Research Article #42 - Buying Cryptocurrency All Time Highs
Research Article #42 - Buying Cryptocurrency All Time Highs
A simple strategy that delivers more than 2x the annualized returns of Bitcoin
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When I was struggling to find my way to trade, one of the things that I thought that would fix it, would be to increase the complexity of my models, to the point that no detail was left unexplained.
I’d get as deep into the signal as measuring the inclination of a breakout in a certain context.
My excel files had dozens and dozens of columns, each filled with their unique detail.
This complexity, at best, led me to get better at excel. Because in markets, it didn’t matter a thing.
That’s why nowadays, when I find these simple ideas, it amazes me how well they do over decades.
Today we will be looking at a different trend-following signal.
One of the core ideas behind trend-following is that, every trend starts from a breakout.
The other assumption behind these models is that, by taking enough bets, on a diversified basket of signals, we should hit some trends that are large enough, to pay for all the bets that didn’t pay out.
That assumption relies on the continuous existence of enough trends, with enough length, to pay for our losses over the long-term, while giving us some margin on top of that.
That is why I like trend following.
The assumptions are simple, straightforward, and we are not doing anything overly complicated.
Sure, the implementation and consistent application of the rules is where the complexity lies, but that’s a whole another topic.
Today we are going to look into another variation of signal on these models.
Let’s get into it!
TLDR Summary
Equity Curve - Cryptocurrencies Market
Equity Curve - U.S. Equities Market
Best Trade - Cryptocurrencies Market
Best Trade - U.S. Market
Index
Introduction
TLDR Summary
Index
Strategy’s Thesis
Bitcoin Long-Only Model Performance Analysis - Conservative Risk Tolerance
Multi Asset Long-Only Model Performance Analysis
Edge Effect in U.S. Equities
Parameter Settings Overview
Conclusion
Python Code Section
Strategy’s Thesis
The whole thesis of the strategy is based on the fact that trend following has been a pretty robust strategy, over the past few decades, since it was first discovered.
Many funds have successfully applied these trend following methods to trade profitably in global futures markets.
But one thing that is not talked about, is how do these kind of strategies work in individual markets?
Individual markets such as stocks or crypto?
The main argument is that, it does not add the same level of diversification, that traditional multi-asset class trend following models, do.
And this is a reasonable argument.
However, can the individual investor take advantage of some trend features that are also present in individual markets?
That’s what we will find out today.