Sirwin
Sirwin

To profitably trade Bitcoin it is necessary to hold it during a $1000 price change!

By Jumble | Jumble | 6 Apr 2020


The price range for Bitcoin has been large during the past two years

During the past two years the range in the price for Bitcoin (BTC) has been large. BTC has gone higher and has gone lower. For a trend or swing trader, there have been many profitable trades. Below is a price chart for BTC from April 1st, 2018 to March 31st, 2020.

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Daily price range trailing stop

To earn as much profit as possible, it is necessary to keep in a trade as long as possible. But the volatility of BTC is very large. And it is easy to close a trade before it earns its highest profitability. Use a daily price range trailing stop (DPR_TS) to help the trade earn larger profits.

A typical DPR_TS is to add a “safety factor” to the daily price range. This safety factor is multiple of the standard deviation. The table below shows the mean, median, and standard deviation in the daily price range for Bitcoin for a 2-year HODL, 1-year HODL, and YTD period.

351665157-ba40bc2551bcceb00b2a6684047323db6c598b6aef3429ed71c9b190ef7c34dd.png

Daily price range trailing stop

To earn as much profit as possible, it is necessary to keep in a trade as long as possible. But the volatility of BTC is very large. And it is easy to close a trade before it earns its highest profitability. Use a daily price range trailing stop (DPR_TS) to help the trade earn larger profits.

A typical DPR_TS is to add a “safety factor” to the daily price range. This safety factor is multiple of the standard deviation. The table below shows the mean, median, and standard deviation in the daily price range for Bitcoin for a 2-year HODL, 1-year HODL, and YTD period.

351665157-b07e604fb4598886bd8ce3e411f022dbe79530671c0e8d251e0805ced6a5c445.png

How many standard deviations are necessary for a profitable DPR_TS? The most typical number of standard deviations that is selected is two. For a normal price distribution, statistics show that for 95.4% of the time, the price will not be greater or less than the sum of the mean plus two standard deviations.

To calculate a DPR_TS:

  • for a long trade, subtract the sum of the mean (or median) and two standard deviations to the trade entry price
  • for a short trade, add the sum of the mean (or median) and two standard deviations to the trade entry price.

As the price increases or decreases, adjust the DPR_TS as follows:

  • for a long trade, subtract the sum of the mean (or median) and two standard deviations to the last time period low that is above the trade entry price
  • for a short trade, add the sum of the mean (or median) and two standard deviations to the last time period high that is below the trade entry price.

For the 2-year HODL, 1-year HODL, and YTD period, the table below shows the value for a DPR_TS for two standard deviations from the mean (or median).

351665157-cc2de5dfd83f6ebab60be858b8a058bbfaf888ec166366ced3608e388920e39f.png

Back-test the trade method you use with a different DPR_TS to calculate how much more profitable your trades can be.

Note 1: BTC price from https://finance.yahoo.com/

Note 2: This comparison is for information purposes only.  It is not intended to be investment advice.  Seek a duly licensed professional for investment advice.

 

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Jumble
Jumble

Technical and marketing content writer. And a cryptocurrency fanatic.


Jumble
Jumble

Thoughts about cryptocurrencies

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