in this video i will be looking at trading strategies for bitcoin/US dollar that are
better than buy-the- dip and much better than buy and hold I'll be looking at momentum style entries
i will be looking at three different technical indicators i will be showing you all of my back
tested results and i will be showing you how you can do this yourself so stay tuned i first tested
bitcoin back in 2018 and there is a link on the screen if you'd like to check out that video what
i said then is exactly the same as what i think now that this is a market for trend following
looking at breakout strategies and you're looking at trading in the direction of the dominant trend
but i have expanded my analysis in this video i'm not only just looking at donchian price channels
but also the rate of change indicator and the rsi and i'm going to show you how you can use
these indicators to trade and maybe even get better trade entries on the screen you can see
the back test model that i've used for my analysis here this is a Tradinformed Excel backtest model
that you can use to backtest all of your trading strategies whether crypto, stocks, forex or any
market you are interested in you can test on different time frames and it is easy to add new
technical indicators and test different strategies if you would like more information about how you
can back test with a tradinformed backtest model there is a link on the screen and below this video
i have looked at three different technical indicators in this analysis and they all
tell a similar story which is good first of all Rate of Change
now the rate of change indicator is also known as the momentum indicator
and it identifies the current price relative to a previous price so you can see here i'm
looking at the 50 period rate of change and i am calculating this as a percentage
i'm also using RSI relative strength index hugely popular momentum style oscillator
initial settings here are the 14 periods i'm also using
what i've identified here as breakout now breakout is using Donchian price channels
and it is when we have a closing price that is greater than the price channel if you would like
to know how to calculate Donchian price channels in Excel there is a link on the screen to a recent
video that i have done explaining how to do this i am testing bitcoin in us dollars since 2014
and so we've got about eight years worth of data in here testing on the daily time frame testing
using the ATR based position sizes and i will change this to percentage and i will show you
what a difference that makes the reason i'm using the atr to begin with is because it adjusts for
volatility and bitcoin and cryptos in general are highly volatile so we have an adjustment for that
let's have a look at some of these technical indicators and understand the strategy behind
them now there is a strong similarity between all of these indicators and the results we are getting
now first of all rate of change also known as the momentum indicator measures current price
relative to a previous price so roc 40 would be the current price relative to the price
40 bars ago and i can change this and you can see the results update in real time
now the entry level i've just adjusted that the entry level the price needs to
cross above this level so zero percent would be the zero line and we can push this higher
typically we're going to get fewer trades but we are going to expect a higher average trade
expectancy so suggesting we're getting higher quality trades but not as many
RSI very common momentum style oscillator again we're looking for this to be
strengthening so i've got the entry-level behind we're looking for the rsi to cross above
the 50 line so i can adjust this eight nine we can adjust this when you see again the results adjust
in real-time here and we can also adjust the entry level and see the results as well
you see once again when i move the entry level higher we are getting a much higher
trade expectancy but much fewer trades
so breakout this is the original strategy that i identified years ago for bitcoin and it works in
a similar way slightly different entry points but here we've got a 20 bar breakout when i just when
i mean breakout what i'm talking about is donchian price channels so identifying the high and the low
of a set number of bars and if you want to learn how to calculate this in excel
i've recorded a recent video on this there's a link on the screen and you can
check this out so breakout of 20 would mean that we have a closing price that is higher than the
highs of the previous 20 bars if we're looking at short trades it would have obviously be lower
than the previous 20 lows again i can change this and see the results adjust in real time
optimizer here and we can have a look so let's have a look at the breakout that i
was just showing a moment ago let's look at all the values between 10 and 80 with a step
of five and when i click onto the optimizer we not only get the values calculated quickly
terms of net profit profit factor MAR ratio which is annual growth rate divided by maximum drawdown
gives us a measure of how smooth the strategy is and the percentage of winning trades
nicely colored in greens we have a few areas of stability 20 25 and 50 and 55 but on the whole we
are getting very consistent results for a simple easy to understand easy to follow strategy rate of
change rsi is giving us slightly different entry levels but what it is showing me consistently is
a bitcoin and the other crypto markets a momentum style market buying the dip as people have done
throughout 2022 has been a risky way to trade these markets whereas momentum
has performed well so all these results are on long-only however we can add in short trades and
there is very good reasons to do that obviously we don't know what's going to happen in the future
so looking at short trades
all I'm going to do is check this box here you can see first of all for breakout
we've actually got a slightly smoother set of results and we've got more trades as well
which is understandable because we're adding in short trades so let's just re-optimize and look
at how the results perform whether they are similar to the previous values and we could
see straight away very quickly that indeed they are very similar to the previous results
we're getting two zones of stability around here but pretty decent results throughout so what i
want to see if i'm trading a short strategy i want a nice high mar ratio going back to the results
now did rate of change perform as well we can see a decent result there let's have a look so
we can optimize it again so i'm going to go to the rate of change value
and this time i'm not going to do quite as many let's do
see here once again we get very stable results looking at the rate of change
in fact we get an average a higher mar ratio the reason for that i would expect is that rate
of change will get us in as a different entry point we can still change the entry level here
and this changes the entry level for both long trades and short trades on an equal amount
rsi just looking at the chart here it shows pretty good
it shows a pretty good result let's put in a linear trend line here and we can zoom into
that now you can see here that the trend line is very smooth we're getting a good high mar ratio
and let's have a look at what the optimizer tells us about the rsi strategy now we're going to use
some different values for the rsi i'm going to go from an rsi value of 8 to an rsi value of 18.
look at some pretty common values testing the rsi click on optimize and once again
it's going to run through all the values this time allowing for long and short trades
one thing i can see pretty consistently is a very high mar ratio
decent net profit for all of these as well
so encouraging results for all of the indicators on a range of different values
we're not optimizing to find the best values we're optimizing to find how this strategy performs
with a range of values so the next thing i'm going to demonstrate is maybe you don't want to use the
atr to calculate your position size you don't want to adjust the volatility you want to take these
big ups and downs but you can see here the big difference here is we're getting a much higher net
profit because we're taking larger position sizes because the model is not adjusting for volatility
flick onto rsi
i think you're going to get you're going to see much more volatile results we can see
these results here are performing pretty well but you will get much more volatile results and
once again breakout and see this is what you may well get if you are trading this type of breakout
strategy a very high spike in your results so i would say a slightly riskier way to trade
looking at a different value for breakout let's put it back to atr you see much much smoother
results adjusting for volatility i hope you enjoyed this video if you
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