor kicks in and they truly laugh, the boggart loses its power. She must have realized at some point in her life that when you are scared, like really scared, nothing is more powerful than your ability to laugh, truly laugh, at whatever is causing you so much fear and pain. Novels are great because you learn so much without having to consciously think about stuff, and I’m sure her wisdom passed on to many kids who had to face boggarts in real life.

In finance, the boggart is losing it all, or at least a significant chunk of it. Can you laugh your way out of that? Yes, but it depends on how strong your sense of humor is. Some people have lost a lot of money in crypto recently. The dollar amounts vary but the emotional toll is the same: maximum pain. I truly feel for them because I see myself in them. I love crypto traders because they embody the raison d'être of investing. No one is here to simply pay their bills and drive a cheap-ass car. We are all here for the chance to someday make life-changing money for ourselves and those we love. Crypto guys are simply willing to take on more risk to get there than most people can handle. So tradFi guys don’t get to be self-righteous right now that crypto is under water. None of that talk that ‘crypto is gambling’. Remember when Druckenmiller lost $3 billion in the 2000 tech bubble? What was that if not gambling?

Martin Shkreli, who often posts some fire ideas, was a victim of the recent Altcoin bloodbath. Now there’s a guy with a great sense of humor. He posted this tweet a couple of weeks ago. He probably has an above-average pain tolerance and risk tolerance, and you can see why he is more likely to recover from such a thing than the guy who won’t even look at his portfolio when its down.

I saw a reddit post of a guy who lost $90k in the onslaught and was thinking of ending it all. Some of the comments were people who had lost more, and they tried explaining that that 90k wasn’t that bad. But they missed the point. It’s not the 90k, it’s the emotional distress. It’s feeling that you failed those you love and are supposed to take care of. It’s feeling like the dumbest person alive and wondering if your dream of financial freedom is well and truly dead.

If that sounds like you, you’re looking at it all wrong. You need to find the humor in the situation. Seriously. I don’t mean a pyrotechnic exercise of trying to laugh at something you naturally don’t find funny. I mean taking a step back, waaay back, out of yourself, and seeing the folly of this very human situation you find yourself in. I mean finding some good cheer despite what has happened. A loss is not a loss, it’s a lesson. Every trade gives you either a profit or a lesson, that’s it. Every trade.

If you ever experience a huge loss, know that you’ll be fine. Even if you lose it all and actually have to work at a bullshit job to make ends meet, you’ll be fine. Time heals everything and a sense of humor helps the healing. Stand back and laugh at your portfolio, laugh at yourself, laugh at the situation you are in. Take the sting out of it so you can better face the future and make better decisions. Do it because you will make money again in future. Even if it will not be the same in dollar terms, it will sure as hell feel that way. Don’t run from the pain, run towards it and turn it into something beautiful. A sense of humor gives you back your emotional capital, and maybe even increases it.

The percentage of coins above their 50-dma currently stands at 7.2%.

The percentage of coins above their 100-dma currently stands at 8%.

The percentage of coins above their 200-dma currently stands at 7.8%.

So the play? I’m not here to give investment advice, so errm… this is NOT INVESTMENT ADVICE. But this research I did shows that when the percentage of coins above their 50-dma crosses over 20%, it is safe to buy Altcoins—at least the large-cap ones. So the current figures suggest selling any holdings and waiting for the bullish conditions.

How can you keep tabs on this? I’m not sure if there are any data providers that give this. CMC should but they are sleeping on the job. I will publish an update with every Weekly Market Dossier. In the upcoming Quant (h)Edge website, you will be able to see such indicators in real-time. The Weekly Market Dossier is for premium members. You can subscribe using the link below and get a 20% lifetime discount. Subscriptions fund research that delivers these kinds of unique insights.

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Let us agree on one thing: cryptocurrency is gambling. And before the crypto guys come after me with 'all trading is gambling,' I agree that you can gamble on any market, but that is your choice. In trade finance, you have something to work with; in cryptocurrency, it is all about sheer belief and being in the right coin at the right moment. You can argue with me on this.

In his first week as president, Trump established a subcommittee to address cryptocurrency regulation. He issued an executive order establishing a crypto working group and selected Senator Cynthia Lummis as chair of the Senate Banking Subcommittee on Digital Assets.

Some of the key goals for this group are to help craft a regulatory framework for cryptocurrencies and evaluate the creation of a digital asset stockpile. Some of the key members of this group include the SEC, CFTC, and the Treasury. Additionally, large crypto-related companies are also fighting for seats within the group to assist in helping the crypto space flourish. —Bankless

The SEC chair also formed a crypto task taskforce to develop cryptocurrency legislation.

The announcement noted that the SEC “relied primarily on enforcement actions to regulate crypto” but is now taking a different approach, creating a more collaborative environment. The task force will be led by Hester Peirce, SEC Commissioner appointed by Donald Trump, who will assist in forming the regulatory framework for the crypto space. —Bankless

This is what I believe will happen once new regulations are implemented.

1. The End of Shitcoins As Blockchain Finally Matures to a Force for Good

There are currently more than 36 million coins and tokens on all chains combined. The new regulations will drastically reduce this number. This means that all the capital gets dispersed into shitcoins will rotate into functional crypto—specifically, large-cap Altcoins—and Bitcoin.

ETH is among the coins that will profit the most; it has been underperforming during the current surge against expectation. The chart below shows that Bitcoin and Dogecoin have been outperforming Ethereum. Bitcoin is the prima-donna, so no surprise there, but why would Dogecoin outperform Ethereum?—one has a useful blockchain, while the other is a meme coin.

Etherium has underperformed because people are waiting to see what kinds of uses it will have (what they can do with it) once regulations offer clarity, but dogecoin has rallied due to sentiment and a consensus that it is a'safe' meme coin. The restrictions will disclose what each coin is truly worth based on its utility, and if other nations follow the US or enforce stricter regulations, the future of shitcoins is uncertain. Altcoins like as Solana, which are mostly used to create shitcoins, may lose value.

2. Lower Volatility as Crypto is Put in its Place

Despite surpassing all other asset classes recently, Bitcoin still feels like a 'gamble' and still has shady connotations. If blockchain evolves and Altcoins find valuable uses, the potential impact for AI applications and a mature blockchain, such as intelligent and decentralized processing, could lead to technological innovations. Perhaps this is why Bitcoin is correlated with US tech stocks—aside from the fact that both are currently speculative vehicles. The concern, however, is that this maturity is still years away. Ripple, for example, claims to have applications in banking and healthcare, but a closer look reveals nothing groundbreaking. The gap between what these coins claim to offer and what is currently being implemented is significant.

