When you buy Bitcoin, what should you look at? (Part 1)

When should you buy Bitcoin? The default answer to that should be every day, irrespective of the price, as the simple dollar-cost average (DCA) strategy goes. But, lets be honest, nobody really does that? Why? Because its too simple. Instead, people look at a host of different technical, on-chain and macro-economic indicators. Bitcoin, due to its nascency and abnormal metrics, does not move according to these indicators, so what can people look at? Let’s start with its price.

Price is a simple thing – it’s a number, easily measurable, scalable, and comparable, everyone understands it, and hence it’s a default standard.

Next, we’ll look at price changes. Again, to keep it simple, we’ll look at price changes over a range of periods, in order to best understand no only when you should buy Bitcoin, but how often will you, what will your average purchase price be, and how this will change over time.

Into the weeds

To reiterate, we’re looking at when is the right time to buy Bitcoin, based on two things, absolute and relative price. A measure of price changes over a period of time is found in moving averages, broken up by periods, we’ll look at the same.

Allowing a wide variety of price changes, and hence variance of buys, we’ll look at six 5 different periodic price changes:

1. 200 day moving average (200DMA)
2. 150 day moving average (150DMA)
3. 100 day moving average (100DMA)
4. 50 day moving average (50DMA)
5. 7 day moving average (7DMA)

From the high of a 200 day moving average giving the average price of a 6 month period and the low of a 7-day moving average, giving the average price of the past week, we can identify what’s a good relative price indicator to look at, and comparing the same to the absolute daily price of Bitcoin.

So, now that we have our motive (to determine when we should buy Bitcoin), and our indicator (the aforementioned MAs), lets spread this against the daily price of Bitcoin, to check how it compares across a period and whether we can pull out entry and exit signals. But before we get into the period-wise breakdown, let’s define the rules of the game.

Rules of the game

Broadly, since only one MA will guide your buying decisions, it will work like this. When the respective MA considered is above (or greater than) the daily trading price of Bitcoin, you don’t buy. When the respective MA considered is below (or lesser than) the daily trading price of Bitcoin, you buy. So, you just have one signal, the respective MA, to do one of two things, either buy or don’t buy. This will be the crux of the approach. Now, let’s define a few rules.

1. Date range: The date range considered is the daily average price between January 1 to October 30
2. Buy only: Like with the dollar-cost averaging approach, the aim of this MA-only strategy is to lay out a buy-only strategy, with no indication of  when to sell
3. Entry and Exit: The MA will serve as a signal to enter or exit the DCA strategy. Here, enter means buying Bitcoin at the daily trading price,…