Wanted to share this idea as it is relevant to the current market structure that is forming. Many people trade solely based on moving averages, and this strategy is a derivative of those but takes a couple extra steps to minimize the amount of effort and risk involved.
What makes this different from other MA strategies? This entire strategy is based on buying into Bitcoin when the price is above the 6hr 200SMA. There are a few confirmations that I add to this strategy to improve the return. One of those is that I use the 6hr timeframe rather than 4hr like many others, this is to minimize the amount of ‘fakeout’ moves, so simply to minimize entry/exit occurrences. The other major factor I account is only following the strategy while the moving average has a positive slope. This is very important because if this strategy is followed while the moving average is trending upward then the risk of realizing losses decreases dramatically.
What are the entry and exit criteria? While the 6hr 200SMA is trending upward, enter on the 6hr candle close above the moving average. When a 6hr candle closes below the moving average, exit the trade. That’s really all there is to it.
Does this work well historically? This isn’t a perfect comparison, but we can look at the most recent accumulation zone (2019-2020) as it is the closest data set we can compare with. Both charts below can be used to see where the entries and exits are indicated by the white arrows.
If someone bought $100 worth of BTC at the first buy indicated on the chart and sold at the last sell point (holding through all of the price action in the middle), they would have $640 at the end of the bull run.
If that same person bought $100 of BTC and followed the buys/sells we have indicated, they would have a total of $765.
While that may not seem extremely significant, that does outpace the HODL strategy by about 20%! All while giving the peace of mind of not holding downtrends.
How does this reflect current price action?
If this strategy were followed for the recent bear market and accumulation phase it would’ve already signaled a couple of buy signal, which can be seen in the chart below.
If starting with $100, this would now have someone up to about $160, nearly 60% increases already!
The current price action is sitting just below this 6hr SMA again! So there may be another entry idea coming if BTC can break through the SMA. The tricky part this time is that the SMA is not really trending upward currently, it is moving laterally as BTC chops sideways, so the decision to enter on a breakout would be completely up to buyer discretion.
Concluding Thoughts
This strategy can be extremely powerful for those that want to gain an advantage over simply holding bitcoin. And this is done in a very low risk method with the moving averages trending upward as the sell price in theory must be equal to or above the sell price.
With that said, this strategy does find it’s weakness being when BTC is stagnant or chopping sideways. This is because the price is constantly bouncing above and below the 6hr SMA which would trigger many more entries and exits, and these will/can slowly eat into your portfolio. We mitigate this by using the 6hr SMA over the 4hr SMA, but ultimately this downside cannot be eliminated completely.
Mathematically, this strategy is nearly a guarantee to outperform simply holding. And as an added bonus that I didn’t really cover, this strategy is GUARANTEED to keep you out of bear markets. And that is where the real gains are made because you can then compound those profits into the next round of this strategy.
Wanted to share this idea as it is relevant to the current market structure that is forming. Many people trade solely based on moving averages, and this strategy is a derivative of those but takes a couple extra steps to minimize the amount of effort and risk involved.
What makes this different from other MA strategies?
This entire strategy is based on buying into Bitcoin when the price is above the 6hr 200SMA. There are a few confirmations that I add to this strategy to improve the return. One of those is that I use the 6hr timeframe rather than 4hr like many others, this is to minimize the amount of ‘fakeout’ moves, so simply to minimize entry/exit occurrences. The other major factor I account is only following the strategy while the moving average has a positive slope. This is very important because if this strategy is followed while the moving average is trending upward then the risk of realizing losses decreases dramatically.
What are the entry and exit criteria?
While the 6hr 200SMA is trending upward, enter on the 6hr candle close above the moving average. When a 6hr candle closes below the moving average, exit the trade. That’s really all there is to it.
Does this work well historically?
This isn’t a perfect comparison, but we can look at the most recent accumulation zone (2019-2020) as it is the closest data set we can compare with. Both charts below can be used to see where the entries and exits are indicated by the white arrows.
If someone bought $100 worth of BTC at the first buy indicated on the chart and sold at the last sell point (holding through all of the price action in the middle), they would have $640 at the end of the bull run.
If that same person bought $100 of BTC and followed the buys/sells we have indicated, they would have a total of $765.
While that may not seem extremely significant, that does outpace the HODL strategy by about 20%! All while giving the peace of mind of not holding downtrends.
How does this reflect current price action?
If this strategy were followed for the recent bear market and accumulation phase it would’ve already signaled a couple of buy signal, which can be seen in the chart below.
If starting with $100, this would now have someone up to about $160, nearly 60% increases already!
The current price action is sitting just below this 6hr SMA again! So there may be another entry idea coming if BTC can break through the SMA. The tricky part this time is that the SMA is not really trending upward currently, it is moving laterally as BTC chops sideways, so the decision to enter on a breakout would be completely up to buyer discretion.
Concluding Thoughts
This strategy can be extremely powerful for those that want to gain an advantage over simply holding bitcoin. And this is done in a very low risk method with the moving averages trending upward as the sell price in theory must be equal to or above the sell price.
With that said, this strategy does find it’s weakness being when BTC is stagnant or chopping sideways. This is because the price is constantly bouncing above and below the 6hr SMA which would trigger many more entries and exits, and these will/can slowly eat into your portfolio. We mitigate this by using the 6hr SMA over the 4hr SMA, but ultimately this downside cannot be eliminated completely.
Mathematically, this strategy is nearly a guarantee to outperform simply holding. And as an added bonus that I didn’t really cover, this strategy is GUARANTEED to keep you out of bear markets. And that is where the real gains are made because you can then compound those profits into the next round of this strategy.