One could argue that the drag in development is due to developers' reluctance to adopt the wrong platform. The way they see it, even if you choose a ‘safe’ option like Ethereum, there are still more questions to answer like: which part of the Ethereum ecosystem do you use? Can you trust it? What happens if my app is allowed in the US but not in the UK or EU? This is the reason Bitcoin continues to outperform individual Altcoins. The situation is reminiscent of the early days of Open Source, when many well-meaning volunteers and developers realized their work was worthless once huge corporations took and monetized it. The new regulations will help developers address these concerns, but it will also mean that coins will have to rally on merit, not just speculation. And that will mean lower volatility.

3. The Death of the ‘Offshore Advantage’ and the Rise of Regulated Exchanges (i.e Coinbase and Kraken)

One of the biggest reasons crypto still has shady connotations is the existence of offshore exchanges that operate outside the reach of regulators. These platforms—Binance, OKX, Bybit, and others—have thrived in jurisdictions where compliance requirements are weak, allowing traders to dodge taxes, and move large sums of money without the scrutiny that traditional financial markets require. This has created a two-tiered system: regulated platforms like Coinbase and Kraken that play by the rules, and offshore giants that cater to traders who prefer a more lawless environment.

Regulation will end this advantage. If new regulations require all cryptocurrency exchanges to comply with strong AML (Anti-Money Laundering) and KYC (Know Your Customer) legislation, many of these offshore platforms may be forced to clean up their act or risk losing access to important markets such as the US and the EU. This would likely result in a large migration of traders from unregulated exchanges to those that comply with the law, concentrating more trading activity on platforms that regulators can oversee. While this may increase consumer safety and reduce the danger of big exchange collapses like FTX, it might also make crypto trading feel more like traditional finance—removing the 'wild west' appeal that has drawn many traders to crypto in the past. If this happens, it would be bullish for regulated platforms like Coinbase, which is currently underperforming Bitcoin as this chart by Ecoinometrics shows.

4. Institutional Adoption Increases as Barriers to Entry Fall

Regulatory uncertainty has been one of the most significant impediments to large institutional investors—pension funds, hedge funds, and asset mangers—entering the crypto market. Without clear laws governing how cryptocurrencies should be classified, taxed, and traded, most institutions have decided to remain on the sidelines rather than risk violating regulatory obligations. This is why, despite its scale, the crypto market continues to be dominated by retail investors and high-frequency trading businesses rather than long-term institutional capital.

Once a regulatory enironment is set, this will change. The recent legalization of Bitcoin ETFs has resulted in a massive inflow of capital, particularly from large institutions. Once institutions understand how to keep and trade crypto assets, they are more likely to allocate more capital to Bitcoin, Ethereum, and other large-cap cryptos that meet regulatory requirements. This could result in a more stable market over time, as institutional money is less sensitive to short-term excitement cycles. However, it also implies that cryptocurrency will become more like traditional financial markets, with increased monitoring, regulation, and a shift away from the decentralized ethos that originally distinguished the industry.

Institutional adoption also implies that crypto ETFs will become more popular, which would be positive for large-cap Altcoins. We have seen that Bitcoin rallies are fueled by regular inflows into the ETF. The same will happen with Altcoin ETFs.

5. DeFi Gets Squeezed—or Becomes the Underground Market

Decentralized Finance (DeFi) finds itself in a difficult regulatory situation. On the one side, DeFi platforms provide financial services like trading, lending, and staking without the need for traditional intermediaries like banks or brokers. However, new restrictions that force DeFi protocols to incorporate KYC procedures, limit leverage, or register as financial institutions may undermine the very premise of decentralization. This would most certainly force many DeFi platforms to either comply and become severely controlled, or to go underground, operating in ways that make them more difficult to monitor and govern.

The result could be a split in the DeFi space. Some projects, particularly those that want to work with institutions, will embrace regulation and portray themselves as "compliant" DeFi platforms, giving transparency and regulatory certification in exchange for more credibility. Others will resist, creating permissionless, decentralized alternatives that are more difficult to regulate. This could result in an increase in true peer-to-peer DeFi platforms that operate outside of standard legal structures, making them harder for authorities to shut down but also more difficult for the average user to access safely.

6. Privacy Coins and Censorship Resistance Come Under Fire

One of the easiest targets for regulators will be privacy-focused cryptocurrencies like Monero and Zcash. These coins allow users to transact anonymously, making them popular for people who value financial privacy but also a headache for law enforcement agencies trying to combat money laundering and illicit activity. With regulation tightening around the crypto space, expect governments to crack down hard on privacy coins, pushing exchanges to delist them and making it more difficult for users to access them legally.

Privacy-focused cryptocurrencies such as Monero and Zcash will be easy targets for regulators to go after. These coins allow users to deal anonymously, making them attractive to those who value financial privacy, but they also cause problems for law enforcement organizations attempting to combat money laundering and illegal activities. As regulations tighten in the crypto industry, expect governments to hammer down hard on privacy currencies, forcing exchanges to delist them and making it more difficult for users to access them lawfully.

7. The Rise of Government-Issued Digital Currencies (CBDCs)

One of the more concerning consequences of greater crypto regulation is the proliferation of Central Bank Digital Currencies (CBDCs). Some governments around the world have considered establishing their own digital currency, partly in response to the rise of cryptocurrencies, but few have done anything more than talk. CBDCs, unlike Bitcoin and Ethereum, which function on decentralized networks, would be entirely controlled by central banks, allowing governments unparalleled influence over how money is spent. Even if it doesn’t go this far, central banks may still require banks to hold some of their reserves in CBDCs.

CBDCs are likely to be marketed as "safe" alternatives to cryptocurrency, providing the benefits of digital payments without the volatility or regulatory uncertainty. However, they also have significant drawbacks, such as total transaction surveillance, the ability to freeze or restrict cash at any time, and the possibility of money expiration dates to regulate expenditure. CBDCs could allow governments more control over financial conduct than ever before in a future where cash is becoming increasingly scarce. While they will not completely replace Bitcoin or other decentralized crypto assets, they may make it more difficult for people to operate outside of the existing financial system, driving non-compliant crypto into underground markets.

