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Show HN: Bitcoin investing using Dollar Cost Averaging strategy

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Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#51

Post by frikk »

otp124 wrote: post #48
Poiesis wrote: post #45

Earlier quoted context omitted.

Am I reading this right? It seems to be advocating “Buy high, sell low”.

This is exactly how I read it. I think the OP flipped the two.. This, and the fact there is zero evidence to back up the claim is enough for us to confidently ignore it and move on.

Well, think about it in the context of a rising volatile asset. I think what OP is recommending is to identify "entry points" and "exit points".

  - Buy as the asset is rising above 10 month MA (and likely will continue to rise, maybe for weeks, months, years)

  - Sell as the asset is cooling off (falling below 10 month MA). Don't get "back in" until the asset is heating back up.
With something like bitcoin, this idea would be to ride up a large market bull, but then get out until it looks like it is happening again. If you play with the Moving Average[0], you can see that this strategy would basically have you enter in late 2013, sell in mid 2014, and not enter again until late 2015, then hold all the way. Not exactly a riveting strategy, but OP didn't claim as much.

[0] https://bitcoincharts.com/charts/bitstampUSD#rg1460zigDailyz...

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#53

Post by AndrewBissell »

Poiesis wrote: post #45
pdog wrote: post #28

A better approach with an extremely volatile asset like Bitcoin is a simple tactical asset allocation strategy. For example, the following system significantly outperforms both buy-and-hold and dollar-cost averaging strategies. 1. Buy when the monthly price of Bitcoin is greater than its 10-month simple moving average (SMA). 2. Sell (and move to cash) when the monthly price is less than its 10-month SMA. That's it. M…

Am I reading this right? It seems to be advocating “Buy high, sell low”.

Since most markets trend for long periods of time, this winds up being a better strategy than you might imagine. "Buy high, sell low" also isn't quite an accurate description, because moving average crosses in strongly trending markets happen at the beginning of the move, rather than the end.

No one regrets buying AAPL high in 2010, or selling LEH low in early 2008.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#55

Post by gnaritas »

otp124 wrote: post #48
Poiesis wrote: post #45

Earlier quoted context omitted.

Am I reading this right? It seems to be advocating “Buy high, sell low”.

This is exactly how I read it. I think the OP flipped the two.. This, and the fact there is zero evidence to back up the claim is enough for us to confidently ignore it and move on.

No, the OP said it correctly, it's a momentum strategy, you presume the market will keep going in the direction it's already going. This is a simple trend trading strategy. It doesn't actually work anymore, but anything that ever worked once will continue to live and be promoted by people who don't grasp that markets aren't static.

What the strategy ignores is that it gets eaten alive in ranges, when the market isn't trending, this strategy buys high and sells low over and over until you're broke. Works great when the market is trending though.

Bitcoin for example last crossed its 10 month moving average around $246, it's now trading over 4k; $246 would have been a hell of a price to get in at. So yes, buying the "high" works well in a trending market. It's have to drop to $1827 to trigger that same sell signal so you'd lose well over half the floating profit, and then it'd probably cross back and forth a few times when it's near the average trigger many failed entries and exits eating up all the profit you just made.

Moving average strategies don't work except in hindsight when you can see the trend and decide which MA would have worked (something you can't know beforehand), but they're great teaching aids in understanding and learning about trading strategies because they're nearly as simple as a strategy can get.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#56

Post by Dolores12 »

AndrewBissell wrote: post #53
Poiesis wrote: post #45

Earlier quoted context omitted.

Am I reading this right? It seems to be advocating “Buy high, sell low”.

Since most markets trend for long periods of time, this winds up being a better strategy than you might imagine. "Buy high, sell low" also isn't quite an accurate description, because moving average crosses in strongly trending markets happen at the beginning of the move, rather than the end. No one regrets buying AAPL high in 2010, or selling LEH low in early 2008.

>No one regrets buying AAPL high in 2010, or selling LEH low in early 2008.

This is clearly survivorship bias.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#57

Post by jacquesm »

quantdev wrote: post #41
krrrh wrote: post #30

Earlier quoted context omitted.

Leaving the coins on the exchange for that long requires an exchange-hack-or-failure cost averaging analysis to balance things out.

Fair, but I doubt the probability of the exchange getting hacked in 5 weeks is meaningful. I agree that you should never leave your coins long term on any exchange, just to be clear, but there is a reasonable amount of risk you can take.

> I doubt the probability of the exchange getting hacked in 5 weeks

Depending on the exchange that probability could easily be >> 0.0.

Exchanges being hacked or absconding with the coins are all too common, ignoring that possibility is not a recipe for a happy ending.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#58

Post by AgentME »

hisabness wrote: post #42
pdog wrote: post #28

A better approach with an extremely volatile asset like Bitcoin is a simple tactical asset allocation strategy. For example, the following system significantly outperforms both buy-and-hold and dollar-cost averaging strategies. 1. Buy when the monthly price of Bitcoin is greater than its 10-month simple moving average (SMA). 2. Sell (and move to cash) when the monthly price is less than its 10-month SMA. That's it. M…

what about taxes from selling?

Aren't taxes only applicable to the profits? I assume the only issue with taxes is it'd be a little more paperwork to document all the trades done with the bot than just a single buy-then-sell.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#59

Post by AgentME »

gtrubetskoy wrote: post #35

The re-balancing system (of which dollar averaging is a variant) is described in the Fortune's Formula book [1] as something that Claude Shannon [2] would demonstrate in his lectures at MIT as a mathematically proven guaranteed winning strategy. At the end of the talk there was a Q and A, and the first question always was "do you yourself use this system", to which he replied "Naw, the commissions alone would kill yo…

The transaction fees at Kraken and many other cryptocurrency exchanges are percentage-based, so that issue shouldn't apply here.

Re: Show HN: Bitcoin investing using Dollar Cost Averaging strategy

#60

Post by module0000 »

pdog wrote: post #28

A better approach with an extremely volatile asset like Bitcoin is a simple tactical asset allocation strategy. For example, the following system significantly outperforms both buy-and-hold and dollar-cost averaging strategies. 1. Buy when the monthly price of Bitcoin is greater than its 10-month simple moving average (SMA). 2. Sell (and move to cash) when the monthly price is less than its 10-month SMA. That's it. M…

10 months could be about 9 months and 30 days too long of a timeframe. Volatile assets are volatile, and 10 months is a long time.
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