shown off The best strategy to make money with bitcoin over time, people have different time horizons. Those who are not willing to wait years for the Bitcoin adoption curve and/or take trading as a job, usually trade the news of the day and it has some strategies based on technical analysis. However, you may find yourself in a happy medium. What if you don't want to be glued to the monitor all day, but also don't want to wait another 5 years before taking profits? Well then you can learn the strategy of trading momentum.
Bitcoin is one of those assets that regularly have long phases of parabolic movements. One way to characterize this is to look at the BTC against its long-term trend. 200 days:BTC/USD in log scale. Source: Ecoinometrics. What you see is that Bitcoin tends to grow very fast, ahead of its 200-day moving average. Then it continues in its uptrend for a while. Finally, when the bullish force wears out, it drops back to the 200-day moving average, which has moved to a much higher price level. Well, if you believe that this kind of pattern will repeat itself in the future, there is a strategy. A minimalist trading platform that can help you capture most of the advantages.Here it goes:Buy when the daily close exceeds the 200-day moving average (DMA).Settle the position when the daily close falls below 200 DMA.It this. For this strategy, you basically only need to check the price once a day and that's it. It's just not simpler than just holding the bitcoins and never selling. And what do you get by applying these rules: Small losses or small gains when you get a false breakout. Huge gains when you notice the big trends. main point of this strategy. Most of the time, you don't get anything out of it. But when a big wave appears, you make enough profits from it to make it worth it. What you get out of it are asymmetric returns if the pattern repeats. Take a look below. Each point is a trade and its position on the axis horizontal indicates return. The break-even point is at the 1x multiplier. Losing trades are in blue. Winning trades are in red.While the biggest loss was 5.7%, the biggest profit achieved with the strategy was 3,217.3%. Source: Ecoinometrics. The most recent trade, started after the March 2020 crash, returned 388%… not bad. Obviously, this is a well-known strategy. But the beauty of this is that it works well in any market that exhibits strong trends. Want an example outside the crypto space? We'll look at one of the big tech stocks, Apple (AAPL). Watching AAPL's price with its 200-day moving average , we will have the chart below:Trading momentum also works with stocks that exhibit Bitcoin-like behavior. Source: Ecoinometrics. With a quick look at it, you'll probably see that it should work well enough. So, let's apply the same rules and check the result: Most trades give you small losses or small gains. big waves with which you'll get all your profits.The strategy would record an average loss of 2.7% when it lost and achieve an average profit of 40.6% when it won. Source: Ecoinometrics.Ok, this works for Bitcoin and also for Apple. How about gold? Most of the time, gold isn't doing anything. But sometimes there are those big waves that are driven by changes in real government bond yields or increases in inflation. That means it should probably work there too.Gold ounce price and its 200-day moving average. Source: Ecoinometrics. No big surprise when you apply the same rules to a market that exhibits similar behavior, you end up with the same results: Most trading gives you small losses and small gains. But you surf the big waves.The gold market strategy showed a maximum loss of 1.9% while showing a maximum profit of 93.4% in a bullish wave. Source: Ecoinometrics.Of course, these three markets have different types of returns due to their different levels of volatility. But as long as you are aware of this and size your positions accordingly, the strategy remains simple and effective. It is worth noting that the strategy only applies in markets that show a tendency to strong movements (bitcoin, growth stocks, commodities) and you'll get something very close to what momentum-based hedge funds do. Or you can just use that to trade Bitcoin with a medium-term investment horizon. chances of losing money on trades. It is not the intention of the article to sell you a trading strategy. What's worth noting is that you don't need complicated rules to benefit from trending markets. Is this simple 200-day moving average strategy giving you the best backtest results? Probably not. Could you make more money by closing your position when you think we're at the top? Perhaps. But, from the experience of Nic, an analyst at Ecoinometrics, simplicity and consistency will make your life easier and provide 80% of the results for 20% of the effort. This Monday (06/28) each bitcoin is traded to US $34,472 and the BTC's 200-day moving average is around $43,500. Are we close to another test?Read too: