Learn the risks of investing and the likelihood of future prices

(economics is not science and prices have their likelihood)

What can you find here?

  • Understanding the risks associated with investing, whether it is buying crypto, gold, AT & T shares, or buying put options
  • The probability of asset’s future prices based on the Monte Carlo method (added on a weekly basis)
  • Easy access to our web application from your computer, tablet, or mobile phone
  • The ability to request additions of assets and price simulations
  • It’s too black and white, I’m bored, I want to see colour charts! No problem, click here!!

Why measure risk?

Everyone wants to be a millionaire, but nobody wants to loose their wealth. How to ensure that you do not lose your assets? Restrict your exposure to risky deals. It is okay to take a risk but certainly avoid playing “all or nothing”.

These days so much information is available and it is almost impossible to establish the truth, from opinions. Making a decision of any sort is very difficult. Visit finance.yahoo.com or seekingalpha.com, read a few articles and you will see many articles on the same subject contradict each other and that they are simply the Authors’ opinion. (The authors are shifting facts so they would suit their hypotheses). So it can be difficult to ensure that you are reading the facts and obtaining the truth and you may well be better off throwing the dices and replying on luck.

Using statistics, facts and truthful information is no guarantee for success.

Risk as an opportunity

Who, at the time when Bitcoin reached parity with the US dollar, had simulated the trajectory of Bitcoin prices using the Monte Carlo method, had to come to a clear conclusion: Bitcoin is too risky, but the possibility of exponential growth gives unprecedented scope for gains (as well as for loss especially if using leverage).

You can also use the same approach to simulate future stock, commodity, or real estate prices.

What does it mean? We can simply understand the extent to which the future price are likely to occur. We will not get a guaranteed answer, but thanks to the simulations we can clearly answer the question:

Will my deal (taking into account past price changes) be too risky or too conservative?

Why Monte Carlo Simulations?

Because we need to get rid of the noise – whether in the form of statements of politicians, impacts in the form of hurricane consequences, internal information leaks, and the like. This method does not take in account anything except past changes in prices and randomness. When BTC climbed to 17,000 euro in December 2017, the Monte Carlo method takes it as history regardless of the circumstances that led to it. Was this a manipulation with tether? Or was it just the natural reaction of people who noticed the information about the rise of bitcoin prices and then bought? And the price began to fall because of the exhaustion of so-called “Dumb money”, or was it targeted manipulation after the XBT-Cboe futures? All this is irrelevant to the Monte Carlo method, and it depends only on price changes and, of course, on a little bit of randomness.

With the Monte Carlo method:

  • You simulate future asset prices for any time ahead by looking at past prices (but you can also simulate your 2-year probability of weight gain)
  • You leave everything to mathematics and a little good fortune
  • You’ll understand that every asset price in the future has its probability
  • You will find out that of all of those analysts, who look so wise and important, some will be right (as necessary) and others will be wrong – since it is 50-50 chance (but that does mean they will be right at some point in time, in the future)

Why not another method?

If you want a technical analysis (TA), there are a lot of sites where you can get it. In essence, it works like this: If anything was easily predicted in the past, we have no guarantee of that happening in the future too. Drawing lines over peaks and dips does not mean anyone has an overview of possible losses or gains. Just try to apply the TA when selling uncovered options and sooner or later you run into uncontrollable losses.

Moving averages, logarithmic price increases, and others are equally unattractive. The goal is not to draw maximum profits and expectations, but to expose ourselves to the risk while not risking a „bare bum“ and at the same time to try our chances with assets where the dispersion of prices can gain gigantic profits while risking a pre-known amount of capital. Apart from that, the Monte Carlo method can be used to look at leverages with a slightly more sober look.

According to wikipedia [link valid on 30 November 2018):

Finance and Insurance
Monte Carlo methods are used in finance and mathematical finance to value and analyze (complex) instruments, portfolios and investments by simulating the various sources of uncertainty affecting their value, and then determining the distribution of their value over the range of resultant outcomes.

Do not think linear

The world and finances are not linear. And there is no “sine-wave” in which the cycles alternate. It is, of course, true that cycles exist, but in no case are they regular. Sometimes a situation develops by leaps and bounds, sometimes we have to wait for a long period of stagnation and we never know what will be tomorrow, week or year.

What if?

When simulating the future prize, we should not be looking at the maximum possible profit but the probability of a big loss. It is not good to approach the investment as “How well it could have turned out!”, but the opposite: “How bad it could have turned out?”

And if you focus only on profits, you can focus on those assets where the positive risk level is big enough because of future price simulations. Let’s say you want to make € 1 million – You will not invest € 1,000 into an asset which will probably not even reach the € 50,000 threshold in 10 years.

Where next?

A few notes

Take the marginal case mentioned above in brackets – the simulation of the weight for 2 years. The weight of a person may drop over two years from 90kg to almost zero. How? Death and subsequent cremation (only ash with minimal weight remains). Such a scenario is undoubtedly the highest possible loss for a particular individual. When investing, it is similar to buying Pets.com.

If the risk and loss associated with it is unbearable, it is better not to take this risk!