In this article I outline a strategy to trade Bitcoin (
BTC-USD) using the 200-day simple moving average (SMA).This strategy is easy to understand and to use.It can be used to trade BTC-USD itself or as a tool to trade one of the new Bitcoin ETFs such as Fidelity Wise Origin Bitcoin Fund ETF ( FBTC) and iShares Bitcoin Trust ETF ( IBIT).If you are a Bitcoin enthusiast who never sells Bitcoin, then this article won’t be of use to you.Likewise, if you are a non-believer in Bitcoin and want nothing to do with it, then this article is not for you either.
However, if you are like me and see BTC-USD as a commodity that can be traded just like the SP 500 index then perhaps this strategy is for you.
My 200-day SMA strategy is a long only strategy and is based on the price of BTC-USD on the last day of the month.If BTC-USD is above its 200-day SMA you either buy BTC-USD at the open the next day or you stand pat if you are currently long.When the price of BTC-USD is above the 200-day SMA that is a bullish reading, and you want to be long.If on the last day of the month BTC-USD is below its 200-day SMA, then that is a signal to sell BTC-USD at the open the next trading day.When the price of BTC-USD is below its 200-day SMA that is a bearish reading, and you want to be out of BTC-USD.
Again, this not a sell and go short signal, this is simply a time to close your position and wait for the next opportunity to go long.It is also important to note that this strategy only applies to the last trading day of the month.Price can oscillate above and below the 200-day SMA during the month but that will not generate a buy or sell signal.Only the last day of the month counts for buy or sell signals.
Table 1 below shows the results of this strategy.
Table 1 – BTC-USD using 200-day SMA versus buy and hold performance table
Table 1 above shows the strategy along with a simple buy and hold strategy based on an initial $10,000 investment starting on 30 June 2015.That date represents the first close above the 200-day SMA that my charting service has available.
The date column shows the entry and exit dates of the strategy and the performance of those entries since 30 June 2015.You can see nine completed trades and the most recent buy signal is still open.Some observations of Table 1 are as follows.Being a buy and hold investor of BTC-USD was the clear way to go.
Your initial $10,000 would be worth over $1.3 million based on the 31 Oct 23 entry and would be worth almost $2.6million based on the price shown on Chart 1 below.
Congratulations to those who did that investment.The 200-day SMA strategy is a profitable strategy.Table 1 shows that using the strategy would have your $10,000 initial investment worth $771,807.70 and worth over $1.5 million based on the price in Chart 1 below.
The strategy shows 9 completed trades and only four were profitable.
However, two of them were very profitable.The second trade on Table 1 netted a gain of 2,131%.I’ve never experienced such a return on a trade in my life.That must be nice.The sixth trade netted just over 300%.Of the nine completed trades shown in Table 1, only two trades had you buy BTC-USD at a cheaper price.The 30 April 19 trade got you back in BTC-USD at $5,350.64 after getting out at $6,943.77.
The 31 January 23 trade got you back in BTC-USD at $23,129.70 after getting out at $46,197.31.It’s no surprise that both trades were profitable.This also shows that even if you buy back at a higher price, that can still be a profitable trade.
Looking at Chart 1 below you can see the daily price of BTC-USD and the 200-day SMA which is shown in blue.You can see the sell signal on 31 August 23 as price closed the month below the 200-day SMA.
You can see the entry signal on 31 October 2023 when price was well above the 200-day SMA.One of the frustrations of using such a mechanical signal is shown on 30 September 2023 as BTC-USD closed the month just a few dollars below the 200-day SMA.We know now that we could have bought that signal as “close enough” but that is not how it works.Like I said it’s frustrating sometimes using a mechanical system.
Not every buy or sell signal will work and you must accept that.I find this strategy useful because it keeps me out of large drawdowns and offers the opportunity to be long during major uptrends.
Using the 200-day SMA is a trend following system.While one trade did experience a 24% drawdown, the strategy kept an investor away from a 50% or 60% drawdown which I find hard to stomach.
I plan on using this strategy to trade ETFs like I explained in this
previous article.The ETFs I currently hold are the Fidelity Wise Origin Bitcoin Fund ETF (FBTC) and iShares Bitcoin Trust ETF (IBIT).
Neither FBTC nor IBIT have been established long enough to have a 200-day SMA according to my charting service.Once they do, this strategy can be directly applied to the ETF to trade and not BTC-USD.Seeking Alpha shows the 50, 100, and 200-day SMA for these securities so you don’t need a charting service like I use to implement this strategy.
Again the strategy is very easy to use.
In conclusion, the 200-day SMA strategy is a long only strategy that is easy to understand and easy to use.It has been profitable so far, but that doesn’t mean it will continue to be profitable.I find it useful as a simple way to be with the trend and I plan to use it to trade Bitcoin ETFs such as FBTC and IBIT..
