Wouldn't it be nice if you knew of a way to systematically trade out of your alts and back into Bitcoin during a market cycle?
As with anything in crypto: no guarantees here. DYOR. NFA. I'm educating you about a strategy.
Let's begin with two background points.
Two Background Points
1 Maybe the most obvious background point is that we need to be in a bull market for this strategy to work. For our purposes, we're in one if $BTC is trading above its 200-day moving average.
2 Next, you'll notice that $BTC tends not to rise too much above that 200-day moving average. Once it reaches some 20% above it starts to look expensive. At 40% above it almost always pulls back.
Call that the 20/40 rule.
$BTC stands at 28% above, which is fine. It would be better to hold than some alts.
Alt-Coin Focus
Our goal is to sell alt-coins that are too far overpriced. Some use a 30/60 rule as they're much smaller and more volatile.
I'll explain in 3 steps using $XRP as an example. My goal is not to tell you to sell, etc. And I do think $XRP is well positioned long term. We're just focusing on the short term.
Below is the chart of $XRP on TradingView. I've put the Historical Volatility indicator (set at 30 days) at the bottom. Let's walk through the three steps.
Step 1 - Historical Volatility
Add the indicator and set this to 30 -- to give us the rough volatility over the past month.
Now, you need to decide whether your coin is typically a high-volatility coin or a low-volatility coin.
High-vol coins will use the 30% and 60% above the SMA 200 rule, while low will use the 20% - 40% rule.
$XRP is large and typically hovers in that 20 - 80 range. The rule should be the 20/40 rule.
Steps 2 and 3
It goes without saying, but the coin you're looking at should be over the SMA 200. That's step 2. If, for some reason, it isn't, then why are you holding it?
Now draw a line down from the current price to the SMA 200. $XRP sits some 62% above that.
At the very least, I would take some profit with this one.
Mantra ($OM)'s price action is a sort of best-case scenario. It's a small coin, so it uses the 30/60 rule.
After Trump's victory, it shot up some 71% above its moving average. It has come down a little bit, but has mostly acted as a stablecoin.
It is now "only" 40% above its moving average. It is (mostly) out of that danger zone, but it's been dead money for 40 days.
The far more common outcome is what you'll witness with $virtual. I love this project (and stacked some nice bags with it).
But I progressively took earnings because it was just too much too quickly. It soared to 87% above its SMA 200 ... and now has cooled to 65% above.
It still has more to go and it's down 44.8%.
What's the Dragon Part?
We're in a bull market. So, the idea is to hoard $BTC like a dragon.
If you have alts, you can use the method just outlined to identify alt-coins that are likely over-heated and might be worth selling into $BTC.
$XRP might go up more ($virtual reached 87% over its SMA 200), but it looks a bit overheated. It's easier psychologically to cycle into $BTC than it is just to give up on the bull run.
Concluding Thoughts
Those are the three steps in the "BTC Dragon Strategy." It would make Michael Saylor proud.
It does set you up for more volatility than selling to cash, but as long as we're in a bull market you'll outperform this way.
Happy Trading!
-Sebastian Purcell, PhD
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