How to build a profitable crypto trading strategy
A trading strategy is more than just stacking indicators.
It's a methodical approach based on predefined rules. Let's dive into the key steps of creating a profitable crypto trading strategy.
A trading strategy is more than just stacking indicators.
It's a methodical approach based on predefined rules. Let's dive into the key steps of creating a profitable crypto trading strategy.
2/ Understand the Nature of the Market.
Before diving into indicators, you must grasp the market's characteristics.
Crypto markets are known for volatility and trends.
But we're building a strategy, we want some evidence.
Before diving into indicators, you must grasp the market's characteristics.
Crypto markets are known for volatility and trends.
But we're building a strategy, we want some evidence.
3/ How to know if a market is suitable for trend or mean reversion trading?
Start with a basic strategy.
For example, a moving average-based strategy. If it works, it suggests a market's suitability for trend trading.
Start with a basic strategy.
For example, a moving average-based strategy. If it works, it suggests a market's suitability for trend trading.
4/ Check this out.
A simple moving average strategy generated almost 5x more profit on Bitcoin than holding it.
Very simple conclusion: Crypto is suitable for trend or breakout strategies.
Let's build a simple breakout strategy!
A simple moving average strategy generated almost 5x more profit on Bitcoin than holding it.
Very simple conclusion: Crypto is suitable for trend or breakout strategies.
Let's build a simple breakout strategy!
5/ Selecting the right mix of cryptocurrencies is key to building a diversified portfolio.
Should you focus on smaller coins or go for the big players?
Understanding their unique characteristics is crucial.
Each of the groups has a different characteristics...
Should you focus on smaller coins or go for the big players?
Understanding their unique characteristics is crucial.
Each of the groups has a different characteristics...
6/ Analyze Market Behavior.
Study historical breakouts to understand market behavior.
How does the market act during breakouts? What's the volatility like? Describe everything.
Thorough research is key!
Study historical breakouts to understand market behavior.
How does the market act during breakouts? What's the volatility like? Describe everything.
Thorough research is key!
7/ Indicator Selection and Parameters
Indicators describe situations to trade, but they're not the strategy's core.
We want to trade short-term breakout. Let's use RSI(7) for capturing them.
When are the strongest trends created?
Indicators describe situations to trade, but they're not the strategy's core.
We want to trade short-term breakout. Let's use RSI(7) for capturing them.
When are the strongest trends created?
8/ Most of the strong breakouts occur around level 80.
Let's start with following entry condition: RSI(7) > 80
Let's start with following entry condition: RSI(7) > 80
9/ What exit to use?
The basic premise is that we want to exit when momentum in the market weakens.
The starting point for exiting the position could be the 60-70 level.
The basic rules of our simple system are as follows:
Entry: RSI(7) > 80
Exit: RSI(7) <70
The basic premise is that we want to exit when momentum in the market weakens.
The starting point for exiting the position could be the 60-70 level.
The basic rules of our simple system are as follows:
Entry: RSI(7) > 80
Exit: RSI(7) <70
10/ The strategy has a growing equity. The basic idea seems to work.
I donβt like the results in a period when the markets are falling.
Implementation of a regime filter like using a moving average on Bitcoin could help.
Logically, we only buy when Bitcoin grows.
I donβt like the results in a period when the markets are falling.
Implementation of a regime filter like using a moving average on Bitcoin could help.
Logically, we only buy when Bitcoin grows.
11/ The results are much better!
We have avoided the big drawdown in 2021 by using a logical context filter.
By using Bitcoinβs moving average as a context filter, we ensure that we only enter trades when the broader crypto market is in a bullish phase.
We have avoided the big drawdown in 2021 by using a logical context filter.
By using Bitcoinβs moving average as a context filter, we ensure that we only enter trades when the broader crypto market is in a bullish phase.
12/ The basic strategy is complete.
It consists of only 3 conditions:
Entry: RSI(7) > 80 AND MA(BTC,50) > 50
Exit: RSI(7) <70
Only 3 conditions create a strategy that has very interesting results...
It consists of only 3 conditions:
Entry: RSI(7) > 80 AND MA(BTC,50) > 50
Exit: RSI(7) <70
Only 3 conditions create a strategy that has very interesting results...
13/ Building a 3-condition strategy seems very simple.
But only after it's done...
The path to these 3 conditions was long, from understanding the market as a whole, to understanding the entry situation, to actually testing the strategy.
But only after it's done...
The path to these 3 conditions was long, from understanding the market as a whole, to understanding the entry situation, to actually testing the strategy.
14/ Never build the strategy the other way around!
Use lots of indicators and conditions and finding a rising equity curve in the past is easy.
But this approach doesn't work in live trading...
Use lots of indicators and conditions and finding a rising equity curve in the past is easy.
But this approach doesn't work in live trading...
15/ You can find a more detailed description of the whole process in my article:
robuxio.com
Including Pine Script for Tradingview.
Download it and test it yourself.
Enjoy!
robuxio.com
Including Pine Script for Tradingview.
Download it and test it yourself.
Enjoy!
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