Automate Your Portfolio Strategy With Shrimpy – Smart Traders Are Winning Even During A Bear Cycle
Wealth creation has historically been one of the most sought after goals of humankind; when it comes to new age wealth creation tools, investments have been the most popular mediums to do so. Theoretically investment principals are very simple, you just need to BUY low and SELL high! But, in real life, things are not so simple… Since there are lots of variables to be taken into consideration, like: emotions, lack of discipline, timing the market, lack of information etc., a lot of retail investors end up on the losing side and fall into the reverse trap of buying high and selling low.
In today’s article, we cover an important and effective tool called Shrimpy, which cryptocurrency investors can use not only to minimize the risk, but also to maximize the market fluctuation opportunities, through a simple process called Rebalancing.
What is Rebalancing and How Does it Work?
Rebalancing, plays a vital role in managing your investments; in simple terms is ensuring the asset allocation ratios remain intact over a given time. Portfolio management starts when you find the optimum asset allocation ratio based on your financial goals and risk appetite.
The asset allocation process begins when you arrive at a percentage split of asset category (equities, mutual funds, fixed income tools like bonds & FDs, cryptocurrency, alternatives like gold, land, metals, cash etc). It is always advisable to have a mix of categories which move in opposite directions to provide a level of hedging.
Investors with high risk appetite might choose greater allocation for equities or crypto and vice-versa for people with lower risk appetite. For example, within crypto/equity we can decide the ratio split within large, mid and small cap, and, moreover, we can choose even linear & exponential strategies.
The last step of this process is to choose the right company/project/government to allocate your funds (Objective is to find good projects at cheap price. Identify projects with high ROCE (return on capital employed), low debt, high PBIT (profit before interest and tax) , good use-case, good team/management etc).
Now that our asset allocation is done, and capital deployed as per the ratios, it’s important to understand that these ratios undergo moderation with passing of time due to market fluctuations. Everything which goes up, at some point comes down and vice versa. If we do not manage our portfolios during these changes over a period, the portfolio deviates from its original allocation and thus it gives us lower returns or becomes riskier.
This is where REBALANCING comes into picture to ensure our initial portfolio allocations remain intact over a period of time thus maximizing gains and minimizing the risks. This means we sell a part of our portfolio which goes up and allocate those gains to the portfolio which has come down in value to bring portfolio allocation ratios back to initial levels.
For example, in a particular period equities and cryptocurrency do well while bonds give lower returns, the result will be that our risk reward ratio will change, and portfolio overall risk weighted average will increase. At this stage, we need to book the profits gained in the increasing market and allocate those funds to buy more bonds till our allocation ratios comes back to original levels. Similarly, within the category, we need to identify the coins/stocks which gained, hence have a high standard deviation risk score (i.e a higher probability of price dipping) sell them to buy coins/stock which have low percentage portfolio weightage compared to initial level and buy them as they now have higher probability of gaining price.
Various researches on rebalancing suggest that it delivers better results than HODL strategy. This reduces the volatility of the market by ensuring the averages are in favor of the investor. High standard deviation portfolio is replaced by low standard deviation portfolio thus reducing the risk, hence capital protection plus increases the probability of higher gains as the current low standard deviation portfolio is expected to deliver relative better returns in the future.
Rebalancing also makes the process uncomplicated as it is based on simple and sound mathematical principles, thus helps an investor save a lot of time and energy. Additionally, it also helps on the tax benefits side, as most of the portfolio is prevented from LTCG (Long Term Capital Gains). Portfolios not rebalanced tend to become riskier over time. In a nut-shell, rebalancing helps an investor to ‘buy low and sell high’.
How to Rebalance
Rebalancing is typically done using 2 strategies Time based and Deviation or Threshold.
In time-based strategy rebalancing is done at pre-defined time intervals (1 hour, 1 day, 1 week or one month). At the end of each time interval the portfolio is rebalanced to achieve the pre-defined asset allocation. Back tests on previous market data suggest that lower is the rebalancing duration higher is the returns in comparison to HODL strategy.
Threshold strategy basically does the portfolio rebalancing only when the deviation crosses a pre defined level. For example, if you have allocated 20% for BTC and the market grows, typically in alts grow faster and the percentage contribution of BTC to the portfolio dips. If we keep the threshold at 5% then the moment BTC contribution dips to 15% the rebalancing is triggered and alts are sold to buy more BTC to bring BTC contribution back to 20% and vice versa in case the market dips. For retail investor time based strategy works well as it is simple to understand and execute.
The Shrimpy Advantage – Rebalancing Like a Pro Has Never Been Easier
Rebalancing as an investment strategy is recommended by many investment gurus and finance experts and thus is here to stay. However, until recent times and because of the technicalities involved, its use was limited mostly to financial experts, fund managers etc.
