Very good summary. Indeed, buy and hold, doing nothing, although sold as the safest strategy, is indeed the most dangerous as it involves no locking in of profits.
I don't see how your strategy locks in profits. It's a zero sum game on the way down as I see it. Where am I missing it. Here is how I looked at this:
Imagine for a moment that you have $1000 to hold & invest. And that the price of bitcoin goes from $10/BTC to $100/BTC back to $10/BTC.
Assume price increments/decrements by $2 daily.
Initially, you bought $400 in bitcoins at $10/BTC, or
BTC40. And hold the rest of the $600.
By the time the price peaks at $100/BTC, you have sold bitcoins so that your capital is now ~$2546 (about
BTC10 and the rest in dollars)
But as it goes back down to $10/BTC, you return back to a total capital of ~$1000. (no gains got locked in) One caveat is that in the excel spreadsheet, it did show a tiny gain of $44 (or about 4.4%). I'm not sure if this was a miscalc, or an actual gain. But it's trivial considering the range the portfolio went through. It's not good that the 150% gain was not more significantly locked in. Perhaps, you have some other rules you use.
1. When do you make a correction to your exposure? I did them here on a daily basis.
2. What will you have when the price per bitcoin returns to the starting price?
From my calculations, if you corrected exposure to 40% daily, you end up back where you started after this roller coaster ends back at $10. Nothing was locked in.
When bitcoin peaked, there was the most capital. However, buying
BTC on the way down simply lost the money back.
What's the purpose of this strategy again? If it's to have exposure to make gain from bitcoin, then it seems simply buying bitcoins one time now, walking away & holding is better, imo. Plus it would entail less headaches buying and selling.
Wauw, that's a very good critique. I needed some days to think about it. Thank you for doing these calculations, I never did them before.
I'm not sure what to say. I'll give it a try. Eventhough profits are not higher than a buy and hold, volatility of the portfolio is strongly reduced. This is because in this example you are only 40% exposed continuously. Meaning that when bitcoins goes up, your portfolio goes up only half as quick, and when bitcoin goes down, your portfolio only goes down half as much. If you were to never rebalance, and let the 40% just grow (up to say 90% of your portfolio) and then shrink (down to say 5% of your portfolio), your portfolio would be more volatile.
I'm still thinking this technique should also give more profit if market goes sideways, so end price the same, but in the meantime it has gone up and down several times. I believe this because for example on the day of the big crash I bought in a lot of coins around $70, since the crash went so fast my last sale price of coins was 2 days before that around $180. I bought back about the same amount of coins that I had sold during the big rally up to $266. I resold these coins into the recent rebound up to $160, for an average price of $120. So my technique created an extra profit a buy and hold strategy would not have given.
However, I might totally be missing something. I do realize that if I had simply buy and hold, I would have more capital today. But I thought this was because bitcoin prices are still 10 times higher as my buy in price.
Like in your simulation I'm doing that trading on a daily basis. From my rough calculations I will indeed have no profit if bitcoin prices go back to my original buy in price around $15. On first impression I agree with your conclusion, it's not worth it if your total gains are the same. Better buy and hold then and take the extra volatility with it.
I'm confused. I think I start to favor the buy and hold and locking in profits indefinitely when price milestones are reached.
