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June 2019 Indicator Strategy Analysis

By July 29, 2019 September 16th, 2019 Coinscious Lab, Data Analytics, Indicator Report
June 2019 Cryptocurency Indicator Strategy Report

Overview

We applied seven different types of indicator strategies that are commonly used to analyze cryptocurrency market charts. Among the seven indicator types, we experimented over various parameters as shown below.

INDICATOR  PARAMETER TYPE PARAMETER VARIATIONS
Moving Average Crossover (SMA) Short and Long term EMA period1 (1,10), (1,20), (5,10), (5,20)
Exponential Moving Average Crossover (EMA) Short and Long term EMA period (1,10), (1,20), (5,10), (5,20)
Moving Average Convergence Divergence (MACD) Short and Long term EMA period2 (5,10), (7,14), (12,26)
Relative Strength Index (RSI[14]) Oversell & overbought levels3 (30,70), (20,80), (10,90)
Rate of Change (ROC) Oversell & overbought levels4 (25,4)
Bollinger Bands (BB)
William Fractals (Fractals)

We traded BTC/USDT at cryptocurrency exchange, Binance, using the indicator strategies above from June 1, 2019 to July 7, 2019.  For SMA, EMA, MACD and RSI, we used crossover signals for open and close rules. For ROC, the open and close rules are 25 and 4, respectively. Meanwhile, for BB, the open and close rules are when the price crosses the upper band and when the price crosses the moving average (MA), respectively. The details of all indicator strategy rules can be found on our Coinscious Terminal.

Indicator Strategy Performance On Daily BTC/USDT Market

Figure 1 shows the daily mean return versus daily volatility plot over the indicators. We observe that MACD (5,10) produces the largest mean daily return while having relatively lower daily volatility. On the other hand, MACD (12,26) offers the worst return. This illustrates that the performance of MACD can vary based on the short and long MA parameters. 

Figure 1. Plot of mean daily return against historical daily volatility for individual BTC/USDT indicators from June 1, 2019 to July 7, 2019. Higher returns at a given level of risk, measured through historical daily volatility, indicates a better investment.

Cryptocurrency Indicator - Mean daily returns vs historical daily volatility BTCUSDT indicator (Daily)

SMA (5,10) is the second best performing indicator with 0.75% returns. Together, SMA (5,10), EMA (1,10), and SMA (1,10) form a cluster around daily returns between 0.6~0.8% daily volatility of 4.0%. Finally, EMA (5,10), SMA (5,20), SMA (1,20), and ROC form another cluster near daily return of 0.0% and daily volatility of 0.0%. The cumulative return plot in figure 2 shows that these indicator strategy did not trade at all; these indicators did not trigger any open signals.

Figure 2. Plot of the total cumulative return of BTC/USDT indicators from June 1, 2019 to July 7, 2019 using daily ticks.

Cryptocurrency Indicator - Total Cumulative Return (Daily)

From figure 2, we also observe that MACD (5,10), the top performing indicator, produces a cumulative return of 48%. The second and third highest cumulative returns are EMA (5,10) and SMA (5,10) with 32% and 28% total returns, respectively.  Note that, even though SMA (5,10) had a higher mean daily return than EMA (5,10), EMA (5,10) outperforms SMA (5,10) in terms of total return. Similarly, MACD (7,14) has a higher mean daily return but lower cumulative return compared to both EMA (5,10) and SMA (5,10).

Indicator Strategy Performance On 4-Hour BTC/USDT Market

We conduct the same experiment again, this time on 4-hour BTC/USDT price data. We observe that the highest mean daily return was still MACD indicator. Figure 3 reveals that all three MACD indicators performed well:   MACD (12,26), MACD (7,14) and MACD (5,10) offered daily returns of 0.12%, 0.10% and 0.10%, respectively. Also, all SMA indicators, except SMA (1,20), provided daily returns of 0.11%. 

Figure 3. Plot of mean daily return against historical daily volatility for individual BTC/USDT indicators from June 1, 2019 to July 7, 2019 using 4-hour tick data.

Cryptocurrency Indicator - Mean daily returns vs historical daily volatility BTCUSDT indicator (4-Hr)

When we compare BTC/USDT trading in daily versus 4-hour tick, we consistently see that best SMA indicators outperform the best EMA indicators. 

When we look at RSI indicators, RSI (20,80) gives positive 0.02% mean daily returns while RSI (30,70) gives negative 0.02% mean daily returns. Note, we did not trade using any RSI signals on the daily tick data. We traded using RSI signals on the 4-hour tick data.

Both BB and Fractals give moderate returns with less volatility than other MA-based indicators in both daily and 4-hour tick trading.

When we look at the cumulative return plot for 4-hour tick data, we see that trading immediately starts on June 1, 2019 (figure 4), whereas trading only begins from June 11, 2019 using daily tick data. Nevertheless, the best total return we get from the 4-hour trading chart is 37% with MACD (12,26), which is lower than the best return from daily trading chart in Figure 2.  

Figure 4. Plot of the total cumulative return of BTC/USDT indicators from June 1, 2019 to July 7, 2019 using 4-hour ticks.

Cryptocurrency Indicator - Total Cumulative Return (4-Hr)

Indicator Strategy Performance On 30-Minute BTC/USDT Market

Finally, we conduct the same experiment once more, this time on 30-minute BTC/USDT price data. Overall, the performance results are negative. All indicator strategies, except SMA (1,10), produce negative daily returns (Figure 5) as well as negative cumulative returns (Figure 6). Surprisingly, SMA (1,10) is the only indicator with positive returns: 0.6% mean daily return and 4.0% total return. 

Figure 5. Plot of mean daily return against historical daily volatility for individual BTC/USDT indicators from June 1, 2019 to July 7, 2019 using 30-minute tick data.

Cryptocurrency Indicator - Mean daily returns vs historical daily volatility BTCUSDT indicator (30-min)

Figure 6. Plot of the total cumulative return of BTC/USDT indicators from June 1, 2019 to July 7, 2019 using 30-minute ticks. 

Cryptocurrency Indicator - Total Cumulative Return (30-min)

Summary

  • Under the assumption that we did not know Bitcoin price would increase in June, both MACD and SMA indicators provide positive signals and we are able to make cumulative returns of 48%.
  • Overall, SMA indicators outperformed EMA indicators in both daily trading and 4-hour trading.
  • Trading based on 30-minute or less with listed indicator signals results in the worst performance – negative daily and cumulative returns.

Disclaimer

The information contained herein is for informational purposes only and is not intended as a research report or investment advice. It should not be construed as Coinscious recommending investment in cryptocurrencies or other products or services, or as a solicitation to buy or sell any security or engage in a particular investment strategy. Investment in the crypto market entails substantial risk. Before acting on any information, you should consider whether it is suitable for your particular circumstances and consult all available material, and, if necessary, seek professional advice.

Coinscious and its partners, directors, shareholders and employees may have a position in entities referred to herein or may make purchases and/or sales from time to time, or they may act, or may have acted in the past, as an advisor to certain companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies.

Neither Coinscious or its partners, directors, shareholders or employees shall be liable for any damage, expense or other loss that you may incur out of reliance on any information contained in this report. Chainlink

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