How good are you objectively at trading Bitcoin? I've made a statistical benchmark to answer that

in #bitcoin6 years ago (edited)

As a person doing a PhD covering the field of cognition, programming and statistics, I have worked to come up with a way to test how well my personal trading has been doing, and I invite you to test yourself too.

For every trade in Bitcoin (or anything, really) we hope to profit in the future. However, it is notoriously difficult to beat the market. One common strategy is to buy in at regular intervals. This is known as Dollar Cost Averaging (DCA). Another strategy is to buy-and-forget, hoping that the Bitcoin will have gained value in the future. Finally, many people try to buy low and sell high using various strategies such as Technical analysis, swing trading or simply their gut feeling.

If we don't compare these strategies with each other, how can we ever know if we are actually being smart? I'll start out by offering myself as an example. I did my first BTC purchase in BTC the 14th of March, 2018. Let's see how the price has been since:

Currently, my average price is 8005 USD per BTC after 20-30 trades where I tried to buy low and sell high.

Had I just bought all my BTC for the opening price the first day, I would have paid a price of 9214 USD.

Seems like I am way ahead doing all of these deals? What I if I had set up a bot that bought (say) 10 USD worth of Bitcoin at the exact same time each day no matter what? It turns out that the bot's average price for this time period would have been 8097 USD!

To compare directly:

Hodl
average price: 9214
loss if selling now: 26.5 %

Trading
average price: 8005
loss if selling now: 15.5 %

DCA
average price: 8097
loss if selling now: 16.4 %

So doing more than 20 trades left me just 0.9% better off than mindlessly buying the same amount each day. It is surely nice to "have beaten the market", but in reality, I suspect that this measure is basically just noise and that I am actually doing just as well as if I had closed my eyes an bought daily.

If I keep on doing basically the same as DCA, I will reconsider keeping on doing active trading. After all, it does take time to follow the price developments etc. and for me, it is not without stress to consider whether I should keep on buying after seeing huge drops.

For now, I will collect more data and evaluate again at a later time.

If you are interested in seeing how well you have done compared to DCA, write the date of your first trade in the comments, and I will provide you with the info. Of course, there is nothing magical in the way that I have done the calculations and I am happy to share methods and code if anyone should be interested.

Best of luck with your cryptos whatever you decide to do.

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Most people always give into FOMO/FUD
If you invest, I am part of a very good pool; you're welcome to join--no pressure on investing.

And here's the post I promised to update you on: https://steemit.com/ethereum/@hatu/quadrant-s-way-of-putting-good-data-first-we-all-benefit

Thanks for the post. And I would certainly be interested in hearing more about your pool.

2017/02/02 was my first buy, I didn't hodl though unfortunately :(

If you had bought daily, you average price would have been 3002.63 usd.

And had you bought everything at once, your price would have been 990.

Oh cool, what was the starting amount you used? (I had about 0.16, I'm not sure how much that was at the time)

The opening price of Feb 02, 2017 was 990 usd. So that's what your price would have been if you had dumped your savings there and then (of course assuming that you didn't buy so much as to drive the price markedly up).

I first bought bitcoin Feb 14, 2017 and stopped once it crossed the $4200 level. Average price I paid is about $2000.

If you had bought daily, you average price would have been 3154.77 usd. Seems like you did a good job :)

Had you bought everything at once, you would have paid 991.74 usd per BTC.

I bought less as time moved on. Once it reached significantly past $4000, I no longer felt comfortable buying. Funny thing is that Tone Vays predicted the same thing I did last year on my blog using a different method. I suspect we could see prices below $3000 again, but it probably won't last that long.

We ran into a wall last December in a first attempt at mass adoption, but the scaling issue wouldn't let it happen. $100 tx fees won't work as a currency (medium of exchange). So next time we have to watch whether the technology is ready yet, or the same thing will happen. Eventually the technology will be ready to replace national fiat, or national fiat will become crypto. If the latter happens with the recentralization of crypto, we will have a digital panopticon for probably a generation.

I also personally, think that the price may go much lower still. Snagging out some sub 3K BTC just before it bounces up again would of course be a dream scenario, but if we are lower for a while, DCA will probably also be decent for getting some cheaper BTC. If the price for instance only dropped to 4K, one could miss out waiting on the sidelines.

Yes, your latter idea that crypto becomes a national, digital panopticon is fuel for nightmares.

Let's hope for (and support) freer alternatives.

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