It leaves out all the narratives we’ve been fed throughout the year and focuses on a factual representation of what actually is… rather than what should<\/em> be.<\/p>\n That’s why the way this year’s performance really stacks up will surprise you and provide actionable context to build a plan for 2022.<\/p>\n This year we introduced the Sharpe ratio<\/a> – now we’re going to use its context of past performance to see what’s coming next.<\/p>\n It’s a simple ratio that takes the average daily return of an asset and normalizes it by its risk (in statistical terms, it’s how far those returns deviate from the average).<\/p>\n Assets typically range from -4 to 4, with a higher number representing a greater return on your investment. For example, a ratio of 4 means for every one dollar you’re risking, you’re making four.<\/p>\n Only once two assets are normalized by their risk can they be truly compared.<\/p>\n That’s why when you look at the chart below it should surprise you that bitcoin is last<\/em> on the list…<\/p>\n Yes… bitcoin rose almost 70% this year, while commodities rose 35% and the S&P 500 25%.<\/p>\n But the path toward those returns was completely <\/em>different. You can say this ratio counts how grey your hair got while sitting through those 70% returns.<\/p>\n So, from this perspective – and I know bitcoin bulls<\/a> don’t want to hear this – bitcoin was a disappointment this year.<\/p>\n Look, I’m a long-term bitcoin bull, and we’ve objectively recommended both buying and <\/em>selling bitcoin this year. In fact, we’ve used the Sharpe ratio to recommend buying<\/em> bitcoin on September 28 for about $42K<\/a>.<\/p>\n But according to the Sharpe ratio profile, 2021 was somewhat of a bust for bitcoin even though it went up 70%. Think about all the hype<\/a>, all the tweets<\/a>, and the laser eyes<\/a> on people’s social media. By that measure, it should have rose 700%!<\/p>\n You might say returns are all that matter… and that’s true. That’s why an asset that provides half the returns of bitcoin, but with far less risk, can be leveraged to not only match or even surpass bitcoin.<\/p>\n That’s a predominant tactic used by hedge funds. For example, institutional-grade brokerage accounts like Interactive Brokers won’t let you leverage bitcoin. But they’ll let you leverage the SPDR S&P 500 ETF Trust (SPY).<\/p>\n So if I put $1 into SPY but am able to use leverage and get $3 of exposure, then I can make three times more on the same money invested – all while knowing it\u2019s rare for stocks to fall more than 20%. But for bitcoin, 20% drawdowns can happen within a day.<\/p>\n Free Trading Resources<\/strong><\/p>\n Have you checked out Jeff’s free trading resources on his website? It contains a selection of special reports, training videos, and a full trading glossary to help kickstart your trading career \u2013 at zero cost to you. Just click here<\/a> to check it out.<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Now, let’s take another look at the Sharpe ratio chart…<\/p>\n![\"Chart\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202112\/20211210-jmu-01_qxd525.png\")
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\n \n We Need to Buckle Up for Market Turbulence<\/h2>\n
![\"Chart\"](\"https:\/\/cdn.jeffclarktrader.com\/JMU\/images\/202112\/20211210-jmu-02_qxd525.png\")
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