A Trading Strategy for Cryptocurrencies

Reading Time: 2 mins

By Ganji Kiran

As of March 7th, 2018, 1543 cryptocurrencies are being actively traded (Source: coinmarketcap). To decide what cryptocurrencies to invest in, we came up with a series of steps to filter out potential cryptocurrencies which can give us strong returns. First, we filtered out all those which had zero market capital. Second, we filtered out the ones which had less than 90 days of trading history. We did this so that we can be more confident of our trading strategy. Third, we filtered out the cryptocurrencies which are not currently trading above 10, 20, 30, 40 & 50 day moving averages. Trading above 10 to 50 day moving averages is a potential buy signal. Lastly, we filtered out cryptocurrencies that traded below $ 0.25 just so we get more returns on lesser units. After following these steps, we ended up having 24 cryptocurrencies out of 1543.

We developed a trading strategy for these 24 cryptocurrencies

Now that we have the 24 potential cryptocurrencies in place, the next questions are what are the top 3 that I can get started with? What metrics should I watch out for? How do I trade? To further break down the 24 cryptocurrencies, we came up with a simple strategy. Identify two moving averages, one shorter day and another longer day. If the shorter day moving average takes over longer day moving average, you BUY and stay LONG. If the longer day moving average takes over the shorter day moving average, you SELL and stay SHORT. The moving averages are identified based on a greedy search basis and moving averages with the highest yielding profits are chosen. For each cryptocurrency profit made, we derived a bunch of other metrics to filter down further. Profit is the obvious one. Other than that, we also looked at ROI (Profit/Price), Profit Per trade (Total profit/Total trades executed) and Trade frequency (Once in how many days we shift our position from long to short or vice versa) as metrics. Looking at these metrics, we finally identified 3 cryptocurrencies. BitGold is the cryptocurrency with highest Profit per unit, Everus with highest ROI and Feathercoin with the lowest trade frequency.