Crypto Systematic Trader Journal - 13/12/2022

Building a method to test the validity of a regime

Trend Study:

As a trend follower I need to know which regimes are better for my systems to trade the long side and the short side. I want to stack the best odds on my side without sacrificing profits.

But how can I achieve that? How can I systematically identify the regime in which we are in and apply the better system that that regime?

I am thinking about these ideas as I go through and testing them. Nothing here is scripted or already done. I’ll be building code in order to validate these ideas.

Let’s get started.

The first idea will be to test the returns of the top 50 market cap coins when Bitcoin is over below the most commonly used indicators.

These are the results when Bitcoin is above the regime:

These are the results when Bitcoin is Below the regimes:

You can clearly see that there’s a difference between being above those regime filters and below. Taking trades below those filters will massively impact the returns that the trader can expect because we are trading against the “tide” of the market. As a trader you want to “stack the cards” in your favour and not trade against rough market conditions.

Now which regime to choose is the trader own personal choice taking into consideration his risk profile. Test your system on each regime and you will find the difference between performance.

To conclude, the point of this study was for us to visualize the impact that different regimes can have on our trading and motivate you to go and search for your own regime filters and trade when you clearly have an edge and not because somebody said for you to trade. This way you’ll ensure that you have an edge and that you can wait patiently for the regime that you have studied that works best.