Luckily today, automation and artificial intelligence advancements are making it much more convenient for retail investors to use it; even a new timer can start using it. Algorithms are now available to do the rebalancing on behalf of customers without their manual intervention. This allows customers to continue focusing work on their core activities, without having to worry about tracking the markets frequently and without having to go through the emotional rollercoaster ride of market ups and downs. Automation takes emotions out of the investment behavior thus an automated rebalanced portfolio doesn’t miss out on booking the profits of a market gain nor does it miss out on buying the dip. Automation thus reduces the chances of missing out of an opportunity. As the level of awareness about automated rebalancing spreads a huge upsurge of retail customers are expected to jump on this band wagon. This eventually will also help the overall market stabilize much more as these automated tools will ensure whenever markets dip – more buying happens, bringing the market up and whenever market pumps – the selling happens to rebalance the portfolio thus averaging out the market price. A stable & predictable market is always safer for retail investors as it offers high level of capital protection and organic growth of funds.
Recently, we started doing some research on the best automation and Rebalancing tools and we found Shrimpy to be one of the best: top-notch features and security, big exchanges support (Binance, Kucoin, Bittrex, Coinbase PRO etc) and incredibly cheap (roughly 9$ per month). As many of our readers might already be aware of, Shrimpy is an automation tool for cryptocurrency portfolio rebalancing.
Since crypto is a relatively new asset class, it has high level of volatility in comparison to traditional markets and thus needs higher level of rebalancing to protect the capital and leverage the exponential gains. Shrimpy provides deep dive rebalancing solutions for its customers which are completely automated. This allows investors with even basic crypto knowledge to curate their own portfolio. Shrimpy right now provides time based rebalancing with slabs in the range of 1 hour to 1 month. Through API integration, customers can link the holdings in an exchange directly for rebalancing in a safe and efficient way. Shrimpy keeps the process extensively safe with a high level of security, using API key encryption FIPS 140-2 validated HSMs and 2FA authentication.
A major advantage of using Shrimpy is that they have already integrated their services with major crypto exchanges like Binance, Kucoin, Bittrex, Coinbase PRO, etc – so using a single interface the customers can view, manage and set rebalancing strategies across various exchanges. Customers can also implement even, linear, rebalancing asset allocation strategies on the platform. Elaborate back test done by Shrimpy team also reinforces the benefits of high frequency rebalancing. The risk reward ratios are heavily in favor of using the Shrimpy automated rebalancing tools. Further research data and right level of rebalancing suited to your strategy can be found here.
The strategy a customer chooses should be given enough time for the averages to work on their favor however in case the customer chooses to change strategies the platform provides flexibility to change allocation percentages and rebalancing time frames any time the customer wants. Shrimpy AI eventually takes out the emotions out of retail investor’s behavior, automates the discipline parameter and gives them high risk reward output. As the market evolves we expect the experienced team of Shrimpy to expand the offering to include deviation/threshold rebalancing, equity-to-crypto portfolio management and hope they soon start accepting subscription payments in crypto as well.
To summarize, portfolio rebalancing is a must for retail investors, they can choose to do it on their own or outsource it to automated tool. If someone still feels apprehensive, they can give it a try by allocating a small percentage of their portfolio and then compare the results over a cycle of 6 months to a year, we feel they might just love “wealth creation”, the Shrimpy rebalancing way!
- Intuitive User Interface. Shrimpy provide and easy-to-use, easy-to-understand interface suitable both for professional and newbies traders.
- Fairly Comprehensive Knowledge Base. Though you will probably do it on your own, Shrimpy also provides a fairly comprehensive knowledge base should you wish to learn how to use it.
- Automatic rebalancing. Shrimpy uses top-notch technologyto place trades on your behalf and gives you the option to automatically adjust your portfolio when crypto prices change.
- Free Features. Shrimpy rebalancing feature is free and you can also use it as a basic crypto price tracker.
- Social trading. Going Premium with Shrimpy will let you chat with successful crypto traders and view their portfolios through the embedded Social feature.
- Backtesting. Backtesting, another premium feature, will analyze your portfolio and suggest you how your portfolio would have performed if you would have used Shrimpy’s rebalancing feature.
- Reasonable subscription price. Shrimpy subscription only costs $8.99 per month.
- Active development team. Shrimpy’s development team answers questions and responds to feature requests on Reddit and other social media sites, such as Telegram or Twitter.
- Customer Support. Shrimpy also offers Live Customer Support to address any concern you might have.
- Exchange support. Shrimpy currently only supports 16 crypto exchanges APIs: Bittrex, Binance, Kucoin, Coinbase Pro, Poloniex and Kraken but the team is constantly adding new ones
- Social features. Currently not all exchanges are supported by this feature, though support for additional exchanges is in development.
- Sometimes support will provide a guide to your answer, but if you ask them to explain it, they will gladly do so.
Strategic rebalancing makes a great deal of sense once you understand the basics. It offers objective guidelines and a clear process to help you remain on course toward your personal goals in rocky markets. It ensures you are buying low and selling high along the way. As we already mentioned, it plays a vital role when investing, especially in cryptocurrency assets. Thanks to its ability to automatically rebalance portfolios, Shrimpy has made the rebalancing process easier. Moreover, because Shrimpy’s rebalancing feature is free to use, it’s definitely worth trying out; is your one step closer to becoming a PRO.