The optimum Bitcoin Trading strategy - *10K to 1M+ In just 12 trades*
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This time, we talk Bitcoin, but as always for those new to the channel please consider subscribing, and for those that find value please hit the like button…
We usually review trading or investing strategies from some of the most well-known experts, this time however, we look at how I use many of the principles covered, to trade Bitcoin, and how I traded Bitcoin from 2016 to today, through bull and bear markets, and how I intend to trade this next phase and beyond, with of course, good risk management.
Before we look at the strategy in detail, lets first summarise the results from 2016 through to today.
I took twelve trades in total, starting from November 2016, through to today. I either took a cash position, or I took a long position on Bitcoin.
The results of each trade can be seen here, ranging from a maximum gain of 241%, to a maximum loss of just under 15%, whilst my last trade was closed today.
To put these results into perspective, a ten-thousand-dollar investment compounded against each of the eleven trades, would have returned just over 1.3 million dollars. Personally, I rebalanced my portfolio as my trading account grew whist seeing more moderate equity growth.
A buy and hold strategy on the other hand would have seen the same ten-thousand-dollars grow to just over $450,000, but with an astonishing 84% drawdown along the way.
Not forgetting that buy and hold would have seen you fully invested for over 1500 days, resulting in opportunity cost, whereas my strategy would have seen you invested for just 680 days.
The strategy is rather simple, leaning on the principles of momentum, price action and solid risk management.
The key component that I apply to Bitcoin and my bread-and-butter strategy, is the mack dee indicator, however due to the volatility of Bitcoin I use a variation to reduce risk. I refer to it as ‘dual mack dee’.
The purpose of the video however, is not to dig deep into the methodology of the indicator, but rather see its application against the price of Bitcoin, in conjunction with other criteria.
In summary, mack dee stands for Moving Average Convergence Divergence. Simply put, it is a trend following momentum indicator, which measures the relationship between two moving averages.
It is calculated by subtracting the 26-period exponential moving average, from the 12-period exponential moving average. This creates the mack dee line.
A nine-day exponential moving average is then plotted over the mack dee line. This is called the signal line.
The most common use amongst traders looking to buy a position (or go long) would be when the mack dee line crosses above the signal line, this crossover is seen as a bullish signal. This is the same signal I use to trade Bitcoin, although I use the combination of the daily timeframe and the weekly timeframe, hence the name dual momentum.
Let us look at my method and the signals generated.
First, I look at the weekly Bitcoin chart, then add the mack dee indicator.
Using the weekly chart of Bitcoin, we can see how the mack dee line crossed above the signal line. This is when I made my first bitcoin trade back in November 2016.
This crossing marks the beginning of a trading window, the trading window will remain open for Bitcoin so long as the mack dee line remains above the signal line on the weekly chart.
The entry trade was made here, the opening of the week and the week after the mack dee line crossed and closed above the signal line.
Step 2 is therefore buying at the crossover.
Step 3.
Once in the position we now open the daily Bitcoin price chart, and once again add the mack dee indicator.
This time we wait for the mack dee line to cross below the signal line. At this moment, many traders would sell, however, we use the price action of the closing candle to make a stop loss position.
We can see the closing candle here, and it is at this point we enter a stop position, directly at the base of the candle wick.
The following few days see the price hit the stop loss, and we are therefore taken out of our position.
The following 2 weeks we see a sideways consolidation of price, but we wait for the crossover of the mack dee line before re-entering our long position.
We eventually see the crossover here. But before we confirm our re-entry, we need to ensure the mack dee on the weekly chart remains above the signal line.
We get confirmation, return to the daily chart, and re-enter our long position.
The key takeaway at this stage is the reduction of risk, by placing the stop loss at a retracement of momentum, like we did here, we eliminate any unknown drawdown.
Let us assume we see the price of Bitcoin continue to drift to here, but almost like paying an insurance premium, we do not suffer any further loss.
The cost of our insurance premium can be considered the difference between the exit price, and the re-entry price. In this example, the premium we paid for risk reduction was around 10%.
It’s a similar concept to risk and reward, but in reverse. We risk losing out on a 10% gain in price, but save ourselves from considerable drawdown.
We continue the same process as the price progresses, again with a keen eye on the mack dee crossover. Remember we are still looking at the daily chart…
We see the cross down here and once again place the stop loss underneath the wick of the closing candle.
We are taken out of the position the following day and stay in cash awaiting the next crossover above the signal line.
We see the cross above here and once we confirm the weekly mack dee is still above the signal line, we take another long position.
Notice how the cost of insurance premium paid for this position was almost zero, due to the stop loss price being very close to the re-entry price.
I followed and continue to follow this mechanical concept through to today. Its principle is simple, the weekly mack dee ensures we have long term momentum in our favour, and the daily mack dee ensures the short-term momentum movements, aligned to the weekly window, help us maintain excellent risk management.
By following this simple dual mack dee concept, you can ignore all the hype and commentary surrounding Bitcoin and just follow the momentum.
Let’s look at the strategy through the previous Bitcoin bubble, through to today.
Here we can see the previous Bitcoin peak on the weekly chart, almost touching 20,000.
We can also see the trading window which took us through the peak of the bubble, through to the downward crossing of the weekly mack dee. But remember this is just a window, we use the daily chart to determine the exit and entry points. The daily mack dee indicator would have had us exit the trade much nearer the peak.
If we look at the daily chart portion leading up to the peak, we can see the daily mack dee remained above the signal line, therefore we would have remained in the ascent at this point.
Now let us look at the exit point during the bubble, determined by the daily mack dee.
We can see the peak here at 20,000, and just 3 days later the daily mack dee crossed below the signal line.
Just as we did before, we look for the lowest point of the closing candle and place the stop loss at the base of the wick. The following day price crossed below our stop loss and we exited our position at just over 15,000.
Zooming back out to the weekly chart our 15000 exit trade would have been here, leaving us in a cash position throughout the following months of price declines, all the way down to almost 6000.
The next window of opportunity came here at the weekly mack dee cross back above the signal line.
I had only been presented with one trade during this window based on the daily mack dee crossover, this was on the 24th of September at a price of 6,700, the daily mack dee then crossed back down on the 14th of November at a price of 6200, equating to a loss of 7.6%.
Our next trading window began here in February 2019. This begins a series of trading windows leading up to today, the 17th of January 2021. Remember, each window is determined by the weekly mack dee line being above the signal line.
In the 1st trading window, I took a long position on the 8th of February 2019 , and exited the trade on the 15th of July for a 214% return.
The next trade saw an entry on the 6th of August and an exit on the 15th of August for a loss of 14.7%.
A quick glance at this losing trade on the daily chart, we can see the mack dee cross above, our entry point and a few days later the mack dee cross down. We put our stop loss at the base of the wick and shortly after we were taken out of our position.
In the 2nd trading window, I had a gain of 30.2%. In the 3rd trading window I took a return of 24.2%
In the current trading window, in which I closed my position today, I had a gain of 217%.
Again, a quick glance at the rationale for closing the position, determined by the daily chart, we can see the mack dee cross down and we place our stop loss below the wick of the closing candle. Today the priced crossed below the stop loss, we entered a cash position and await a cross back up to re-enter a long trade.
The theory behind the strategy is that markets tend to trend up slower than they do coming down. Therefore we use the slower moving weekly mack dee on the long side, and the faster moving daily mack dee on the sell side.
A simple, highly effective momentum strategy that I use specifically for Bitcoin to generate excellent results.
Remember, Ignore the commentators and follow the money.
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Financial Wisdom