Stochastic ETH-BTC beta
A breakout strategy for ETH and BTC using Stochastic RSI indicators
Strategy description
This strategy leverages the Stochastic RSI indicator to identify long-only opportunities on multiple trading pairs on the Ethereum blockchain, specifically ETH and BTC.
- Trades on WBTC/USDC and WETH/USDC on Uniswap V3.
- Designed to capture long-term trends while minimizing drawdowns.
- The strategy focuses on weekly cycles, rebalancing every 7 days.
- It performs well in trending markets and aims to protect capital during downturns with stop-loss mechanisms.
- During the bear and crab markets excess cash is deposited to Aave v3 as USDC to gain credit supply yield.
Past performance is not indicative of future results.
Assets and trading venues
- The strategy trades on decentralized exchanges (DEX) such as Uniswap V3 on the Ethereum blockchain.
- Trading pairs include WBTC/USDC and WETH/USDC with the fee tier of 30 bps and 5 bps
- Keeps reserves in stablecoins such as USDC, and deposits to Aave USDC reserves for interest.>>>>>>> e0ba15c419ce942e122d9e389594787eca5ec556
Stochastic trading
This strategy is built around Stochastic RSI indicator. It uses this indicator to detect breakout conditions in the underlying trading pairs and allocate the strategy equity to a breakout trade.
Backtesting
The backtesting was performed using data from Binance.
- Binance data was used, as Uniswap V3 does not have enough trading history to give meaningful backtest results.
- Backtesting does not include the interest gained from Aave USDC deposits
- See backtesting results
- Read more about backtesting.
Risk
The strategy has a backtested maximum drawdown of -27%. It employs strict stop-loss and trailing stop mechanisms to mitigate losses.
For further understanding the key aspects of risks:
- The strategy does not use any leverage.
- Trades only highly liquid pairs to ensure minimal slippage and robust trade execution.
- Decentralised finance is very novel and there is high risk of ruin if any of the underlying DeFi protocols get hacked.
Benchmark
Here are some benchmarks comparing the strategy's performance with other indices.
| CAGR | Maximum drawdown | Sharpe | |
|---|---|---|---|
| This strategy | 69% | -27% | 1.60 |
| SP500 (20 years) | 11% | -33% | 0.72 |
| Bitcoin (backtesting period) | 50% | -76% | 0.98 |
| Ether (backtesting period) | 90% | -80% | 1.22 |
Sources:
- Our strategy
- Buy and hold BTC
- Buy and hold ETH
- What is CAGR - Compound annual growth rate
- What is maximum drawdown
- What is Sharpe ratio
- SP500 stock index
Trading frequency
The strategy operates on a weekly cycle, rebalancing every Monday and adjusting positions as necessary based on Stochastic RSI signals.
Robustness
This strategy was tested on Binance dataset.
- Uniswap price behavior and Binance price behavior should be almost equal due to arbitrage on the large trading pairs.
- The strategy does not have extensive robustness analysis, but is more based on the general idea of the trade.
- As crypto markets are new, there is unlikely to be enough market data to have a statistically significant results.
- There was no parameter sensitivity analysis done.
Updates
This strategy is periodically reviewed and updated to incorporate the latest market data and trading techniques. Stay tuned for updates via the Trading Strategy community.
Further information
- Any questions are welcome in the Discord community chat.
- See the blog post on how this strategy is constructed for more details.