Buy on Dip or Buy on Rip? An entry based analysis of return confidence for Bitcoin, Ethererum, and Litecoin

Gatsiva
Gatsiva
Dec 15, 2017 · 3 min read

The Gatsiva API is a cryptocurrency analysis and insight engine. Currently in closed beta but launching in December 2017. To find out more, visit https://gatsiva.com or follow us on Medium for insights delivered directly to you.

Continuing our analysis of returns after a specific event occurs, we recently used the returns analysis on the Gatsiva Dashboard to test whether positive returns were more likely after a dip below the weekly low or after a break above the weekly high.

Given the recent explosion in cryptocurrency prices, its easy to find indicators that show high confidence in future returns. We wanted to see if there was any confidence difference between returns after a dip or returns after a break out: And there was.

The following analyses were conducted using the Gatsiva API over events from 5/18/2017 through 12/10/2017.

Bitcoin

From the following two figures, you can see that there is a higher confidence or positive returns (within a 2 standard deviation band) after a break between the 7 day low than there is with a break above the 7 day high.

The orange and green lines below represent the approximate 2 standard deviation confidence interval for returns derived from actual observed returns during the analysis period.

Figure 1. BTC daily return profile after breaking above 7 day high
Figure 2. BTC daily return profile after breaking below 7 day low

Ethereum

Interestingly, the results are even more pronounced with Ethereum. Returns show very little confidence of being above zero after about 40 days after a high breakout event, whereas the low breakout event shows confidence of positive returns within two standard deviations after 22 days.

Figure 3. ETH daily return profile after breaking above 7 day high
Figure 4. ETH daily return profile after breaking below 7 day low

Litecoin

And finally, this analysis also holds true for Litecoin.

Figure 5. LTC daily return profile after breaking above 7 day high
Figure 6. LTC daily return profile after breaking below 7 day low

Conclusions

Of course, extrapolating results from such a short period of time can be informative at best and deceiving at worst, but these results suggest a broader strategy that new investors could potentially employ to help minimize risks of making a bad entry into this market.

The bottom line: Buying the below the 7 day low has lead to a higher confidence of future returns than buying above the 7 day high.

Future analysis could include evaluating this strategy by hour instead of daily, and looking at different confidence ranges for different time scales. More to come on that later.

Gatsiva

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Gatsiva

Gatsiva provides models, genetic algorithms, and dashboards that provide insights to empower cryptocurrency analysts and traders.

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