If you want to make money investing, this is a MUST read. I'm not sure you're ready for this, but I have to write it to show you what I have come up with. So far, it is brilliant, if I do say so myself...
I told you in my post, Dollar Cost Averaging Explained how to lower your cost basis over time and how to maximize your investment.
Keep this in mind...
I have a buddy who taught me how to always win in Vegas. He told me the odds of winning when you bet "on black" is 50%. If you bet $1 and it lands on black, you get $1 plus your original $1 back. With this in mind, the way to always win in Vegas is to come with a ton of money... Step 1) Bet $100 on black. Step 2) if you win, yay! Start with another $100 bet. If you lose, bet $200. 3) if you win, yay! you get $100 more than you started with. Start over with a new $100 bet. If you lose, bet $400. 4) if you win, yay! you get $100 more than you started with. Start over with a new $100 bet. If you lose, bet $800...and this continues. If you get to 1600, 3200, 6400, 12800, 25600, etc., eventually you'll win. You'll take home $100 when you win. If you keep losing, you just keep doubling down until you win and you'll get that $100...
Keep this in mind...
To win in the stock market, you must buy low and sell high. Easy enough.
Keep this in mind...
If you trade stock and there is no transaction fee, what I'm about to share with you should blow your mind.
Baseline Aggregate Investing:
Start off with an amount you want to invest in stocks, crypto, whatever...it should be volatile. In my opinion, the more the volatility, the better.
I started off with $50 in Dogecoin. I have a rule. When it goes up 1% or greater, I sell enough to get back to my baseline, $50. If it goes up 2%, I sell $1 worth, bringing my current holdings to $50. Then, when it goes down 1% or more, I buy enough to bring it back up to $50. If it goes down 2%, I buy $1, as an example, bringing it back up to $50. You with me?
If the ROI on my original $50 has dropped to -25%, I double my baseline. I invest another $50 (or more). The reason for this is if I really think the underlying asset is a good one, then 25% off from where I started is a great deal...by definition, it is buying low. By increasing my baseline, that also means when it goes up 1%, I sell more. When it goes down 1% or more, I buy more. With me?
I keep doing this...at some point, especially with a volatile coin/stock, it will come up and down dramatically. Here are some of my charts:
I started off with $100 in dogecoin. The price went down to $0.225 ish per coin. My profit went down, but I kept buying. Notice my breakeven price...the price at which I need to sell all of my coins to break even...is going down. As I buy more coins to maintain my $100 equity, the breakeven price goes with it...buy low...Around transaction 45, I put in another $50 when the price was about $0.23. When that happened, I increased my holdings dramatically at a lower cost, making my breakeven price drop precipitously. As transactions completed and the price went further down, I eventually put in another $100 at $0.197 per coin ish. I had a net loss of $40 at that point, where I had about $150 into the game.
You can see what happened to the price after that. It shot up to about $0.22 per coin. I had nearly regained all my loss. I had $250 in the game at this point. When the price went up to $0.26 per coin, I was sitting at around $30 in profit. The price then went back down before going up again to $0.23 per coin. Notice the dramatic swing in ROI (red) and notice the breakeven price how it kept going down as I increased my investment? Since this image was taken (about 3 days ago, I think), the price went up again and I removed $50 from the baseline making my new baseline $50. I sold the $50 around $.24 ish. Buy low, sell high...
This is the most interesting chart ^ ^ ^ ^... See how if I had just bought and held dogecoin from the beginning, I would be down approx. 17%? Instead, I was at a breakeven...When the baseline ROI (holding instead of trading to maintain the baseline) hit breakeven around transaction 140, I was up over 10%. I could have cashed out ahead overall with a 10% ROI in a month.
^ ^ ^ ^ This chart shows how I put more money into the game. When it goes down, that means I'm profiting...selling high. When it goes up, that means I'm buying low.
Because I only buy if the baseline is lowered by more than 1%, it doesn't matter when I buy or when I sell. In some cases, I had 10 transactions in one day. In some cases, I had 2. I just check the app periodically and if there's a more than 1% difference in my holdings, I bring it back to the baseline.
How does it work?
If I start with $100 and it goes up 1%, I sell $1 worth. If it goes down 1%, I have $99 worth and I buy $1 more. If it goes up 1%, I sell another $1 worth. Maybe it seems like I'm not profiting anything...however, let's look at the prices and number of coins...
If I get 400 coins at $100 and it goes up to $101, I sell $1 worth, or $101/400=0.2525 per coin. I now have to sell $1 worth which is $1/0.2525=3.96 coins. I now have 396.04 coins. When the value of my investment goes down to $99, that's 99/396.04=0.24997475 per coin. I must buy $1 worth, or 1/.24997475=4.0004 coins. I now have 400.0404 coins (I'm doing some rounding, but not much as you can see) and am $100 in the game, right where I started. If I have 400.0404 coins and it's worth $100 and it goes back up to $101 in value, I sell $1, which is 101/400.0404=0.2524745 per coin or 3.960796...coins. I now have 396.079604 coins worth $100. I am $99 into the game because I just sold $1 worth and I have $100 in coins. If it goes down again to $99 (last time, I swear lol )
I have to buy $1 worth of coins. The price is $99/396.079604=0.2499497...per coin. $1/0.2499497=4.0008 coins valued at $100. I have lost nothing and I have gained nothing...except, I have 0.0008 coins more than I started with. 400.0008/400=1.000002, or a 0.0002% increase. Here's a table that shows what happened:
| Start | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| 400 | 396.04 | 400.0004 | 396.0796 | 400.0008 |
| $0.2525 | $0.24997475 | $0.2524745 | $.2499497 | $0.2499995 |
Do you notice the dollar cost averaging? I own more coins with $100 value. If the price goes up to $0.2525 as it was when we started, that's 400.0008*0.2525=$101.000202. Do you recognize what happened? I made money even when the price of the underlying asset never even when above the initial price...granted, we started with a 1% gain. You can do the math where you start with a drop in value then go up, then down, then up...the reality is, when you are in a volatile market, the price naturally goes up and down often...that's what volatility is!
