Data Science Project: Bitcoin Bull Season Exit Strategy. When to Jump from the Train?
This article has been written by Hakan Elbas and Alparslan Mesri
Welcome a brainstorm about Bitcoin bull market exit strategy. In that brief article, we will use some data which is extracted from previous articles, and present to you an important graphic pair and also a conclusion.
Bitcoin market has some cycles. Basically, these cycles start with halving and finish with an all-time high price. If we don’t aim for a long-term investment like 5 or 10 years, then we need to consider our investment within inside of a bitcoin cycle. How can we maximize our return from the market?
Some small investors are using gradual sale technic, some follow google trend data, some follow big investment companies’ or Twitter influencers’ statements, some try to smell the air and mostly they act according to their feelings. But maybe there is another way.
By using python we processed bitcoin historical data and with Tableau created a graph pair. In graph-1, at the y-axis, “increase rate” represents the percentage of rising. 0% represents the price of 12,24 dollars and 100% represents the price of 1157 dollars. On the other hand, at the x-axis, there is the percentage of bull time. 0% matches with the date 28.11.12 and 100% matches with the date 01.12.2013. Between these two dates, there are 368 days.
Graph-1: Bitcoin first bull cycle, 28.11.2012–01.12.2013
Graph-2: Bitcoin second bull cycle, 09.07.2016–16.12.2017
To make a long story short, as you can see in the graph pair, more than 60% of the increase in the bull market belongs to the last 5% of total time. It means if your sense is not powerful as much as an oracle you will not able to catch “at least” 60% of market profit. We recommend another perspective.
By using an algorithm, in the premise of this project, we listed bitcoin corrections*. That study showed us, since two bitcoin bull markets, except just one correction(82%) at the start of the 2012–2013 bull market, there was no correction bigger than 41%.
Result…
It has been already 9 months since the previous halving(May 2020). After this step, there can not be a correction like 82%. Such a correction would probably put an end to the bull phase. In the light of these data, we presume that if the third graph will be similar to the previous two, maybe not jumping from the train but having a crash with a train might be a better strategy. Putting a 50% stop-loss and waiting for the falling of the market might be more profitable than other alternative strategies.
*: In that study, our scope was a little wider than 28.11.2012–1.12.2013 and 9.07.2016–16.12.2017 periods. Thus data are a little different but the needed algorithm is the same.