8. Taxation and Capital Gains Rules Get Tougher

Regulation is more than simply keeping the cryptocurrency industry safer; it is also about governments ensuring they get their cut. Taxation is one one of the biggest concerns for regulators. Expect tax authorities to push for stronger reporting requirements for cryptocurrency transactions, such as requiring individuals and corporations to reveal their holdings, track capital gains, and report revenue from staking, lending, or mining.

This could signal the end of casual cryptocurrency trading as we know it. Many traders currently operate in a gray area, moving funds between wallets and exchanges without regard for tax ramifications. With new legislation, governments may force exchanges to report all transactions to tax authorities in real time, similar to how stock trading is already recorded. This would make it much tougher to 'forget' to record cryptocurrency gains, resulting in an increase in tax enforcement cases. While some traders will try to circumvent these regulations by using decentralized exchanges or privacy currencies, the crackdown on off-ramps (banks, payment processors, and exchanges) will make it increasingly impossible to cash out cryptocurrency gains without incurring tax penalties.

9. A Permanent Divide Between ‘Safe’ and ‘Shadow’ Crypto

When the dust settles, the cryptocurrency market will most certainly divide into two separate segments. On the one hand, you will have ‘safe’ cryptocurrency, such as Bitcoin, Ethereum, and regulated stablecoins, which are completely compliant with regulations and accessible through traditional financial institutions. These are the assets that institutional investors will adopt, and they are anticipated to develop steadily as cryptocurrency gets more integrated into the financial system.

On the other hand, there will be’shadow’ crypto—privacy currencies, offshore exchanges, and decentralized projects that refuse to comply with official regulations. These assets will be more difficult to obtain, riskier to own, and increasingly targeted by authorities. They will, however, be the final refuge of financial independence in a future where the majority of digital transactions are watched and controlled.

The funny part about all this is if it happens is that the crypto community that voted Trump in could see him ‘turn on them’ as some of them went in expecting massive deregulation, including things like no capital gains tax.

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I will update this post later with the present crypto breadth levels, but I don’t have an active CMC subscription so the data I’ll use (from scraping) may not be as accurate.

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It’s taken for granted that a crypto rally tees off when Bitcoin starts to rally just like it’s widely believed that cryptocurrencies generally do what Bitcoin does. We find this easy to believe because the Bitcoin gets significantly more press. But the same thing happens in equities. When the S&P 500 goes up, few but savvy market participants care what its constituents are doing. But even worse than the excessive press is a misleading chart of Bitcoin’s market cap versus the combined market cap of all other crypto—the ex-BTC market cap—like the one below. At the start of a rally, Bitcoin’s market cap rises before the ex-BTC market cap. To see why this doesn’t imply that Bitcoin is leading, consider that market cap is price x supply. Since Bitcoin’s price is considerably higher than Altcoins, its market cap moves dramatically for smaller changes in its price. For example, a 10% price increase in Bitcoin priced at 60,000 adds 6,000 to its value, while a 10% increase in an Altcoin priced at 1 adds only 0.10. So Altcoins could be outperforming in percentage terms while Bitcoin’s market cap is ‘leading’.

If Bitcoin doesn’t lead Altcoins, then the idea of a 'Bitcoin factor'—where all coins are exposed to Bitcoin—may be misguided. It could be that a 'Crypto factor' drives the crypto market, similar to risk-on/risk-off sentiment in traditional markets When it is on, crypto starts to rally.

I began to question this belief when I made an index of the top 100 Altcoins (excluding stablecoins and wrapped coins) and indexed it to the same price as Bitcoin on Feb 1, 2015 for comparison. I sanity-checked my calculations by first replicating the CMC 100 index published by CoinMarketCap.com. You can see from the chart that while there is a small replication error (it’s difficult to get the exact same weights as CMC), the methodology I used is correct.

I’ve charted this index along with Bitcoin below. It shows that Altcoins started the first major crypto rally. Investors began to warm up to crypto in 2015—Crypto factor on—and started speculating on Altcoins. As more and more coins were introduced, Bitcoin gained its status as the original and most credible coin. So when newbies thought of buying crypto, they chose Bitcoin, and that explains it’s delayed rally in the first major crypto bull market. In the subsequent rallies, sometimes Bitcoin moved first, sometimes Altcoins did—but more often than not, they moved in sync. This supports the idea of a ‘Crypto factor’ rather than a ‘Bitcoin factor’.

Even if you are skeptical the idea of a crypto factor, during a crypto rally or decline, Bitcoin and Altcoins are highly correlated. This makes breadth indicators suitable for timing the start and end of a rally. Using the percentage of coins above their 50-, 100- and 200-DMAs to measure crypto’s breadth, I backtested different thresholds as entry and exit signals for both long and short positions. I didn’t have to include short positions but I wanted to showcase the quality of the indicator’s signal. If you want to be technical about it, assume this strategy is meant to be replicated via Crypto CFDs. CFDs allow traders to profit from price differences allowing them to take both long and short positions (several brokers offer crypto CFDs). You can also short crypto using futures and options, but the results of this strategy would change due to payoff considerations in these assets. Since my focus is on the quality of the signal, I ignored transaction costs due to the difficulty of estimating them for each coin, however, the number of trades is small enough that transaction costs would not significantly change the results.

Percentage of Coins Above Their 50-, 100-, and 200-DMAs

The indicators are easy enough to understand—they simply count how many coins are above their respective daily moving averages (DMAs). I used the a sample of 8301 coins. The 50-dma one moves the fastest and has the most oscillations. The longer the horizon, the fewer the oscillations, and the slower the indicator in capturing the trend. So the 100-dma one is slower and the 200-dma one is the slowest.

Crypto trading is about sentiment, and proverbially, nothing changes sentiment like price. When coins start to go up, they trigger FOMO and a search for the next big coin—further fueling the rally. The percentage of coins above their 50-dma is therefore perfect to find out just when a critical mass has been reached to safely call the start or end of a rally. It is particularly effective in crypto because of it captures momentum and to sentiment.

I also consider the 100- and 200-dma versions. Breadth indicators are often more insightful when you also look at the corresponding price changes. In a case where a crypto rally starts slow, the percentage of coins above their 100- and 200-dmas would be good timing tools.

Bitcoin

Percentage of Coins Above Their 50-DMA

This matrix shows the returns from going long on a cross-over and short on a cross-under of the specified thresholds. For example, if 20% of Altcoins are above their DMAs, a long entry is established if the next day’s breadth is higher (i.e. it crosses over 20%). This trade is closed when the indicator crosses over the 80% threshold. Then, when the indicator crosses under 80%, a short entry is established and closed when it crosses under the 20% threshold.

