Bitcoin overreaction

Checked October 2026

An overreaction is a day that closes more than two standard deviations away from a normal day, and the rule sells bitcoin short the next day. Caporale and Plastun published it in 2020. Backtoast ran it. This version failed our test, losing 5.1% a year over 85 trades.

Backtoast

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Bitcoin overreaction

Both a very up day and a very down day are followed by a short at the next 00:00 UTC open. After an up day the short is covered at 16:00 UTC, a bet on a pullback, and after a down day at 11:00 UTC, a bet the fall continues.

The paper measured a normal day over its whole sample, which uses data no one had at the time. The run used the past year of daily moves instead, so its first trades came in 2022.

Crypto daily reversal also bets on the day after a big move, across many coins.

When it works

It only trades the day after a move far outside bitcoin's normal range, so it's busy in volatile stretches, such as a sharp sell-off or a fast rally, and sits in cash through calm markets. The up-day short and the down-day short are separate bets, so running only one of them is the variant worth trying.

Origins

Caporale and Plastun published it in Financial Markets and Portfolio Management. From 2017 to 2019 they found 49 trades after up days averaging +1.54% and 46 after down days averaging +1.13%, and neither was statistically significant. The run is from late 2021 to September 2026.

The run is Backtoast's, from 29 October 2026, after costs.