Every market type faces some or the other phase where the growth trajectory sees a downfall after riding high based on the investors’ sentiments.
The phase where the market sentiments ride sky high is fondly known as the ‘bull phase’, whereas the phase where the market sentiments die down slowly and stoop lower, is known as the ‘bear phase’.
Bull and bear phases are common in every stock market, but have you wondered why every crypto markets are no stranger to this?
Enter the crazy world of crypto – where bull and bear runs are more frequent and volatile than stock or commodity markets, owing to greater investors’ sentiment running at large here.
The prevalent situation right now
The entire crypto market has been in a downward spiral for the past few years after having achieved a great run during the pandemic. Many investors in crypto are now looking forward to making money in the short term with certain well-timed strategies that shall make them quick gains in the market.
One of the many such strategies tried and recommended is the ‘Buy 85, Sell 80’ strategy. Such theories are not merely textbook concepts or an experiment waiting in line to succeed, rather is a real way to mint money by trading in crypto.
Even during extremely volatile market conditions, such strategies are also instrumental in illustrating the way a simple strategy works for crypto traders in real life.
How an asset does gets classified as ‘Bearish’ or ‘Bullish’
Many algorithmic definitions determine the current trading conditions – whether bullish or bearish for a given crypto asset or a class of assets. They assign a score based on various factors that determine whether the crypto asset is bullish or bearish.
The score is essentially based on past trend analysis of the crypto asset, and it normally searches through a coin/token’s entire history looking for positions that are similar to the assets currently trading in the market. It searches for various similarities and common factors; including trading volume, recent price action, social sentiment, and even the amount of tweets/social media mentions about that asset.
By combining all the above-given points, the algorithm creates an indicative score, which is a dynamic and constantly shifting assessment of prevalent trading conditions for each relevant asset. The higher the score, the brighter the outlook - and the more confidence the investors show in that class of crypto. On the other hand, a very low score is considered bearish.
For instance, a neutral score of 50 indicates that the algorithm sees an indifferent correlation between the current market conditions and past indicative performance of the crypto asset class.
The real meaning of ‘Buy 85 Sell 80’
A ‘Buy 85, Sell 80’ strategy means that a trader can buy assets that cross the 85 score on the scale mentioned above, considered as strongly bullish. And then sell the asset when it goes below the score of 80, considered to be bearish.
The trader may carry this trade in real-time on the exchange or else, may merely paper-trade the crypto to test the algorithm.
Considering an example - if Dogecoin’s index crosses 85, and was the only asset with such a high score, the trader could place a percentage of their current portfolio in Dogecoin. But if Ethereum crosses 85 as well, the trader can allocate some percentage to Ethereum i.e. shift a certain part of his portfolio to Ethereum as well to diversify his risk.
An illustration earmarking the ‘sell’ level of a certain crypto asset is given below: -
Do such ‘Buy x, Sell y’ strategies work?
The main point to evaluate here is whether the algorithms devised by various industry experts are indeed effective, or they act as merely another theory gathering dust in textbooks.
When it sees a bullish position, is it often correct? When the indicative score goes up, do prices usually go up? The answer is a resounding yes. The same holds for the converse of the same i.e. prices do go down when the indicative score on the index falls considerably.
Apart from the ‘Buy 85, Sell 80’ strategy, there are numerous other strategies that have made a massive return on investments made by traders in 2022.
For example, an investor entered a ‘Buy 90, Sell 85’ strategy. He made a profit of around 96.89% in 2022. Even stronger strategies include the likes of the ‘Buy 90, Sell 90’ where he made a profit of around 159.15% in 2022; and the ‘Buy 85, Sell 75’ strategy which averaged around 102.65% in the same year.
However, it may be noted that the indexes are merely statistical figures and may not necessarily be indicative of the crypto asset’s performance in recent times. For example, Bitcoin (BTC) made a negative return of - 65% since the beginning of 2022, and Ethereum (ETH) didn’t do better than its significant peers, with negative returns of - 68%. While statistic-based scores averaged +81.50% for both of them, which left BTC and ETH much behind respectively.
An illustrative example of a ‘Buy 100, Sell 95’ strategy is indicated below: -
This indicates that leaving behind exceptional cases, the statistical indexes are otherwise working properly. This generally proves over time that historical trading conditions for a digital asset can be a useful gauge for the current financial health of the crypto asset.
To put in other words, a high statistical score has a proven correlation with price appreciation. This may not hold for every instance or every asset, but the results hold otherwise in most cases. That’s what statistical scores are usually devised for, learning from history; and that’s why an actual return of 176.31% bang in the middle of one of the worst crypto winters in history is considered material.
The Bottom Line
Statistical figures are mere indicators acting as a direct function of many market conditions and user sentiments. While such factors must be considered before investing in a given asset class, it may also be noted that one must also consider various other relevant market factors before considering investing in the same, apart from such strategies.