The matrix shows that the 80% threshold is best for long exits and short entries. There is a stark difference where the returns are negative if the 75% and 70% threshold are used instead. This shows that a Bitcoin rally is close to its end when 80% of coins are above their 50-DMAs. Longs should be closed and shorts opened. Any higher threshold is also profitable, but the 80% line outperforms the higher thresholds.

The optimal strategy is to use the 20% and the 80% thresholds together. It had a return of 847% from 2015-2024. This is likely because these thresholds capture the majority of the move in crypto rallies and declines.

Another good strategy is to go long or close shorts when 30% of the coins are above their 50-DMAs and exit the longs or start shorts when 75% of the coins are above their 50-DMAs. These thresholds likely capture short-term cycles.

In the chart below, you can see the trades, PnL, drawdowns, and cumulative returns of the best-performing strategy; the one with 20% and 80% as the thresholds. You can see that the long positions are established early and held until the bull market clearly ends. The drawback is that you would have round-tripped the tops of the cycles, but it also ensures that you are invested during the whole cycle. Since Bitcoin has been rising each year, more longs than shorts are profitable. The chart showing PnL shows that the winning trades perform very well and the losing trades are have small losses.

Because this strategy round-trips the tops, the drawdowns are significant, but the cumulative returns show that it significantly outperforms buying and holding Bitcoin. The table below gives further statistics. $100 invested in this strategy would have accumulated to $19,004.62 at the end of the 10 years. 76 trades were placed. Due to the numerous shorts that didn’t work out, the strategy has a win rate of only 35%. Its best trade gained 962% and its worst trade lost 59%.

One drawback of this strategy is that it has a maximum drawdown of over 113% with a duration of 1385 days ( or about 3.8 years). The over 100% drawdown sounds perplexing because it means you lost 100% of your capital, but VectorBT calculates drawdowns based on gains. Say you start with $100 and grow it to $20, 000. That’s a 2000% gain. A 113% drawdown is -$2,600. This drawdown happened from late 2021 to early 2023 when Bitcoin depreciated significantly, but a trader following the strategy would have seen a smaller loss than a Bitcoin holder during this period.

Percentage of Coins Above Their 100-DMA

Here again we see the 80% threshold separating night and day in the returns. The three rows of similar returns at the 80, 85 and 90% thresholds are because these thresholds are never crossed under i.e. the indicator never goes over 80% and then back below it. So the longs started at different thresholds are held to the end of the period. This explains the diminishing returns as you increase the long-entry thresholds. The optimal long-entry point is the the 10% threshold.

The optimal long-short strategy uses the 10% and 70% thresholds. It suffers the same problems as the 50-dma indicator. it round-trips the tops and has worse exits than the 50-dma version, and since Bitcoin has been on an unprecedented run over the past decade, shorts simply didn’t work. Its cumulative returns outperform a buy-and-hold strategy but the majority of the strategy’s gains came from one trade.

This strategy also suffers significant drawdowns that follow a drop in Bitcoin’s price. The maximum drawdown is 98% and it lasted 1586 days. 55 trades were taken. The best trade gained 671% while the worst one lost 56%. The strategy also has a win-rate of 35% like the 50-dma version. A winning trade takes 87 days while losing trade takes 10 days. $100 invested in the strategy returned $9912 over the 10 years—roughly half the return of the 50-dma version.

Percentage of Coins Above Their 200-DMA

Out of the 24 combination of thresholds, only 5 had positive returns and only 2 returns more than 1%. This is because Bitcoin moves quickly, and the 200-DMA is always late to the party.

In the charts below I show the performance of the strategy with 35% and 55% as the thresholds. The entries are actually not bad, but the exits take way too long. There are about as many longs as there are shorts and the strategy performed well during the 2015 Bitcoin rally but then it crashed and never recovered.

The strategy has a higher win rate than the other two (39%)and the best trade outperformed the worst trade. The best trade gained 408% and the worst trade lost -202%, while the avg winning trade gained 58% while the avg losing trade lost 20%. However, the strategy had a large drawdown (726%) and never recovered.

Altcoins

Percentage of Coins Above Their 50-DMA

The returns in Altcoins is staggering—the optimal strategy gained 5 digit percentage returns, and all but two of the +ve return combinations are 4 digit percentages.. $100 invested in this index would be worth $500k+ as of December 2024. The reason the returns are so high is because of the Altcoin really in 2017-18. If you look at the chart at the start. The Altcoin index made a high over 160k and has never reached that level again.

Even with Altcoins, the 80% threshold gave the highest returns, however unlike with Bitcoin, the 30% level was the optimal long-entry, short-exits is the 30% level.

The chart below shows the strategy’s performance when 30% and 80% are used as thresholds. These thresholds would have allowed a trader to catch the start of the Altcoin rally in late 2017 and the decline in early 2018. However, it also round-trips the top (which is good because it means you exit when it is clear the market will not go higher).

The shorts basically don’t lose any money, the longs perform better and a few big trades make up majority of the gains. What’s interesting is that there are almost no drawdowns! The cumulative return chart shows exceptional performance. It’s a shame such an index doesn’t exist (but you can replicate it!)

The stats show that there were 70 trades in total. $100 invested would have gained 517, 730k. It has almost the same win-rate as the Bitcoin version (35%). Average winning trade gains 833% while the average losing trade sheds 7.5%. A winning trade takes 83 days on average while a losing one takes 10 days.

Percentage of Coins Above Their 100-DMA

The return matrix shows that the 100-dma indicator always has positive returns. This is the same as the study I did using the S&P 500. The reason for this is that it is just the right temperature: not too fast to generate noisy signals, and not too slow to be late. Its the goldilocks measure of crypto breadth.

The optimal parameters are 10% and 70%—similar to Bitcoin—which returned 7922%.

Looking at the trades generated by the optimal thresholds, you see that this indicator catches the starts and ends of Altcoin market cycles almost perfectly—sometimes too early. But one big trade, that gained 5 digit percentage returns, helped a lot. That the return of this combination is well below that shows that some drawdowns ate the profit, and indeed the drawdown chart confirms this.

There were 62 trades generated by the indicator. $100 dollars initial capital would be worth $205k in December 2024. It has a win-rate of 34%. The average winning trade gains 630% and the average losing trade sheds 5%. A winning trade takes 95 days on average and a losing one takes 7 days.

