The Weekend Dip Myth

[Stephen Gornick]

Another weekend where conditions are not such that the weekend dip strategy is useful.

The weekend dip strategy involves talking a look on Wedesday evening (western timezones) or Thursday morning (eastern timezones) and finding the BTC/USD high in the previous 7 days.  If that number is below the BTC/USD in the previous 7-day period then a selloff is happening and a weekend dip has historically been the result.  Looking at the previous 7-day high shows a high of almost $5.50, which is above the previous period's 7-day high.  So as a result, don't look to the weekend dip strategy to indicate any action here as far as buy, sell or hold.  



 - https://i.imgur.com/TMisF.png

(useful 1-month chart here:
  http://bitcoincharts.com/charts/mtgoxUSD#rg30zig6-hourztgSzm1g10zm2g25 )

friday rally, then a weekend dip! get em while they're cheap.

The problem is, they've become even cheaper after you posted that.

Personally, I think the ACH fraud issue hitting the exchanges, first reported by Keyur at Camp BX, and something which coincided with changes at Dwolla is something that is having a bigger impact than the market accounted for.  Dwolla wasn't lightning fast for a new account (nearly 10 calendar days between first signing up and having bitcoins in-hand) but it was cheap and reliable.  That onramp to bitcoin has now seen the delay widened to 30 days for new signups, so that will probably cause many to not even bother.  BitInstant can pick up the slack, but the fees are more than Dwolla's $0.25.

I wouldn't be surprised if there is a chance to buy under $5 this weekend.  The "weekend dip indicator" isn't useful for every weekend, it simply shows that historically, when conditions are right then more often than not a weekend dip will occur.  This doesn't happen to be one of those weekends where that indicator is useful.   Doesn't mean a dip is any less likely to occur though.

And it wouldn't hurt to have a few USDs, GBPs, or whatever sitting ready to be put to use if a weekend dip does occur though.

[Stephen Gornick]

it wouldn't hurt to have a few USDs, GBPs, or whatever sitting ready to be put to use if a weekend dip does occur though.

And, interestingly enough, last weekend a dip did occur and buying during the weekend saw gains a few days later of three to four percent, if the buying was done at the low and the selling done at current levels.

This upcoming weekend is the first in over a month where conditions indicate we might get a weekend dip.  The last time this indicator held true was March 22 - March 25 and the resulting gain (from having a lower cost basis) after buying back were from 5% to 8%.



 - http://bitcoincharts.com/charts/mtgoxUSD#rg10zig6-hourzczsg2012-04-18zeg2012-05-04ztgSzm1g10zm2g25

The high in the past 7 day was about $5.20ish.  The high in the 7 day period prior to that though was $5.45ish.  So this situation has historically been followed with a dip over the weekend.  The weekend dip strategy then suggests to sell bitcoins heading into this weekend and to then buy them back if a selloff occurs.  The time to buy back will vary.  If there is a quick selloff, then the rally back might be quick as well (usually thanks to arbitrage).

If the selloff is gradual, then the time to buy back is when the price starts to head back up, maybe after a bottom seems to have formed and the exchange rate comes up a third off that low.  Oftentimes, Saturday evening (west) and Sunday morning (east) is about the time to start looking closely at a re-entry point.  But sometimes the selloff continues through Sunday and into Monday even.

Know that other times, a rally happens and this strategy causes you to lose money after buying back so keep that in mind as well.

There is one factor that is unique for this weekend.  Mt. Gox has not been processing international bank wires all week due to Golden Week in Japan.  This means there are three things to consider.

Firstly, on Sunday evening (west) / Monday morning (east) there will be a lot of new money being made available once Mt. Gox starts processing the pending wires.  So a ramp up could be sharp -- it seems that those sending new, incoming funds are oftentimes impatient and as soon as the funds are available, bitcoins get purchased.

Another other impact of this means that if certain prospective sellers have been holding off on their selling this week, preferring to wait until just before funds could be wired out, then any downtrend could prompt those sellers to try to beat the crowd and all together trigger a selloff (one that is unusually steep even as the first to sell gets the higher exchange rates in a selloff).

