If you assume price = constant + superimposed sinusoidal curve, with the amplitude of the curve big enough to trigger buying and selling, then by your method, you repeatedly buy low, sell high, over and over again. Which means you make money, assuming the spread and transaction costs are less than what you earn from buying low and selling high.
Any curve can be represented as a sum of sinusoidal curves, i.e. a Fourier series. Therefore, it becomes mathematically provable that your method, if properly implemented, will cause you to benefit from volatility.
EDIT:
Actually I might also have to assume that you start and end at the same price. Obviously if the price of bitcoin shoots up to $1M, you're better off if you didn't sell any of it at all during the rise, which means Strategy 1 would be better.
All trading strategies have a threshold where they stop being profitable. The rebuy approach works best when ranging. It works worst when on a uptrend with no corrections.
Even if there is retracing, that retracing must match your thresholds. In the worst-case event the corrections can fall just short of your rebuy levels.
I built a spreadsheet to play around with formalizing these parameters a few years back.
EDIT - Old version:
https://docs.google.com/spreadsheets/d/1jv97ERhahE7pP5xAVIXtHEE89Ew4CHiz7imtwsYw8zg/edit#gid=4 (Make a private copy before entering your own values.)
New version:
https://docs.google.com/spreadsheets/d/1JDYALoV4KR_pvX5vuQww99t4hwqqmuHuAI9CZWhFgt0/edit#gid=0In the end you are given a list of several points based on math. The variables you control:
Net worth outside of bit coin, net worth in bitcoin, desired percentage of assets to hold in bit coin, granularity of sell targets, percent of funds to use for repurchases, percent correction rebuy target.
As an example: John Doe holds 10 bit coins, as a value of $5000 outside of bit coin, wishes to have 66% of his value in bit coin. Sells occur each 20% increase. Revise occur when each cell target has dropped in value by half.
This plan would start out balanced as $10,000 in bitcoin value, 5000 outside, matches the 66% balance. As bitch queen goes up you will be forced to sell more to stay to that balance level. Let's say we jump up to $10,000. At that point you would sell your $10,000 target. Now in the future, that specific cell will only ever be repurchased if you hit $5000 or lower.
This is the key to the rebuy principle. You don't know how deep the corrections will go.
If it ever only corrected to 6000, you would never revise anything. If it would have corrected to 2500, you could have three but twice as many. You can't to know in advance. So you have to guess on depth.
Now, the depth of corrections varies in a rally based on how overextended it is.
So I played around with a "heat index " that let the amount that you sold at price targets increase as you deviate farther from moving averages. This lets you sell more when you believe you are overextended, but again there are no guarantees.
It's a little cryptic to use with no explanation, and it did not have a ton of interest back in the day. I can find a link to the thread that describes it if anyone is interested now.
Regardless, it is an important topic, and one that is good to have a good plan for, before prices go crazy and emotions can take over. Also crucial is the tax considerations of your buys and sells, long versus short term capital gains, but I am neither a lawyer nor an accountant so that stuff and all formal recommendations are each individual's responsibility.
I believe that I agree with a lot of your principles and your charts seem to contain a lot of the same ideas that I put into practice, which is a combination of selling and rebuying and also considerations regarding taking some of the profits off of the table.
In some sense, your target sell points are way more grand than mine, since I actually started to employ mine at $250 and have been employing them all the way up the price range to today's price with plans to continue to employ the techniques into the future....
So, actually it can be a bit of an unknown whether when you continue to sell on the way up if the price is ever going to return to the lower price points in which you can buy back, and therefore that money would potentially be useable for other purposes, such as direct buying/selling, arbitrage opportunities or maybe just cash flow management.
I think that part of the key, no matter what, is staying cognizant of your accumulation goals and your what kind of proportionality (BTC/fiat percentages) that you would like to have at various price points.
About a year ago, I created a chart like this to give me guidance (and I tweak it from time to time as my thought may change from time to time)
Price BTC Allocation
$200-350 97-99.5%
$350-450 96-99%
$450-550 92-98%
$550-650 90-96%
$650-850 85-94%
$850-1250 84-92%
$1250-2000 83-91%
$2000-3000 82-90%
$3000-5000 55-84%
$5000-10000 50-80%
$10000-20000 48-78%
$20000-30000 45-75%
$30000-50000 43-73%
