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When to buy and sell Bitcoin Cash? Analysis of the Effects of Seasons on our favorite Crypto.
This is the first lesson I heard from investors and traders alike when I asked them for some guidance and tips about investing and trading. That's pretty straight forward, right? You can look at the chart, mark the support and resistance levels and then, buy when price reaches the support and sell when price close or at the resistance level.
If you are not very familiar with these two trading terms, this analogy would be very helpful. Think of the support as your floor and ceiling as the resistance. Now, imagine a ball, which represents the price of an asset, bouncing back and forth between the floor and ceiling. If the ball reaches the floor, the price goes up, goes down if the it hits the ceiling. If the force of the asset is too strong, it could either break the resistance and support. This results to the creation of a new set of support and resistance levels.
The next question is, when is the best time to buy and sell? I never had a chance to ask this. But from experience, there is this so called, "Timing". Some would argue that it is impossible to identify the perfect time to buy and sell in the market. I disagree. There are trends and patterns which can serve as guides when to enter and exit in the market. Mark Twain once said, "history does not repeat itself, but it often rhymes."
For this blog, I will just talk about seasonal effects which is one type of trend.
Can seasonal effects tell us, when is the best day to buy and sell Bitcoin Cash (BCH)? How about within a year, what are the months when the price of Bitcoin Cash is typically high and low? Using these trends, can we forecast the overall direction of Bitcoin Cash?
These are three questions I have tasked myself to discover.
Having some background in research and data analytics, I searched for the historical data of Bitcoin Cash. I found out that Coindesk.com hosts the dataset of Bitcoin Cash from 2018 to the present. This is the exact link where the data can be downloaded:
I know that Bitcoin Cash was created through a hard fork in August 1, 2017 but I can't find other sites that hosts complete data of BCH. This would suffice.
The dataset has 1,000 observations with 2 variables: price and date. To prepare the data for analysis, I did some data cleaning. I just renamed the price as "y" and date as "ds".
The statistical software that I used for this analysis is R software which is a free and open-source. I know the basic syntax of this software and I enjoy using its powerful data analytics capabilities. I also used a package called "Prophet" which was developed by Facebook Core Data Science Team. The documentation of this package can be found here.
According to Facebook,
Prophet is a procedure for forecasting time series data based on an additive model where non-linear trends are fit with yearly, weekly, and daily seasonality, plus holiday effects. It works best with time series that have strong seasonal effects and several seasons of historical data. Prophet is robust to missing data and shifts in the trend, and typically handles outliers well.
I will not be very technical about my analysis here because I am writing a blog not a peer reviewed academic journal. I will also share a link of my R codes so that you can reproduce the analysis if you like. I used the package "Prophet" as it were a black box. I just entered the data, used the relevant functions and default settings, and generated the graphical outputs.
If you are buying, the best day to buy is towards the weekend, specifically during Friday and Saturday. This is because of weekend effect. Friday and Saturday have negative effect on the y axis or the price of Bitcoin Cash: -3.0 for Friday and -2.75 for Saturday. These values can be interpreted as, "Friday has -3 effect while Saturday effect has -2.75 on the price of Bitcoin Cash." In practical terms, Friday and Saturday are the best days to buy but worst days to sell.
If you are locking in your profits, then, the most ideal days to sell your Bitcoin Cash are during Monday to Wednesday. The effect of these days to the price of Bitcoin Cash is about +2.5.
I got a reaction from a follower in my Noise.cash account regarding my forecast of Bitcoin Cash. He said that with all the developments happening in Bitcoin Cash Ecosystem, my forecast might be too conservative. I agree, I hope he's right. However, I am not familiar with all that is happening in the background and I do not know how to estimate the effects of various Bitcoin Cash projects with the overall price. That would require another skillset. Hence, I am just relying on the historical data to make this forecast.
By December 31, 2021, this model predicts that the value of Bitcoin Cash is $870 but it can be as high $1300 or low as $600.
Trade at your own risk. Do not take this blog as investment advice. I am not your financial advisor and I do not know your circumstances and profile as investor. Although, I always make sure that the data I use is accurate and my analysis is based on my technical knowledge, I make no representation that my prediction will happen. Information posted here should be treated only for educational purposes.
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