Oftentimes lately there have been plenty of traders with funds at the ready to catch a sharp selloff, particularly ones fueled by forced margin selling at Bitcoinica.  But this weekend comes following this Golden Week wire transfer stoppage, so it could be possible that traders are just fresh out of funds to place bids.  Thus a selloff this weekend would be unusually sharp.  Nobody knows as this is the first year that this Golden Week work stoppage occurred with Mt. Gox.

As of this writing, Friday 6:44pm PDT (1:44am UTC) the last trades are at $5.084 so let's see if this is yet one more time where following the weekend dip strategy pays off.

[damnek]

it wouldn't hurt to have a few USDs, GBPs, or whatever sitting ready to be put to use if a weekend dip does occur though.

And, interestingly enough, last weekend a dip did occur and buying during the weekend saw gains a few days later of three to four percent, if the buying was done at the low and the selling at current levels.

...

This analysis makes way more sense than randomly drawn lines on a chart, and I don't even have to pay for it!

[proudhon]

Cool, so who's ready for under $5 bitcoins again.  This is getting too easy.

[nedbert9]

$3.82 tomorrow.  Get ready.

[ElectricMucus]

~$5 for another 3 months

[Stephen Gornick]

Oftentimes, Saturday evening (west) and Sunday morning (east) is about the time to start looking closely at a re-entry point.  But sometimes the selloff continues through Sunday and into Monday even.

Well, that was a pretty weak dip.  Traders who pay the lowest fees (e.g., 0.3% of each trade) could have made a tiny amount on this weekend dip, others only broke even at best, or lose a fraction of a percent on the fees.)

Without knowing the impact of the Golden Week backlog of wired funds to Mt. Gox, it is probably wise to re-enter now rather than waiting this dip out much further hoping for a drop below $5.

So for scorekeeping purposes the weekend dip strategy gets a a big fat goose egg (0) (which is like a tie.  as -1 is for when following the weekend dip strategy causes losses to occur, and +1 is for when gains are the result.  This caused neither).

[proudhon]

Cool, so who's ready for under $5 bitcoins again.  This is getting too easy.

Told ya.

[Stephen Gornick]

Without knowing the impact of the Golden Week backlog of wired funds to Mt. Gox, it is probably wise to re-enter now rather than waiting this dip out much further hoping for a drop below $5.

Well, the dip did come, below $5 as proudhon predicted.

So here we are, once again.  Wednesday evening (west) / Thursday morning (east).  Time to apply the test.

The high in the past week was a little under $5.20 (last week about this time) and the high in the 7 day period prior to that was just a tiny bit higher but also was just under $5.20.  So overall it looks like a downtrend does continue.  And as a result then, for the second week in aA row, the Weekend Dip indicator is flashing green.




 - http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2012-04-18zeg2012-05-11ztgSzm1g10zm2g25

This situation has historically been followed with a dip over the weekend.  The weekend dip strategy then suggests to sell bitcoins heading into this weekend and to then buy them back if a selloff occurs.  The time to buy back will vary.  If there is a quick selloff, then the rally back might be quick as well (usually thanks to arbitrage).

Last week selling at $5.084 and then buying back Sunday afternoon (west) at about $5.035 caused the trade to basically break even after considering the exchange fees.  Perfect timing with waiting and seeing the drop below $5 would have garnered a bit over a 1% gain.

As of this writing, the exchange rate is bouncing between $5.02 and $5.07 but it appears to be headed down.  Being the first to sell as it goes down further gets the best price, so there's no gain from being patient here.  So, here goes ... selling at $5.05 into the weekend, hoping for a dip.



Factors that might cause selling at $5.05 to end up being a dumb move?

Well, there's a few things going on in Europe, for one.  Bitcoin is probably seeing some demand as a result.  BitcoinNordic writes:

"Demand has lately been too high for us to keep up. Expect a refill of Bitcoins in a day or two. Also, we're acquiring more liquidity soon."
 - http://twitter.com/#!/BitcoinNordic/status/200356315401433088

Additionally, the novelty among first-time players of SatoshiDICE should be wearing off soon but their daily transaction counts are holding up, meaning here's another area where Bitcoin serves a need very well.  And the weekend dip strategy had never been tested with this scenario of a runaway success afoot.  As the currency finds wider and wider use elsewhere as well, the demand will go up.

As a result of a promising future, fewer parties are willing to sell aggressively.  They and others look to buy more with anything that looks like a dip.