Percentage of Coins Above Their 200-DMA

The 200-dma version performs better in Altcoins that crypto. It is still late, and severely round-trips a top, but it benefitted from the 2017-18 Altcoin rally. The optimal combination of thresholds is 30% and 55% (83% return).

The optimal combination’s trading performance is shown below. The winners outperform the losers, and one big trade is responsible for a big chunk of the returns.

This strategy’s problem is the large drawdown. It has a higher win-rate (38%) and the average winning trade gains 408% while the average losing trade sheds 26%. But its max drawdown, that occurred when the Altcoin bubble of 2017 burst, is 1837% and lasted 2292 days (6.2 years). That means you would have

Conclusions

1. The percentage of coins above their 50-dma is king. It reacts the fastest and catches sentiment shifts early, and is therefore the best for identifying when momentum has hit a critical mass—both upwards and downwards.

2. 80% is the magic number. When 80% of coins are above their 50-dma, Bitcoin is near the top. Close longs and consider shorts.

3. The optimal strategy for Bitcoin involves using the 20% and 80% thresholds for the percentage of coins above their 50-DMA. This strategy captures the majority of Bitcoin's rallies and declines, resulting in a return of 847% from 2015 to 2024. However, it suffers from significant drawdowns, particularly during prolonged bear markets like the one from late 2021 to early 2023. However, this strategy beats buying and holding Bitcoin.

4. The main challenge is round-tripping tops and enduring huge drawdowns. The best strategy had a max drawdown of 113% but it still outperformed holding Bitcoin.

5. The 100-dma is still profitable but the returns are lower.

6. The 200-dma version is garbage. Ignore it completely.

7. Altcoins rally harder—but there’s a catch. A replicable top 100 Altcoin portfolio would have outperformed Bitcoin over the long-run, but transaction costs, rebalancing and other considerations pose a challenge.

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According to data from CryptoQuant, the correlation between the BTC price and the NASDAQ Index reached a new all-time high on Saturday, January 25. —Bitcoinist.com

Here are the two of them in an hourly chart.

The same people asking what Bitcoin has to do with DeepSeek should first ask what Bitcoin has to do with US tech. Answer? They were (are?) both at the heart of the speculative bubble. The market is all fear and greed. Greed chose tech and Bitcoin; now it’s choosing tech while leaving Bitcoin behind. This begs the question: Is this it… Is this the end of the crypto rally?

It’s a big question because crypto moves in cycles and the higher it goes, the harder it falls. The most bullish crypto traders might look at all this and say “You know what? This is just a bear trap.” Okay fine, but how confident are you that this is THE dip? Who’s to say Bitcoin won’t fall some more? A bear market officially starts after a 20% drawdown. Bitcoin is only 8 and a half percent away from its all-time high. It’s too soon to tell. Still, this kind of FOMO is what is driving the recovery. No one wants to look back later and say they missed the dip in Nvidia. FOMO btw, is another name for greed.

Let’s ask an even bigger question: how do you time the start and end of a crypto cycle? By now I’m sure you’ve been disabused of the notion that the market—especially the current one—cares about fundamentals or anything of that sort. And even if it did, what fundamentals would crypto investors care about? How do they seemingly all together decide that it is time to buy, or sell? I hate to say it but it’s true.

It is said that nothing changes sentiment like price. After a month of turning over stones to find something that could give you an edge in crypto, I’ve come to realize that price is all that matters. Think about it. What have all the Bitcoin evangelists been saying recently? That it’s going to $1 million next. That’s the milestone. Well, what happens when it gets there?? Everything being done to promote crypto has nothing to do with decentralizing finance. Even Ripple, formed by Bitcoin engineers to overcome some of Bitcoin’s hurdles, and supposed to be the bulwark for decentralization, is allegedly busy undermining efforts to establish a US Bitcoin reserve. Trump understands that people buy crypto because they expect its price (not its value) to shoot. So he launched a meme coin—a worthless token—fully expecting it would go up.

Bitcoin price is often taken as the speedometer during a crypto cycle. How then did the first cycle start back when it was just Bitcoin and a few odd coins? It’s a chicken and egg problem.

I found out what came first by accident. I set out to backtest crypto breadth as a leading indicator for a cycle to see if it could help time the market to avoid large drawdowns, and perhaps help you avoid round-tripping the top. I decided to use the percentage of coins above their 50-, 100- and 200- DMAs because, unlike advance-decline, these indicators have thresholds you could use to generate signals. However, I faced the rather daunting task of having to backtest a representative enough sample of the 10,000+ active coins, which I assumed would include many of them. So I took a shortcut: I used an index of the top 100 Altcoins (excluding tokens and wrapped coins). The data spans January 2015 to Dec 2024. Here’s the chart. The Altcoin index starts on Feb 1 at the same price as Bitcoin was on that day ($227.27).

Notice that at the start of the first Bitcoin cycle, Altcoins led Bitcoin. This is contrary to popular opinion.

Historically, the beginning of crypto bull markets has often been marked by a surge in Bitcoin's “dominance,” a measure of Bitcoin's market value relative to the total cryptocurrency market. This trend emphasizes Bitcoin's role as a leading indicator for the broader crypto market. Typically, a rally in Bitcoin precedes wider gains across altcoins. — Grayscale

The first cycle is said to have been 2011-2015, but my data starts from 2015. Still, this shows that the idea that Bitcoin leads Altcoins in a cycle may not necessarily be true. Here is a close-up showing 2015 to early 2017. You can see that Altcoins were more bullish. My interpretation is that as more and more altcoins were made, Bitcoin’s role as the premier crypto took hold. It is the Altcoins that increased Bitcoin’s credibility and status as the original crypto. From a psychological perspective, this can be explained by anchoring bias.

Where then did the idea that Bitcoin leads other coins come from? It came from charts like this one:

The problem with this chart is that it doesn’t give definitive proof that Bitcoin leads Alts. Market cap isn’t necessarily the best metric for this kind of thing because a lower ex-BTC market cap doesn’t mean investors aren’t already buying Altcoins. Capital dispersion across many coins can mask early accumulation. Notice that a second rally around September of 2021 was ‘led’ by Altcoins. Here is an updated chart. Going back to that first crypto cycle, you can see that Altcoins started the cycle even though Bitcoin was more dominant.

