How to Make Money in the Cycle (The End): A Guide to Buying the Bottom and Escaping the Top

I. Summary

This is the last article in our cycle series, the first three of which analyze the cycle from a macro perspective, and this one will focus on how to use indicators to determine tops and bottoms and how to optimize investment strategies.

The first three articles show the way:

1. How to make money on cycles?
2. How to make money in the cycle (2): Looking at the flow of funds from the perspective of the Fed’s monetary policy and stablecoins
3. How to Make Cycle Money (3): How to Capture Excess Returns?

The second and five major indicators teach you how to judge the top and bottom

1, Ahr999 hoarding indicator

**Indicator introduction:**This indicator was created by Weibo user Ahr999 to assist BTC regular investment users to make investment decisions in combination with opportunistic strategies. This indicator implies the deviation of the yield and BTC price of BTC short-term regular investment from the expected valuation.

How to use:

• When the AHR999 index < 0.45, you can buy the bottom:
• When the AHR999 index is between 0.45 ~ 1.2, it is suitable for regular investment;
• When the AHR999 index > 1.2, the price is relatively high, which is not suitable for regular investment.

Real-time charts:

Recommended reading: “Hoarding BTC” written by the author of the indicator

2. Rainbow diagram

Introduction: The rainbow chart is BTC’s long-term valuation tool. It uses a logarithmic growth curve to predict BTC potential future price direction.

It covers the top of the logarithmic growth curve channel with a rainbow ribbon in an attempt to highlight the market sentiment at each rainbow phase as the price passes through it. Therefore, the potential buying and selling opportunities are highlighted.

To date, the BTC price continues to remain within the rainbow ribbon of the logarithmic growth channel.

How to use:

• The closer to the blue, the closer the price is to the bottom
• The closer to red, the closer the price is to the top

Real-time charts:

3、RSI

Indicator introduction: RSI (Relative Strength Index) is an indicator that measures the speed and magnitude of BTC price changes, and calculates the RSI score based on the performance of the first 12 months of the month observed, which is used to determine the strength of the market trend, whether it is in the overbought or oversold range. The stronger the upward movement, the closer the RSI will be to 100, while a high RSI also indicates that the price movement has been more positive in the past 12 months, and the stronger the downward trend, the closer the RSI will be to 0, and a low RSI value means that the price movement is relatively negative.

How to use:

• An RSI reading of 30 or below (the closer to red) indicates that BTC is oversold, or may soon be oversold.
• An RSI value of 70 or above (the closer it is to green) indicates that BTC is overbought and may soon face a decline, so it is appropriate to consider selling.

Real-time charts:

4, 200-week moving average heatmap

Description of the indicator: This metric uses a color heatmap of percentage growth based on a 200-week moving average.

A color is assigned to the price chart based on the month-over-month percentage growth of the 200-week moving average.

Historically, the price of BTC has bottomed out near the 200-week moving average in every major market cycle.

How to use:

• The closer the color of the dots on the price chart is to red, it means that the market is overheated and suitable for selling;
• The closer it is to purple, the more cold the market is, which is suitable for buying.

It should be noted that the indicator failed at the top of the last bull market, which means that the indicator cannot be relied on completely. Indicators are just one of the tools we use to help us make judgments, and there are many other factors that need to be taken into account.

Real-time charts:

5、CVDD

Metric introduction: CVDD stands for Cumulative Value-days Destroyed, and Chinese is called Cumulative Value-days Destroyed.

How to use: When the BTC price touches the green line, it means that the BTC price is significantly undervalued and is a good buying opportunity.

Real-time charts:

Summary

To make it easier for readers to use these indicators, we have made them into charts.

It is important to note that these indicators are a reference for the timing of buying and selling BTC, and do not mean that other tokens can also be bought.

3. Strategies suitable for cyclical trading

When we conduct long-term trading, it is easy to have the following situation, many of which are caused by subjective judgment errors, and this mistake can be avoided if you formulate a strategy in advance.

1, combined with martingale theory fixed investment

Let’s first understand the “martingale strategy” and the concept of “regular investment”.

Martingale Strategy: The Martingale strategy is originally a gambling strategy that refers to increasing the stake by 2 every time you lose money in a certain market until you win. Suppose there is a 50% probability of opening up and opening small on a fair betting market, so at any point in time, the probability of losing once is 50%, the probability of losing twice in a row is 25%, the probability of losing three times in a row is 12.5%, the probability of losing four times in a row is 6.25%, and so on. The more you play, the smaller the probability of losing, and theoretically impossible to lose with unlimited bankroll.

Later, the martingale strategy was applied to trading, and the manifestation was to increase positions in a pyramid shape (the martingale strategy can be subdivided into reverse Martin, forward Martin and scalp Martin, which we introduce here belongs to Reverse Martin).

Auto-investing: Auto-investing is a long-term investment strategy that spreads the purchase price evenly by buying assets on a regular basis and on a plan. This strategy emphasizes continuous investment and long-term holding, rather than trying to make a profit through short-term market fluctuations.