If a new rally up is to start could it come between now and Monday?   It has happened before.  

Whatever the chances though they probably pale in comparison to the weekend dip strategy's success ratio.

And for that reason, selling at $5.05 might not end up being a mistake after all.

[proudhon]

Cool, again.

[proudhon]

Hope you guys are ready. 

[naima53]

Hope you guys are ready. 

I'm ready 

[waspoza]

Hope you guys are ready. 

Its not going to happen.

We are stable forever!

[naima53]

Where is the panic?  I missed something? 

[ElectricMucus]

Bears these days are the patient kind, the buying opportunity will come.

[proudhon]

For how many more weeks is it going to be this easy to profit off this sell above $5 and buy below $5 strategy.  This is getting a bit ridiculous.  But, hey, I'll keep playing.

[adamstgBit]

For how many more weeks is it going to be this easy to profit off this sell above $5 and buy below $5 strategy.  This is getting a bit ridiculous.  But, hey, I'll keep playing.

how much profit can you really take from 10cent swings

I think one is better off accumulating at 4.90ish  and or  be prepared to go all in at 3.99

[Stephen Gornick]

So, here goes ... selling at $5.05 into the weekend, hoping for a dip.

Well, that scores another +1.  The gain wasn't that significant, particularly considering the Bitcoinica security incident, after which little additional trading action was the result.  As of this writing trading is at $4.95.

A rising price is what would normally be the trigger event to cause the weekend dip follower to buy back those bitcoins that were sold before the weekend.

But this is not a normal weekend however.  The Bitcoinica situation will result in liquidation of all open positions there and refund of funds from each account.

Those who were long will get back some USDs and some BTCs and will likely hold them, maybe setting up bids at lower prices.  Many of those who were short might have used BTCs as the method to fund the accounts and thus would be getting back some USDs but BTCs as well.  Being short already means they are likely to sell their bitcoins as soon as they can move them to an exchange.

About the only buying pressure might come from the apparent need by Bitcoinica to replenish the 18,000 or so bitcoins that were stolen in order to accommodate withdrawals.

This is a dilemma for the weekend dipper.   The word "dip" generally is used to refer to a valley where the exit is at the same height as the entrance.  The weekend dip only suggests that buying back in the valley, while the dip is still intact, is the goal.   It does not suggest that come Monday morning the price will rise back up above the valley floor.

A prudent move would be to buy back at $4.95, book a half a percent gain (after fees) and be happy the weekend dip strategy worked yet one more time.

A more risky option is to hold back, sit on the cash and watch for a selloff if those Bitcoinica shorts make a run for the exit.  That option would be even more enticing if there weren't a banking crisis heating up in Europe in response to the increased likelihood of Greece exiting the Euro.  A non-reversible, low-cost, immediately spendable digital currency might just do very well in that scenario.

[Stephen Gornick]

This is the third week in a row where the Weekend Dip indicator is flashing green.



 - http://bitcoincharts.com/charts/mtgoxUSD#rg60zczsg2012-04-20zeg2012-05-18ztgSzm1g10zm2g25

There was one minor detail though ... the chart shows a level a couple cents higher than had actually occurred.  Mt. Gox acknowledged a "trade execution glitch" which they followed up with by cancelling those trades.  So there may be a tinge of doubt if this truly is another "down week" which often results in a weekend dip.  The chart says the week had trades that were higher than showed for the previous week, the exchange itself says those weren't real.  Who knows, and does such a minor detail make a difference?

The uncertainty as to what and when would be happening at Bitcoinica after their security breach had caused me to hold off on buying back last weekend.  So personally, the long position I would normally have for selling before the weekend when the indicator flashes green like this has already been sold and thus I'll not be doing any more selling into this next weekend.

But for keeping tabs on the weekend dip, the last trades as of this post are at about $5.055.   The better time to have done this is Wednesday evening (west) / Thursday morning (east) and had this post been written then a better exit price of about $5.09 would have existed.

Either way, with the indicator green, let's see if the weekend dip truly occurs for the third week in a row (and extend the winning streak to five out of the last five when the indicator is green).

The wildcard here is Bitcoinica and their speed and handling of customer account recovery.  There will likely be a little volatility once processing on those begins.

[S3052]

Time cycles come and go, and if they are correct too often, this is typically the time when it does not work any more.