Calendar Vision — Investment Strategy
GAEA Headquarters — Today we will share “The Day of Week Effect in the Crypto Currency Market” by Guglielmo Maria Caporale and Alex Plastun. This article analyzes the price distribution of the four digital currencies during the trading hours in one week to explore the hiding laws.
This article focuses on a trading strategy called a calendar vision about daily fluctuations in a week. The so-called calendar vision refers to the law of price change of the target in the special time periods such as the January effect, the holiday effect, and the Halloween effect. Once this effect is validated, it will have a certain impact on the market’s effective hypothesis, and investors can also obtain excess profits accordingly. In order to study this topic, the authors of this article selected the four coins with the highest market value at the time: Bitcoin (BTC), Litecoin (LTC), Ripple (XRP) and Dash (DASH), and gather the price data for 2013–2017 from CoinMarketCap and backtested the data on the MT. In order to compare whether the strategy is effective, it chooses two methods to do backtesting. One of which is trading randomly every day. In the case of not considering the transaction fee, the theoretical expected return is 0. The second is trading selectively based on the daily average of the price in a week and investors should receive profit theoretically.
The formula of calculating the income is as below:
Based on this, The average movement of the four coins is calculated based on the formula from Monday to Friday:
Finally, the difference between the two returns is calculated, and let’s set the difference=0 as the null hypothesis, then the alternative hypothesis is that the strategy is valid. In order to test whether the conclusion was statistically valid, the author selected the t test, ANOVA, Kruskal-Wallis test, and regression analysis with dummy variables, where the significance level of the t test was 5%. If the original hypothesis can be rejected by the above test, the strategy can be considered statistically valid.
After selecting the data from 2013 to 2017 to do the backtesting, we can find that the most benefit strategy is to buy Bitcoin at opening price on Monday and sell them at closing price after. In the past five years, we all achieved positive returns. However, the evidence is not sufficient enough to convince that this strategy is acceptable in each year, but the comprehensive five-year sample is statistically acceptable for the effectiveness of this strategy.
See the picture below for details:
According to all above, we can come the following conclusions: The author determined whether to buy Bitcoins at the opening price and sell them at the closing price based on the historical fluctuation of that day by doing research on the fluctuations of these coins from Monday to Friday. After some statistical tests, it came to the conclusion that Bitcoin can only make a positive return by buying at the opening price and selling at the closing price on Monday which is a vision.
Source Date: August 6, 2018
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