When we use the above indicators, it is impossible for these indicators to tell us the exact bottom and escape points, only to judge the relative bottoms and tops in a cycle, and we cannot keep staring at the indicators, which is why we need to make regular investments.

How to develop a strategy: We can apply the ideas of the martingale strategy to regular investment, so as to minimize the average price of our positions. The specific strategy can be formulated like this: The current BTC price is $37000, assuming that the investment starts from this price. According to the above indicators, it can be judged that the current BTC price is in a position that is neither high nor low, and it can be fixed. We set the base amount at 1,000 yuan and the frequency of regular investment once a week. In the weekly auto-investment, if the price rises by $1000, the amount of our regular investment will be reduced by 5%, and if the price falls by $1000, the amount of our regular investment will increase by 5%, of course, provided that the price of BTC is still within the regular investment range according to the indicator. When the BTC rises beyond this range, the regular investment plan will be suspended, and after returning to the regular investment range, you will continue to invest regularly or pay attention to the indicators to reduce your position. These strategy parameters are just examples, and the return rate is naturally different for different strategy parameters, and readers can formulate their own regular investment strategies according to the process.

Disadvantages: The martingale strategy claims to be “never lose money”, but this is based on the premise that the trading target will not be reset to zero and the trader’s capital is infinite. Therefore, the martingale strategy is not suitable for trading long-tail assets, and the larger the trader’s capital, the more the advantages of the martingale strategy can be reflected.

2. How to use the grid strategy to expand returns

When we make long-term investments, we hold BTC spot in our hands, and the APY deposited in the decentralized lending platform is not high, and if we deposit it in exchange wealth management, the APY is considerable but there is a limit. If you want to improve the utilization rate of funds and earn additional income, it is a good choice to use spot grids.

Spot Grid Strategy: Spot Grid Strategy is an automated strategy that executes buy low and sell high in a specific price range, users only need to set the highest and lowest prices of the range, determine the number of grids to be subdivided, and then start running the strategy; if necessary, you can also set the trigger conditions in advance, and when the market reaches the trigger conditions, the strategy will automatically start running. The strategy will calculate the price of each small grid to buy low and sell high, automatically place orders, and continue to buy low and sell high to earn the benefits brought by fluctuations as the market fluctuates.

How to develop a strategy: Generally speaking, the grid strategy is suitable for volatile markets or volatile upward markets, and unilateral markets are not suitable for using grid strategies. The disadvantage of the grid strategy is obvious, when the price rises or falls out of the set range, it will sell or take over, which is why some people call it a garbage strategy. We have optimized the grid strategy, we do not choose the traditional grid strategy of regular non-stablecoins/stablecoins, we choose the ETH/BTC trading pair to use with the infinite grid strategy.

The Infinite Grid Strategy is an advanced version of the normal Grid Strategy. Infinite Grid ensures that users hold an equivalent value of denominated currency assets in a rising market. With the infinite grid strategy, the user still owns an asset equal to the previous position, no matter how many times they sell. For example, if the initial price value is 20,000 USDT/BTC, and the user owns 1 BTC, he or she has 20,000 USDT of assets to invest. When the price rises to 40,000 USDT/BTC and 1/2 unit is sold, the user still has 1/2 unit and still has 20,000 USDT of assets to invest. When the price rises to 80,000 USDT/BTC, and another 1/4 unit is sold, the user still owns 1/4 unit, and I still have 20,000 USDT of assets to invest. Infinite Grid does not have a definite top range, so using the Infinite Grid strategy is a good way to avoid selling out due to continuous price increases.

Why did we choose the ETH/BTC trading pair? Our idea of optimizing the grid strategy is how to avoid the loss caused by the price exceeding the grid range, but because the characteristics of the grid strategy itself cannot solve the loss caused by the price falling all the time, we can only reduce the loss caused by the decline. ETH/BTC reflects the relative strength of the trend between ETH and BTC, and from a cyclical point of view, the ETH/BTC exchange rate is a volatile upward trend during the bull market and a downward trend during the bear market, and the ETH/BTC trading pair is a good match for the infinite grid, which is suitable for long-term slow bulls. And we can get the benefits not only of the BTC standard, but also of the ETH and BTC bull market gains.

Fourth, Summary

Although the indicators and profit methods introduced in this article are all based on BTC as the investment target, readers can also draw inferences from each other and use the idea of buying the bottom and escaping the top in this article to invest in other currencies. Moreover BTC price changes are also instructive for the trend of other currencies, especially the mainstream coins with high market capitalization.

No matter what the indicator has its inherent immutability, although there are often black swans in the market, but the crypto market will not return to zero, as long as there are people involved in the zero, the price will always rise and fall, there is a cycle, not only the estimation of value but also the test of time. For ordinary investors, as long as they make good use of the cycle and eat the dividends of industry development. Not only in the currency circle, but also in other industries, the multiple is not important, the most important thing is to continue to live, what the currency circle lacks is not the opportunity, but the inability to continue to participate.

References:

1. Explain in detail the 5 models of BTC prices and the current conclusions

2. What is Infinite Grid?