Weekend Effect In Bitcoin (Crypto) – Rules, Settings, Strategy, Returns
For many years, we have witnessed a weekend effect in Bitcoin from late Friday to late Monday. Moreover, volume tends to drop, and perhaps the lack of volume makes the price go up.
Key takeaways:
- The “weekend effect” in Bitcoin and other cryptocurrencies refers to a tendency for prices to show distinct upward movements over weekends compared to weekdays.
- During Saturdays and Sundays, Bitcoin and other crypto assets often experience unique price patterns not typically observed during the rest of the week.
- In this post, we backtest Bitcoin and Ethereum’s weekend seasonal trading strategy.
- The seasonal effect seems to work very well for Bitcoin.
- Click here for a complete list of all Bitcoin and crypto strategies or for IBIT ETF trading strategy.
Introduction to the Weekend Effect in Bitcoin
The “weekend effect” in Bitcoin (and crypto) refers to the tendency for Bitcoin prices to exhibit distinct positive movements over weekends compared to weekdays. Specifically, Bitcoin and other cryptocurrencies often experience increased volatility, sudden price swings, or unusual price patterns during Saturdays and Sundays.
Bitcoin and crypto markets remain open 24/7, allowing trading to continue without interruption. Some observed weekend trends include price drops or spikes late on Fridays, stabilizing on Saturdays, and another potential shift in momentum by Sunday evening or early Monday. However, only backtests, statistics, and data can confirm whether this is the case or not.
Reasons for the Bitcoin Weekend Effect may include:
- Lower Trading Volume: Fewer traders, especially institutional ones, participate over weekends, leading to lower liquidity and increased price sensitivity.
- Retail Investor Influence: Retail investors, who tend to be more active during weekends, may drive prices in specific directions based on sentiment or technical triggers.
- Market Manipulation Potential: With reduced liquidity, it’s easier for large trades to influence prices, sometimes leading to short-term volatility spikes.
- Global Impact of Time Zones: Bitcoin trading is global, and time zone differences can create pockets of higher or lower trading activity at different times.
For traders, understanding this effect is essential as it may provide opportunities for short-term strategies, although it also carries higher risk due to the increased unpredictability over weekends plus the lack of significant volume.
Analyzing the weekend effect in Bitcoin trading – Strategy and rules
Let’s show you an example of the weekend effect in Bitcoin (and Crypto):
Strategy 96 in our strategy list contains trading rules that work well on the two main cryptocurrencies: Bitcoin and Ethereum. Because they are premium strategies, we don’t want to reveal the trading rules and settings.
However, considering the little time invested, the backtest reveals potentially potent returns.
This is the equity chart of Bitcoin from mid-2014 until today:
There are 103 trades, and the average gain is 2.6%. The win rate is 60%, and the max drawdown is only 19%. It is worth noting that the strategy is invested only 10% of the time, thus indicating a favorable risk-adjusted return: 280% (28% annual returns divided by 0.09).
For Ethereum from 2018 until today:
Trading performance and metrics:
- #trades: 64
- Average gain per trade: 2.2%
- Annual returns: 18%
- Time invested: 9%
- Risk-adjusted return: 202%
- Win rate: 53%
- Max drawdown: 30%
The strategy has performed much better for Bitcoin than for Ethereum. However, the correlation between Bitcoin and Ethereum is high.
If you are interested in the Bitcoin Weekend Effect strategy, you can purchase it here (strategy #96):
Factors Contributing to Bitcoin’s Weekend Effect
Here are the factors that contribute to the weekend effect in Bitcoin, unlike traditional markets. Here’s a breakdown:
Lower trading volume institutional absence
Institutional investors who trade in higher volumes are less active on weekends. Lack of big trades can make the market more volatile.
Reduced liquidity
With fewer participants, the market is less liquid and each trade has a bigger impact, so smaller buy or sell orders can move the price a lot.
Retail investor influence increased retail activity
Retail investors who have more time on weekends can be more active and impact the market. They’re more prone to react emotionally or based on short term news and sentiment, so more volatility.
Different trading patterns
Retail investors do smaller, more speculative trades which can lead to bigger price movements and more susceptible to rapid changes in sentiment.
Market manipulation potential low liquidity opportunities
With lower volume, big players or “whales” can move the market more easily on weekends and manipulate prices to trigger stop-losses or liquidate leveraged positions.
Pump-and-dump risks
Some groups may pump and dump, take advantage of lower oversight and liquidity on weekends to move the price up or down.
24/7 trading and international time zones round-the-clock trading
Bitcoin and crypto markets never close, unlike traditional stock exchanges which are closed on weekends. So the momentum or trend from Friday can carry into the weekend without interruption.
Global market participation
With traders across multiple time zones, weekend trading patterns can be very different. For example, Asian or European traders might trade when the US market is less active and create unique price movements based on regional trading.
News events and sentiment shifts weekend news cycles
News or events that happen on weekends—regulatory announcements or global economic developments—can move the price without the usual weekday response from institutional traders.
Social media and sentiment impact
Without weekday news cycles, sentiment on social media like Twitter or Reddit can have a bigger impact on weekends. Retail traders can react to rumors or posts and move the price based on limited or speculative information.
Algorithmic and bot trading bot activity
Some algorithmic trading bots are programmed to take advantage of price movements on weekends, especially in low liquidity environments. Bots can amplify trends and make the price go up or down more.
Arbitrage opportunities
With fragmented pricing across global exchanges, bots and high-frequency traders can arbitrage on weekends and impact the price and create unusual weekend price movements.
These factors make Bitcoin’s weekend price patterns very unique and both trading opportunities and risks for those who trade on weekends.
Weekend price trends: bullish or bearish?
The weekend price trend for bitcoin and other crypto seems to be bullish.
Limitations and risks of trading the Weekend Effect
The biggest risk is that the crypto market starts behaving more like the stock as it matures. In stocks, we have yet to find any tradable weekend effect. Thus, the weekend effect slowy disappears. This might be already happening. the two log scales above shows that the percentage gains have slowed down, but this might as well be due to less volatility.
Another risk is manipulation due to low liquidity. However, most people are long.
The biggest risk is probably lack of a specific trading plan or strategy, something that might be reduced if you purchase our trading rules for the Bitcoin Weekend Effect. If you have automation, you are less likely to make mistakes due to trading biases.
Is the Weekend Effect in Bitcoin a reliable trading strategy?
Yes, the Weekend Effect in Bitcoin is a reliable trading strategy. Trading is all about risk and rewards, and so far, the Weekend Effect has provided good returns. The risk-adjusted return is much better than buy-and-hold.
Conclusion – Weekend Effect in Bitcoin and crypto
Let’s recap the main findings of our backtest: Our simple backtest that has two “simple” trading rules has performed well considering the little time invested.