In this text, a buying and selling system with a very simple logic might be developed, which, as might be seen, may be utilized to completely different cryptocurrencies with really attention-grabbing outcomes. The system is predicated on the Average True Range, which is used as a volatility indicator, and on this particular case, it is going to be utilized to Bitcoin (BTC). Recently, the queen of cryptocurrencies has been a lot talked about, each for the anticipation of an necessary rally following the newest Halving and for its rising function as a strategic asset as a retailer of worth towards the inflation typical of fiat currencies.
How the Average True Range Volatility Indicator Works
The Average True Range (ATR), or “the average true range,” is a technical indicator used to measure the volatility of an underlying asset over a particular time interval. It was developed in 1978 by Welles Wilder Jr, a famend commodities analyst. The primary goal of the ATR is to present a numerical indication of the volatility of a specific instrument or market.
A excessive ATR, actually, signifies a market with excessive volatility, whereas a low ATR expresses higher stability within the value of the underlying and, due to this fact, a decrease danger profile.
This indicator expresses the value variation of a monetary instrument over a particular time interval, however it’s not ready to present data concerning the market course and its momentum.
As the title suggests, to calculate the ATR it’s vital to measure the common of the “true range” which, not like the simple “range” (that’s, the utmost worth minus the minimal of a bar) is outlined by additionally contemplating any gaps with respect to the closing of the earlier bar.
Generally, the measurement is carried out for 14 durations, however the ATR may also be calculated over completely different intervals relying on the wants of the dealer.
The trend following strategy on Bitcoin: logic and buying and selling backtest
The strategy in query is a simple upward trend following, designed for the spot market but in addition relevant to futures, which is able to enter the market with a cease order on the break of a sure value stage, with the concept the continued motion could proceed upward.
The session into account conventionally runs from 00:00 GMT to 23:59 GMT. Since cryptocurrencies are quoted 24 hours a day, these occasions have been chosen to align the session with the photo voltaic day. A 15-minute bar ‘time frame’ can even be used to function slightly exactly available in the market, but in addition utilizing a second information collection (data2) with day by day bars for calculating the entry stage.
This, actually, might be decided by the closing of the final day by day bar plus a certain quantity, decided by way of the Average True Range (ATR) of the final 5 days (interval), then multiplied by a issue (issue) which is able to initially be set equal to 1.
compra la prossima barra a c data2 + issue*AvgTrueRange(interval)data2 cease;
Assuming to function with $10,000 per operation, the closure of the commerce will happen upon reaching a cease loss of $1,000, a slightly massive worth however assumed vital on this market, given the volatility of Bitcoin and how it’s nervous in its actions. In any case, the strategy has an intraday horizon, so it can shut positions by the top of the session, with out the necessity to use a take revenue.
By making use of this strategy to the Bitcoin spot market (BTC) towards USDT (stablecoin pegged to the greenback), from January 2017 to October 2024, very encouraging outcomes are obtained, with an fairness line that rises fairly steadily.
This is confirmed by the annual outcomes reported in Figure 2, which, nevertheless, denote a mean commerce that isn’t very excessive, which may due to this fact be improved to make the strategy extra strong with a view to additionally supporting the operational prices of actual buying and selling (commissions and slippage so as execution).
How to optimize the efficiency of the trend following strategy on Bitcoin
Among the variables that may be adjusted to optimize the strategy, there may be actually the interval (interval) used to calculate the ATR, but in addition its multiplicative issue (issue) and the cease loss worth.
By various the ‘period’ between 2 and 10 days and the ‘factor’ between 0.5 and 2 (with a step of 0.25), whereas preserving the cease loss unchanged for the second, the outcomes proven in Figure 3 are obtained.
Ordering them by common commerce, it’s famous how the mixture ‘period’=2 and ‘factor’=1 permits for a wonderful internet revenue/drawdown ratio (the Custom Criteria) and the most effective internet revenue (about $29,600) amongst these with the best common commerce. In reality, there are additionally combos with increased internet earnings, however with common trades too low to be thought of.
With the chosen parameters, due to this fact, the full revenue of the system approaches $30,000 in 355 trades, with a mean commerce of about $83.50. These outcomes point out a strategy already fairly good to be utilized in reside buying and selling, however that doesn’t imply that it can’t be labored on to enhance it additional.
At the second, actually, the strategy includes the use of a cease loss at $1,000, which is 10% of the place’s worth, and it has not been optimized. In Figure 4, it’s famous that by various the cease loss from $500 to $2,000, there are not any notably attention-grabbing outcomes, so one may preserve the preliminary cease or at most take the worth of $1,100, which seems to be the optimum one.
Trend following strategy: utility to different cryptocurrencies (Ethereum and Solana)
Without going additional by inserting operational filters that might simply lead to overfitting within the optimization of the strategy, one may merely attempt to validate it by making use of the identical logic to different cryptocurrencies, to confirm if it might additionally obtain good outcomes on these. It is understood, actually, how Bitcoin acts considerably as a driver for all the market, so the opposite cryptocurrencies have a tendency to transfer in a related method.
The fairness strains of the identical strategy utilized to Ethereum (ETH) and Solana (SOL), two of the primary altcoins on the market, are reported under.
The upward trend of each fairness strains confirms the effectiveness of the strategy, though to obtain the most effective outcomes from Ethereum and Solana as effectively, it could be vital to proceed with the optimization of the parameters, as beforehand accomplished for Bitcoin. This activity is due to this fact left to the reader as an operational suggestion.
Conclusions on the strategy that exploits the volatility of Bitcoin and cryptocurrencies in buying and selling
In conclusion, the intraday trend following strategy examined on Bitcoin has confirmed to be actually attention-grabbing in its simplicity, and it may be utilized with the mandatory changes and optimizations to many different cryptocurrencies as effectively. This market is certainly nonetheless fairly younger, and regardless of maturing quickly, it presents quite a few alternatives for merchants who want to interact with it.
Until subsequent time and comfortable buying and selling!
Andrea Unger
