A loss limit fires on ETH's first down week after four rising weeks
Should the fund re-enter ETH before the weekly close after hitting its loss limit, or keep the exposure cut and restore it only under the rule written before the event?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 11 March 2024, ETH fell 6.03%, from 3,878.47 to 3,644.71, after four straight up weeks of 14.92%, 8.03%, 12.05% and 11.20%. An illustrative fund cut its exposure when its fixed loss limit was hit. The week's range was 19.99%, annualised realised volatility reached 80.0%, the worst day was -5.85% on Saturday and the largest one-hour move -3.39% on Friday. Dollar volume was 2.06 times the prior 12-week average, the close sat in the middle third of the range, and ETH underperformed BTC by 5.21 percentage points.
Judgment
The cut was taken on the first down week of a reversal after a four-week run, at 80% realised volatility and a -5.85% day on Saturday. Do not re-enter this week: keep the exposure reduced through Sunday's close and restore only a fixed fraction, by the rule written before the event. ETH lost 5.21 points more than BTC at 0.93 correlation, so the drawdown belongs to the pair, and sizing the re-entry for ETH alone understates the move it must absorb. Accept missing the bounce off the Sunday low of 3,412.00.
What would change it
If a later week closes above this week's open of 3,878.47, or the ETH-BTC ratio stops falling while correlation stays near 0.93, the limit can be reset and the cut exposure restored. If realised volatility holds well below 80% for several weeks, the next cut can be sized larger.
What sets this case apart
A loss limit firing on the first down week after four up weeks, inside a pair that moved together, so the loss is mostly relative rather than asset-specific.