1/ On this bad day for crypto: Here are nine trading lessons from my six-year hedge fund experience (managed $100m of futures, options, fx).
Your thoughts? @cburniske @AriannaSimpson @AriDavidPaul @myles_snider @KyleSamani @tlueke @lsukernik @Melt_Dem @polychaincap @Arek
Your thoughts? @cburniske @AriannaSimpson @AriDavidPaul @myles_snider @KyleSamani @tlueke @lsukernik @Melt_Dem @polychaincap @Arek
2/ Position sizing: To stay in the game you must not have positions that are large enough to ruin you. Nobody blows up because they are wrong with an appropriately sized position. You blow up because you are wrong AND your trading position is too large. Related to leverage -->
3/ Leverage: Unless you have years of professional experience with leveraged trading instruments and very solid risk management, do not borrow money to trade and invest in liquid assets. It almost always ends in tears. Read the book “When Genius Failed”.
4/ Correlation: You have a nicely diversified portfolio. But what if most of your positions are highly correlated? Then you really just have one large position. And correlations change. Measure and control for correlation in your portfolio every day!
5/ Volatility: A high volatility / high return portfolio is most often evidence of luck. A low volatility / high return portfolio is more likely evidence of skill. Measure your performance with the Sharpe ratio and not only by looking at % returns.
6/ Relative value: Trading ratios or spreads between instruments (e.g. ETH / BTC) is a great diversification tool because they are often pretty uncorrelated to the overall market. Like individual instruments, these pair trades can be based on strategies of -->
7/ Trend or mean-reversion: Which of these two “regimes” currently drives asset prices? Are they trending - i.e. up- or downtrend? Or are they range-bound, i.e. will prices revert to their mean? (Understand the concept of cointegration before you put on lots of mean-rev trades!)
8/ Taking profit: Often as difficult as cutting losses and key part of risk management. Set a target price (which could be a moving one, e.g. a trailing stop). Anecdotal rule: If you start boasting to your friends how well a position does, it’s often the best time to take profit.
9/ Measuring returns: I mentioned the Sharpe ratio before - it’s key. It captures mean and variance, the first and second moments of the return distribution. But do you also understand the third (skewness) and fourth moments (kurtosis) of your returns?
10/ Mistakes to avoid: (a) repeating a trade because it worked last time - do your research every time! (b) HODL - only with an amount you can afford to lose. If you want to be a crypto believer, just HODL. If you want to generate returns consistently, trade!
If you think the returns of these two stocks are highly positively correlated then you would be wrong. They are in fact very negatively correlated (-0.99). Intuition almost always fails when thinking about correlation. 