The main counterargument one could make against the price charts I showed earlier is that I only sampled the top 100 coins, and this might be biased (not representative enough). Well not quite, the next chart shows the total number of coins at each rebalancing. At first, there were 82 Altcoins, but after three months there were always 100 coins in the index. You could argue that this is data mining and it introduces a bias but that isn’t so. The point of choosing the top 100 coins is to capture a significant portion of the ex-BTC market cap.

About 15+ coins are in the top 100 Altcoins list over 70% of the time, and 5 have been in that list as frequently as Bitcoin.

Even though coins rotate in out of the index.

The top 10 coins component of the index captures a significantly large portion of the ex-BTC market cap.

And when these top Altcoins lose rank, they don’t fall too far—only 3 of the 10 coins most frequent in the top 10 are no longer in the index after spending the majority of the period under consideration in the index.

In other words, the index is representative enough of the Altcoins—when people buy crypto other than Bitcoin, they often buy one of the top 10 coins so that a crypto cycle can be summarily characterized by just Bitcoin and the top 100 Altcoin index. That said, the crypto market is exponentially bigger in each cycle so this index’s representativeness may vary over time.

So, whether Altcoins do indeed lead Bitcoin or vice versa, as is widely believed, could be a cycle-by-cycle matter. It is more likely that crypto possesses a ‘Crypto’ factor that is either ‘on’ or ‘off’ similar to risk-on-risk-off dynamics in risky assets. Regardless of which leads and which lags, Bitcoin and Altcoins are strongly correlated in a cycle, therefore, crypto breadth indicators can be used to time a cycle’s beginning and ending. It should be possible to use them for Bitcoin entry and exits. I backtested this and compared it to the hypothetical Altcoin index with a starting price of 100 on Feb 1st, 2015. I will present the results in the next post along with the code for premium members.

Thanks for reading! Any feedback or criticism is welcome.

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This week…

• Trump was sworn in

• Tariffs were pushed further down the docket

• Trump’s pen was busy

• EU and UK data was uplifting

• Central bankers said some stuff

• Crypto regulators formed groups

• Japan raised rates

• Stocks made a new ATH

Let’s dig into these and more!

🌐 Economic Releases

In Japan, Core Machinery Orders saw a significant increase of 3.40%. However, Revised Industrial Production and Tertiary Industry Activity both decreased, with Revised Industrial Production falling by 2.20% and Tertiary Industry Activity declining by 0.30%. The Trade Balance also shows a deficit at -0.03T. Towards the end of the week, Japan’s National Core CPI increased to 3.00%, and the BOJ raised the policy rate to 0.50%—the highest level since 2008.

The United Kingdom’s Rightmove HPI increased by 1.70%. However, there are several concerning indicators such as an increase in the Claimant Count by 0.7K, an increase in the Unemployment Rate to 4.40%, and an increase in the Public Sector Net Borrowing to 17.8B. Average Earnings also increased to 5.60% which was welcome news. There was a decrease in the CBI Industrial Order Expectations to -34. The GfK Consumer Confidence decreased to -22. The CBI Realized Sales also decreased to -24. Despite these negative results, both the Flash Manufacturing and Services PMIs showed increases with the Flash Manufacturing PMI at 48.2 and the Flash Services PMI at 51.2.

In China, the 1-year and 5-year Loan Prime Rates remained stable at 3.10% and 3.60%, respectively.

In the Eurozone, the German PPI decreased by 0.10%. The German ZEW Economic Sentiment decreased to 10.3, and the Eurozone’s ZEW Economic Sentiment also decreased to 18. The Flash Manufacturing PMI for the Eurozone showed an increase to 46.1, and the Flash Services PMI also rose to 51.4.

Switzerland’s PPI also showed a decrease, moving to 0.00%.

In Canada, CPI data showed decreases across the board with the CPI m/m decreasing to -0.40%, Median CPI y/y to 2.40%, Trimmed CPI y/y to 2.50%, and Common CPI y/y to 2.00%. Additionally, the Core CPI m/m decreased to -0.30%. There was also a decrease in the Core Retail Sales m/m to -0.70%. The IPPI m/m decreased to 0.20% while the RMPI m/m increased to 1.30%. The NHPI m/m showed a decrease to -0.10%.

New Zealand's BusinessNZ Services Index is at 47.9. The GDT Price Index increased by 1.40%. There was also a decrease in the Credit Card Spending y/y to -1.40%. The CPI q/q decreased to 0.50%. The Visitor Arrivals m/m increased to 1.00%.

Australia’s MI Leading Index remained unchanged at 0.00%. The Flash Manufacturing PMI decreased to 49.8, while the Flash Services PMI increased to 50.4.

In the United States, the CB Leading Index decreased to -0.10%. There was a decrease in the Unemployment Claims to 223K, and Existing Home Sales increased to 4.24M. Additionally, the Flash Manufacturing PMI increased to 50.1 while the Flash Services PMI decreased to 52.86. The UoM Consumer Sentiment was revised down to 71.1. The Natural Gas Storage decreased to -223B and Crude Oil Inventories decreased to -1.0M.

💵 Central Banks

ECB's Holzmann expresses a cautious stance, emphasizing the risk of cutting rates too early while inflation remains high. His comments suggest a concern that premature easing could force the ECB to reverse course and hike rates again. He would rather wait longer before cutting rates until he is persuaded by solid arguments. This reveals a hawkish position, prioritizing the fight against inflation over stimulating growth.

BOE's Woods is focused on potential regulatory changes to boost UK growth, suggesting the BOE is looking beyond monetary policy. This indicates that the central bank is open to collaborating with the government to explore other avenues to achieve economic improvement, and is recognizing the limitations of monetary tools alone.

ECB's Vujcic’s comments reveal a lack of major concern about FX movements, and that he anticipates an increase in household consumption. This suggests that he believes the current policy stance is appropriate and that he is optimistic about consumer spending. He also notes that the central bank engineered a soft landing, but that the "takeoff" will be hard, and he sees a clear risk of stagflation. This reveals a complex view, that, while confident in the current policy, recognizes the significant risks that remain.

ECB's Nagel presents a generally positive outlook, expressing confidence in the ECB's path to reach its 2% inflation target, while also indicating that policy decisions are not predetermined and that the ECB will act based on data. He views Germany as economically strong, and sees a need for stability in consumption and investment. This implies a belief that current monetary policy is working but that the ECB remains flexible and responsive to incoming data.

