The Tunji Letter, Edition #48
Use Your Checklist || Exponential Moving Average || Crypto Sell-Off
Welcome to the Tunji Letter, Edition #48.
// Quote of the Week
“No wise pilot, no matter how great his talent and experience, fails to use his checklist.” – Charlie Munger
When it comes to investing, you should always have your investment strategy (checklist) next to you. You should have a full understanding of your strategy and be able to revert to it so that you can continue to stay on the right course for yourself. In not having an investment strategy at all, you are putting yourself in great danger of taking risks you can easily avoid. Over time, you should update your investment strategy and continue to keep it close to you so that you can remind yourself of the plan you have to put your money to work for you, not against you.
// Exponential Moving Average
An exponential moving average (EMA) is a moving average (MA) that places a greater weight and significance on the most recent data points. Essentially, an EMA reacts more significantly to recent price changes than a simple moving average (SMA), which applies an equal weight to all observations in the period. The formula for EMA is as followed (courtesy of Investopedia):
In the formula, smoothing will typically be equal to 2 so that recent observations have greater weight than older observations in the period.
I typically use a 20-Day, 80-Day, and 200-Day EMA when doing technical analysis. The 20-Day EMA helps to showcase the short-term trend of a stock. The 80-Day EMA provides the level at which I will consider reinvesting in a stock I have in my portfolio, meaning that if a stock’s price falls to its 80-Day EMA in my portfolio, I will reinvest more money into it. The 200-Day EMA provides the level I will consider incorporating a new stock into my portfolio that I believe will have a strong run over the next five years due to the fundamental analysis I have done on it.
An example of a recent chart of Tesla where the blue line is the 20-Day EMA, the yellow line is the 80-Day EMA, and the purple line is the 200-Day EMA (courtesy of Yahoo Finance):
// Crypto Sell-Off
On Wednesday, May 19th, 2021, Bitcoin plunged 30% at one point during the day to nearly $30,000. Bitcoin was also down 50% from hitting an all-time high of $64,829 in mid-April. Other cryptocurrencies plunged as well, with Ethereum dropping more than 22% and Dogecoin dropping more than 25%. Additionally, cryptocurrency exchange Coinbase was temporarily down for some users.
This recent sell-off is a reminder that the cryptocurrency market is volatile and still in its infancy. Bitcoin is less than 13 years old. It is the oldest cryptocurrency but still young regarding its use case as a digital asset. I took the sell-off as an opportunity to buy Bitcoin, and I hope that you did as well. This sell-off was a great example of buying low because I know that I will have a clear opportunity to sell high within the next five years if I wanted to. Major price drops can be scary, but you should see it as a time of opportunity as a long-term investor.
// Latest Articles
Check out my latest articles:
· 3 Quick Points to Simplify Ethereum
· How to Check Your Credit Report and FICO Score for Free
· An IPO Focused ETF to Know About
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Thank you for reading!
Tunji
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