This article will discuss some of the scenarios you will experience when using the Shrimpy application. In order to construct a sound strategy, we must first have a conceptual understanding of how different market situations impact our performance when rebalancing.

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The day is Wednesday, June 21, 2017. You’ve been watching your crypto portfolio all morning, when Ethereum starts crashing. Panic strikes every nerve in your body. Do you sell? Do you buy? In fright, you set a stop loss to trigger at $200. ETH was at $352 just minutes ago, so the fear of losing all of your funds gets to you. Did you make the right call? Continue reading to find out!

This article will be a conceptual discussion of common scenarios you might find yourself in if you rebalance your portfolio. For each scenario, I will discuss the advantages and disadvantages of rebalancing. These situations are by no means a complete guide, but it should provide a foundation for thought and investigation.

Each scenario will be presented in two manners. The first is how the portfolio will behave without rebalancing. The second is how the portfolio will behave if it has been rebalanced. In each case, a single asset’s price will be changing relative to the portfolio. So, it is assumed that the value of all other assets in the portfolio remains constant while the single asset fluctuates. This simplifies our tests and provides an easier way to understand each scenario. Each scenario has been marked with one or more dots that designate a rebalance event.

Pump and Dump

Let’s begin our discussion with the hallmark of the crypto market; the pump and dump. This is when a sharp value increase of an asset is followed by a sharp decline in asset. The result is a return to the original price.