ECB's Villeroy conveys a sense of optimism about the progress against inflation while advocating for a steady pace of rate cuts, suggesting that aggressive cuts are not necessary at this time, but also doesn't exclude the possibility in the future. He also emphasizes the need for structural reform and sees the new US administration under Trump as a "wakeup call" for Europe. This implies a view that the fight against inflation is on track, but also sees the necessity of economic reform and that potential protectionist policies in the US should be a concern for Europe. Villeroy also comments on the financial situation in France, stating that the country is not at risk of being unable to finance itself, but there is the question of at what cost. He implies that markets will assess France's credibility. He believes that French growth will improve in 2026 and 2027.

ECB's President Lagarde’s remarks indicate that the ECB is not behind the curve on rate cuts. She emphasizes that gradual steps are appropriate and that the disinflationary process in Europe is continuing. She will also be attentive to energy prices. She notes that she expects no US tariffs and that this is a smart approach. She mentions that she will be attentive to the price of energy but hasn't anticipated decline in energy prices. She suggests that there are risks to downside on euro-area growth this year, but is confident that Eurozone inflation will be at the target by 2025. She highlights the consensus in Europe regarding capital markets and is not overly concerned by the export of inflation to Europe.

SNB's Chairman Schlegel states that he sees no need for a retail digital central bank currency, that monetary conditions in Switzerland are currently appropriate, and that the Swiss franc is a safe haven. He also said that he cannot exclude negative interest rates. He also states that while the current policy mix was very effective, they don't claim victory. He states that tariffs would not be good for Switzerland. These statements indicate a cautious approach, acknowledging ongoing risks even while monetary conditions are working as intended.

ECB's Escriva suggests a preference for waiting for hard data to confirm forecasts, while seeing a 25 bps rate cut next week as a likely scenario. This reveals a data-dependent approach but also indicates a leaning toward easing monetary policy.

ECB's Stourmaras states that possible US tariffs would speed up interest rate cuts in the Eurozone. He believes that rate cuts should be at the order of 25 bps each time to get close to 2% by the end of 2025. This indicates that US policy could significantly influence the ECB's decisions and that they would be responsive to a new trade environment.

ECB's Knot10... Knot's remarks suggest that if the recovery continues, there may not be a need for a stimulative mode, indicating that he does not think the economy needs further stimulus if the economy performs as expected. He believes that there are new downside risks from trade policy, and that data is encouraging, confirming the picture of a 2% return. He states that he sees little obstacle to another rate cut next week. This suggests a positive outlook for the near future, and that the ECB is likely to take further action to loosen monetary policy.

BOJ's Gov. Ueda’s comments provide an in-depth look at the BOJ's perspective. He believes that the BOJ has come closer to a neutral rate compared to when the policy rate was 0.25%. He views the economy and prices as being on track with their forecasts and that he sees inflation settling at 2% around FY2026. He also notes that there has been no shock in the market after the new US administration. He notes that uncertainties remain high over Trump tariff details. He states that he will be closely watching the impact of their recent rate hike. He emphasizes that there must be price stability while securing the value of the currency. Ueda's comments reveal a nuanced approach, cautiously optimistic about inflation trends but also mindful of risks and external shocks. He is focused on wage growth and is seeing a positive trend. He states that he will provide a view once details become clear regarding Trump's tariff policy. He does not believe that the BOJ is behind the curve.

You can read all the central bank speaker’s comments in the PDF below.

Central Bank Speakers Jan 20 To Jan 24

146KB ∙ PDF file

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💱 Currencies

The broad theme in currencies this week was a dollar sell-off with the major beneficiaries being a dollar sell-off after a WSJ article, which was later backed by a Trump official, claimed that there would be no day-one Tariffs. Trump failed to mention tariffs in his inaugural speech, but later in his victory rally, he mentioned potential tariffs against Canada, Mexico and China. USDCAD whipsawed to end the week weaker against the dollar. Upbeat PMIs from the EU and UK also helped the dollar correction but the UK had better manufacturing PMIs which helped the EURGBP break below a range-bound top.

The main beneficiary of these developments was Cable which seems to have finally brushed past the fiscal worries from a fortnight ago. Reeves was on the tapes saying UK’s public finances were now in order and that she expects growth in future. On Thursday, 10-year gilts were back below US 10-year yields but Friday’s PMI put them back at a premium.

📉 Stocks

Stocks had a stellar week in what is touted to be the best inaugural response ever. VIX was down and all indices gained more than 1% apart from the Shanghai Composite and the FTSE 100. FTSE’s rise was driven by cheap pounds so the rise in Cable is partly to blame for its forestalled rally. However, stocks ended the week with some declines. The S&P 500 recorded its first record high of 1025 on Wednesday but ended the week with a 0.3% decline. Russell 2000 and Nasdaq shed 0.6% on Friday.

Energy was the worst-performing sector this week after a few weeks of stellar gains. It lost -2.32%. Communications services was the best-performing sector gaining 2.18%.

There are growing concerns among analysts that stocks are due a correction very soon. Some point to an increase in influx of retail trading both foreign and domestic.

Others point to a rise in the CBOE skew, and a deviation between the VIX and VVIX. The problem with all these indicators is that they say nothing about timing.

I would note that VIX is usually too late to predict a decline and so is the put-call ratio, so if there’s a signal here it is probably SKEW and VVIX which are both worryingly high implying people are buying VIX puts!

💰 Bond Markets

Bonds have finally budged since no tariffs were announced and this helped the dollar sell-off. Trump said that tariffs on Mexico and Canada of about 25% could be put into place by Feb 1st so bonds started to rise again on Wednesday. The Fed meeting this week is likely to lean towards a dovish hold which could help bonds (and depress yields further).

₿ Crypto

Crypto continued to rally this week even though some coins like Cardano and Doge dropped by more than 1%. Trump passed an executive order to form a crypto working group and appointed Senator Cynthia Lummis as chair of the Senate Banking Subcommittee on Digital Assets.

Some of the key goals for this group are to help craft a regulatory framework for cryptocurrencies and evaluate the creation of a digital asset stockpile. Some of the key members of this group include the SEC, CFTC, and the Treasury. Additionally, large crypto-related companies are also fighting for seats within the group to assist in helping the crypto space flourish. —Bankless

The SEC chair launched a crypto task force to develop crypto regulation.

The announcement noted that the SEC “relied primarily on enforcement actions to regulate crypto” but is now taking a different approach, creating a more collaborative environment. The task force will be led by Hester Peirce, SEC Commissioner appointed by Donald Trump, who will assist in forming the regulatory framework for the crypto space. —Bankless

⛽ Commodities

Oil was already on a decline when Trump, in an address to Davos, put pressure on OPEC and Saudi Arabia to increase output (to lower prices) to pressure Russia into a peace treaty with Ukraine. OPEC are unlikely to do this but speculators went with it anyway. Oil closed the week at 74.50 and the EIA report showed that oil inventories continue to decline (for the 8th week) which could help support the price.

