Backtested DCA strategy suggests selling Bitcoin at ‘extreme greed’ most profitable

Selling off a portion of Bitcoin (BTC) when the market is in a state of “Extreme Greed” is a more profitable investment strategy than just buying and HODLing it, a Redditor’s analysis suggests.

Redditor “skogsraw” shared a March 21 analysis found that there’s a higher return on investment (ROI) when using the Fear and Greed Index to dictate a dollar-cost averaging (DCA) strategy compared to a “vanilla” DCA strategy.

Skograw’s “benchmark” strategy involved DCA’ing $100 into Bitcoin once a week, starting from March 17, 2018, to Sept. 9, 2023 — which netted 124.8% return on investment. 

The second strategy involved a tiered DCA plan, which would buy $150 of Bitcoin each week during times of Extreme Fear, $100 if in Fear, $75 if in Neutral, $50 if in Greed and $25 if in Extreme Greed.

The third strategy was the same except it would sell 5% of the accumulated Bitcoin each week if in the Extreme Greed zone. This turned out to be the most profitable strategy, with an 184.2% ROI, compared to the benchmark of 124.8% and the no-selling strategy of 140.1%.

The Redditor didn’t explain why they chose the dates they did but said it wouldn’t have been fair to choose a market bottom or top. The period covered at least two major bear markets and one bull market. 

Skograw, however admitted the tests haven’t been cross-checked and emphasized that testing should also be conducted across more timeframes.

Skograw’s findings also didn’t factor in Bitcoin network fees to trade, which often peak during times of Extreme Greed.

“Regardless these are very convincing results in favor of adjusting your DCA strategy. Hope you find it useful in the upcoming bull!”

The findings are in line with Crypto Fear Greed’s view that market corrections typically occur when investors get too greedy.

Skograw also ran two other strategies — “AlphaSquared Risk Model DCA” and “PI Cycle Top Indicator” — which produced ROIs of 385% and 332.4% respectively.

Commentators, however, called into question the results of the two complex data-driven trading strategies.

Related: Crypto greed index hits highest level since Bitcoin’s $69K ATH

The Crypto Fear Greed index score currently sits at 75/ 100 or Greed.

It has fallen 15 points since March 5 when it notched 90/ 100 or “Extreme Greed” — its highest score since Feb. 20, 2021.

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