I have run an excel spreadsheet with different volatility rates ranging from 1% to 10% and given myself different rules on when to buy or sell, whether 1% or 2%, etc. The more it fluctuates in volatility, the more trades you can make. If you're increasing the baseline every time your ROI hits at -25% or less, you've increased the odds of an increase in ROI...if you expect the underlying asset is going to go back up. I've had my charts take the price all the way down to a penny or so from $100, $25, etc...what happens? When you take a price that low and you're still maintaining a baseline...eventually, the price doubles...from $0.01 to $0.02. When that happens, whatever your baseline is, you just doubled it and you'll sell half of your holdings to bring it back down to the baseline...
I have programmed my excel sheet to plug in completely random numbers within the range of expected volatility. Of the 35 times I recalculated it (I only did 35 because my wife called me away while I was counting) 30 of the 35 times, consistently trading brought a higher return than just holding the underlying asset. 5 of the 35, holding gave a better return. I never saw a negative return where trading brought a lower negative than holding. I only saw holding creating a higher return than trading when the return for both was positive. Many times, I saw holding would create a negative return and trading brought a positive return, much like the charts above.
Those charts above are based on real transactions where I put in fiat $USD. I put my money where my mouth was for about 40 days. So far, I'm up about 10%, having sold off $50 recently from the $250 baseline to bring it down to $200. I didn't mention this...I also figured into my spreadsheet an ROI gain at which I would reduce the baseline, only if I had added to it previously...I believe the threshhold I liked the most was -25% to buy more and 10% sell to lower the baseline. This implies a buy low, sell high method...
Did I blow your mind? Follow me and comment below...If this article doesn't trend, you just don't understand, and that's ok. I'll take my ball and go home LOL
Oh... one last thing...the chart starts with a baseline roi higher...I think that's because it starts at the 2nd transaction on the chart than the first...I could be wrong, but all the numbers are tied to the spreadsheet correctly...sorry if that messed anyone up...Also, I didn't have the "invest more" rule when it first started, or I would have bought a mess more on the first dip within the first couple transactions when the price dipped from $0.30 to $0.22 ish... That would have caused a massive profit from the get go...
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A friend of my shared that "guaranteed to win" double-your-bet-after-a-loss strategy with me about 30 years ago. The 'catch' is that if you run out of money and can't cover the next bet, you lose everything -- and all you ever win is your original bet (so, a $51,200 win, after 9 straight losses, only nets you $100).
The investing strategy you've presented looks interesting. I've upvoted this post to help generate more engagement.
My friends and I used to use a martingale system at the casino on roulette.
Wait for 4 colours in a row and then bet on the streak being broken.
One night we were forced to walk away after 15 blacks in a row.
FIFTEEN!!!
Not sure what the streak actually got up to.
The 3 free vodka red bulls were definitely worth it though...
Ah good times ;)
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If you started with $100 (on red, before the first black you mentioned) and were applying the double-your-bet-after-a-loss strategy, that 16th bet would've cost you $3.2 million, just to win that initial $100. Starting after the 4th black, the 12th bet (after the 15th black in a row) would've only cost you $204k (again, to win that initial $100).
Obviously we didn't start with $100 and we certainly didn't get close to betting 200K a pop hahaha.
But yes, you can see how ridiculous this strategy is on roulette.
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Lol... gotta start with $1 lol... really, the purpose for that is the idea that if the underlying asset goes down a percentage, increase the bet. I profited greatly off of it. Today's been a good day for me, enough to take another $50 off the table.
That's funny!
Yeah... you have to be able to go all out for that $100 lol
This is pretty cool, Dad!
;)
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STOPTo support your work, I also upvoted your post!
my methods differ, as I pay far less attention
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Actually that's where the green 0 and sometimes even an added 00 come in? To lower your odds below 50> house always wins
Also doubling is like 100% compounding and it only takes one somewhat bad losing streak to wipe you out, even with a looooot of money. Know the story of the chess board and rice?
chess board and rice...nope. :)
There's many variations I just now discovered, from why the reward to what is done to fix the problem but this is one of them after a quick search:
https://purposefocuscommitment.com/wisdom-story-king-con-artist-chessboard-rice/
Oh, ok. I knew about the doubling effect, for sure. It doesn't really have bearing on this investment strategy, and even the fact that the "house" builds in a win doesn't have an effect on the investment strategy. The strategy works by incremental gains. I've been tracking it for nearly a year and will likely do a post in the coming months on the results. It's been fascinating. I've implemented the strategy with both dogecoin and bitcoin because they're both volatile. I started when the price was at least double what it is now, and in the case of dogecoin, 4.5x today's price...