You don't know how to manage your portfolio

I had a talk with my mentor earlier today, and we talked about how we each calculate the signal for our allocation towards ETH compared to BTC.
It got me thinking that a lot of people actually aren't aware of why they allocate capital to different assets in the same class!

Case in an upwards trend

When the trend is up and you want to maximize your returns in crypto, with the least amount of risk... What do you do?

Well, you know that alts are higher beta (they move more than BTC), but you don't know when BTC will alts...

In the case for my conservative portfolio I only hold ETH and BTC, but how do I allocate between them?

What I first and foremost do is look at the dominance chart for BTC:
Here we see the dominance of BTC going down a lot, this is while the market is up (between 18th of jan 2021 and 19th of may 2021)
The TPI informed us about the entire trend for the dominance chart. What you do in this scenario is now determine how much ETH you hold relative to BTC in this period (in your conservative portfolio)


Open the ETH/BTC chart (I use binance personally)
In this period we see ETH outperforming BTC a lot!
When the TPI is bullish for the ETH/BTC pair, it means that ETH is likely to outperform BTC, how did that prediction go?

As BTC dominance falls, and we see strength in ETH compared to BTC, we have a higher allocation towards ETH.


But Omar, how do I quantize the amount of ETH compared to BTC?
No one asked, but I will answer still:

The TPI gives values between -1 and 1, I normalize these values between 0-1 for the ETH/BTC pair, where 0 is 0% allocation and 1 is 100% allocation towards ETH:

Equation for normalization:
minValue = 0
maxValue = 1

(TPI - minValue) / (maxValue - minValue) => (TPI - 0) / (1- 0)

Since the TPI had been bearish with a TPI value at -1 for ETH/BTC since the 13th of march, 100% of my conservative portfolio is in BTC!



Case in a downwards trend

The method is the same, but reversed!
When we look to maximize our returns on a short we want to short the asset that is underperforming!

ETH was underperforming BTC by a large portion during the LUNA drama:

This means most of the conservative portfolio was short ETH, rather than BTC

Quite simple, but very effective!


In conclusion
I want you to ask your self, why am I allocating x% of my capital towards this asset (long or short), and is my allocation optimal?
If you can't answer these two questions, then you probably need to look at your system

Numbers don't lie, this method works!

The TPI is truly the holy grail for a swing trader who wants to use statistics and data to maximize their returns and minimize their risk!

Kind regards
Omar

I've linked an idea below from a dear friend of mine (much bigger than on this platform) who has marked out crutial levels for the altcoin market based on what the FED will do, give it a watch!