NatGas found support at $3.7 and rallied to $4. Gold was higher due to fiscal concerns from Trump’s proposed tax cuts. Cocoa continued to rally due to supply-side factors particularly low output in Ghana. Copper declined after it was revealed there would be no tariffs.

🤝 Macroeconomics

🇬🇧 UK

Things have calmed down in the UK now that global yields are declining. Fiscal concerns may continue to come up as bond investors keep a close eye on developments. This week, it was reported that Public Sector Net Borrowing increased to 17.8B.

🇺🇸 US

Here is a succinct summary of Trump’s policies and executive orders. (Source)

Immigration and Border Security

• Reinstatement of the "remain in Mexico" policy, also known as the Migrant Protection Protocols.

• End to the "catch and release" policy for illegal immigrants.

• Trump’s administration will not recognize automatic birthright citizenship for children born to illegal immigrant parents, challenging the 14th Amendment.

• Designating cartels as foreign terrorist organizations is being pursued.

• Pausing refugee resettlement.

Law Enforcement and Criminal Justice

• Reinstatement of the death penalty for certain crimes against federal agents.

• The Attorney General is directed to seek capital punishment for the murder of law enforcement officers and for capital crimes committed by illegal immigrants.

• Pardons issued for approximately 1,500 people charged in connection with the January 6th Capitol breach.

• Investigations into the "weaponization" of the Department of Justice and other agencies.

Economic Policy

• Directing executive departments and agencies to deliver emergency price relief, including expanding the housing supply, eliminating administrative expenses in healthcare, and removing requirements that raise the costs of home appliances7.

• Abolishing "harmful, coercive ‘climate’ policies" that increase the cost of food and fuel.

• Establishing an External Revenue Service to collect tariffs from foreign businesses.

• Examining unfair trade relationships and currency policies with other countries9.

• Considering imposing tariffs on Canada and Mexico, as well as on China if a TikTok deal is not approved.

• A plan to impose a universal tariff on any business doing business in the United States.

Energy Policy

• Streamlining permitting, loosening regulations, and building critical infrastructure such as pipelines.

• Restoring oil and gas leasing on 13 million acres in Alaska’s National Petroleum Reserve.

• Lifting restrictions on offshore drilling.

• Eliminating electric vehicle subsidies and state fuel emissions waivers.

• Withdrawing from the Paris Climate Accord.

Government Operations

• Directing all federal workers to return to in-person work.

• Establishing a new Department of Government Efficiency (DOGE) with a focus on software modernization.

• A freeze on bureaucrat hiring except in essential areas16.

Social Issues

• Ending federal programs and preferences based on race, sex, gender or other immutable characteristics.

• Defining a female as “a person belonging at conception to the sex that produces the large reproductive cell,” referring to eggs.

• Ending the promotion of "gender ideology".

• Revoking the Biden administration’s efforts to expand Title IX to include gender identity.

• Restoring the name of Mount McKinley, to its original name, William McKinley, and renaming the Gulf of Mexico, to the Gulf of America.

Free Speech and Censorship

• Prohibiting federal employees from restraining US citizens’ free speech.

• Directing the Attorney General to prepare a report to address abuses against citizens' free speech under the previous administration.

• The policy that government censorship is “intolerable in a free society”.

Foreign Policy and International Agreements

• Ending negotiations regarding the WHO's global pandemic treaty.

• Withdrawing the United States from the World Health Organization (WHO).

• Reevaluating and realigning United States foreign aid2.

• The application of the Protecting Americans From Foreign Adversary Controlled Applications Act to TikTok.

• Instructing the Secretary of State to inform the top ranks of the WHO and the United Nations about the withdrawal.

Revocation of Previous Orders

• A large number of Biden's executive orders were revoked, covering areas such as racial equity, COVID-19 response, climate change, and diversity and inclusion initiatives.

🇨🇦 Canada

Canadian inflation declined. The yearly figure is currently at 2% and the BoC is expected to cut by 25bps this week.

🇯🇵 Japan

The BoJ hiked by 25bps as expected, but the initial USDJPY move lower was bought into after it became clear that the BoJ intended to hold rates at 0.5% for a long period. It was a dovish hike, in other words. The rate hike is not big enough to justify a return of foreign capital back home but late in the year, we will have the wage negotiations and more inflation data which could change the BoJ’s stance.

🇪🇺 EU

This week we have the ECB who are expected to cut by 25 bps. Services inflation is proving sticky in the EU and Lagarde did comment about it, but that shouldn’t affect their stance. Expect Lagarde to say that the ECB will remain data-dependent.

👁️ Media Stories

I’m sure you’ve heard enough about DeepSeek by now. A cheer for quants! I like that story because it shows that winning is about strategy and not resources, which is a key theme in Chinese military philosophy going back thousands of years. It inspires me to wonder what more I can do with the resources I already have.

🕵🏾‍♂️On my Radar

The main thing to keep an eye on this week is forward guidance from the various central banks and the US PCE figure.

📁 Docket

I’m still reading a lot of crypto papers. The following paper is applies ML to crypto trading (random forests, SVM) but I really hate these kinds of papers because they usually overfit and you can’t create tradeable systems out of them. This is the kind of slop people write for academic purposes but no one really uses them in the real world (hence why I don’t post about such stuff).

S40854 020 00217 X

1.06MB ∙ PDF file

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Download

Another example of this kind of quant work is the paper below which tries to show that momentum has some idiosyncratic underpinnings (???).

Ssrn 5098799

640KB ∙ PDF file

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Download

But the following survey is giving me ideas.

Cryptocurrency Trading A Comprehensive Survey

2.12MB ∙ PDF file

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Download

🎶 Music

My favorite band is a lesser-known British duo called Aquilo. I find their music very authentic and unique.

🔖 Theoretical Stuff

One of the first things they teach you in Stochastic Calculus is about the Weistrass function. It is everywhere continuous but nowhere differentiable similar to Stochastic processes. But unlike a Stochastic process which is based on random variables, the Weistrass function is deterministic. Still, it serves as a good starting point to understand undifferentiability. Here’s a good intro to the function.

Thank you for reading!

Feedback and criticism welcomed.

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