In this new article, we analyze the average price development of the most important and largest cryptocurrency (by capitalization) in the crypto landscape, Bitcoin.
We will then develop a strategy based on the indications of a proprietary software, the Bias Finder, capable of quickly detecting the presence of bias, ie recurring behaviors within the considered historical period, in any market.
What are Bitcoin (BTC) bias strategies?
Seasonal strategies fall into the category of bias; These are strategies that look to the historical average trend of a market to determine in which months (days or weeks as the case may be) it is appropriate to buy or sell that particular asset.
In the case of Bitcoin, the calculation is done quickly thanks to the bias finder. Unfortunately, it doesn’t have a long history as Bitcoin’s first transaction occurred in 2009, right after the subprime mortgage crisis. At that time, there was no cryptocurrency exchange (Binance and Coinbase, for example, joined many years later).
For this reason, the data from Bitcoin’s early life is not very clean (and also very different from today). and those that can be considered reliable for use in the various studies are not very profound.
In any case, data from January 1, 2018 to July 31, 2023 is used.
Bitcoin (BTC) Annual and Monthly Distortions
The following pictures show different tendencies. The first is the “annual trend” which is used to show the market trend for all months of the year (Figure 1). In contrast, the next figure shows the “monthly trend,” which identifies the best days within the month to buy or sell bitcoin.
Figure 1. Bitcoin (BTC) Annual Bias
Figure 2. Bitcoin (BTC) Monthly Bias
In figures 1 and 2, as already mentioned, it is possible to estimate the average movements of Bitcoin over the year and months, respectively. In the first chart, we can see that the absolute worst month for buying bitcoin is May (the saying “Sell in May” is famous in connection with the stock markets), with declines already starting in the second half of April and continuing until mid-April stop june . On the other hand, the best months to buy Bitcoin seem to be October, February and July (also good in 2023).
The most positive days of the month, visible in Figure 2, are between the end of the month and the beginning of the following month. In particular, there is a price increase (again on average) between the 22nd day of the month and the 3rd day of the following month when looking at the 5 years between 2018 and 2023.
Furthermore, it seems reasonably certain that the first part, between the first and 15th day of each month, is the least volatile and frivolous, while in the second part, between the 20th day and the end of the month, volatility increases. What will be helpful are the following figures, which analyze the performance from year to year to assess the stability of the average data from the tests previously performed.
Figure 3. Bitcoin (BTC) trend analyzed year by year.
Figure 4. Bitcoin (BTC) monthly bias analyzed year-by-year
In Figures 3 and 4 we can see in different colors the monthly and annual variation broken down from year to year: green is the year 2023 (which actually ends at the end of July), purple is the year 2022, yellow is that Year 2021 and finally In Orange is the average of the years between 2018 and 2020.
Based on these results, we can confirm that the month of October is ideal for buying Bitcoin. Even in 2022, a very difficult year with sharp declines, considering only the month of October, Bitcoin managed to limit the damage and halt the decline. Good results for October also in 2021 and in the triennium 2018-2020.
February is also confirmed as a positive month, with increases in all years except 2022.
The last days of the month remain constant in all years of the backtest. In contrast, the early numbers suggest a lack of resilience in the last two years, 2022 and 2023, where we see “sluggish” earnings curves (Figure 4) between the second and third days of the month.
Backtesting a trading system bias against Bitcoin (BTC)
At this point it is important to get your hands dirty and develop a strategy with the information you have gained. The system will buy $100,000 worth of Bitcoin during the months of February and October. Of course, in 4 1/2 years of history, there will only be a few instances where trades are possible with the strategy, but for academic reasons we’re looking for confirmation from this backtest with a little more practical focus. Shops close on the first day of the following month, March 1st and November 1st.
Figure 5. Equity line strategy targeting Bitcoin (BTC)
Figure 6. Average Trade Bias Strategy for Bitcoin (BTC)
Figure 7. Performance Summary Bias Strategy for Bitcoin (BTC)
As expected, the results are good (Figures 5-6-7), although not very consistent. In fact, 12 trades is just a few to represent a reliable statistical sample. However, it is gratifying to see how the strategy manages to generate a good line of equity with a profitability percentage of 75% and a total profit of around $160,000 with a drawdown of -38,000 without additional filters or the insertion of stop losses U.S. dollar .
The average trade is plentiful to say the least, surpassing $13,000.
As a further test to try to add substance to these tests, in the following lines we will develop a second strategy, different from the previous one but based on the same results found with the Bias Finder.
Backtesting a Trading System Distortion of Bitcoin (BTC) Highs
Notably, the second strategy will allow entries at the highest highs in the past 100 hours in February and October alone. Trades are closed at the end of the day, so this is an intraday strategy.
It can be seen in Figures 8, 9 and 10 that the system executes many more trades with this configuration than with the previous strategy, with the average trade exceeding $600 out of a total of 110 trades.
The total win is $68,000 with a maximum drawdown of -$20,000.
Again, the equity line increases and is obviously very similar to that of the previous system.
Figure 8. Bitcoin (BTC) highs equity strategy bias
Figure 9. Average Trading Strategy Bias of Bitcoin (BTC) Highs
Figure 10. Bitcoin (BTC) high performance summary bias strategy
Conclusion: Biased trading system for Bitcoin (BTC)
In summary, even this second strategy, which is more consistent than the first, produces good results and confirms the possibility that there may be recurring and potentially exploitable behavior in trading systems during these specific months, namely February and October. Despite multiple tests, the certainty that this type of bias will persist in the future is unknown, but with a little patience one can observe the out-of-sample lifetime of these strategies and only then judge what to do.
See you next time and happy trading!
Andrea Unger
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
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