I sought to create a program to trade the cryptocurrency market in order to take advantage of quick volatile price movements. I developed an algorithm which was able to outperform BTC and greatly limited the maximum drawdown.
In mid 2020 I realized the potential of cryptocurrency and quickly became fascinated with how it works and how it can be integrated in daily life to fix current problems with the financial system. As I learned about different cryptocurrencies and how the work I started to monitor their prices. I came to a realization, that if one could harvest small consistent gains every day from short quick movements they would be able to grow their portfolio immensely. I originally aimed for 1% per day. What attracted me to algorithmic trading on the crypto markets rather then stock trading or forex was the lack of a pattern day trading rule, markets are open 24/7/365 (so more possible time to trade), extreme volatility, and that there was no need to margin trade, but the option was available. Before I developed my own algorithm I traded the charts for 8-12 hours a day for a whole summer to learn what conditions resulted in a bull or bear run. From what I learned watching and trading live charts I developed an algorithm to automatically execute trades on my behalf 24 hours a day.
To create my first algorithm I first learned everything I could about day trading. I sat at my computer and traded the 15 minute candle crypto charts and recorded my rational for entering, what I noticed as the trade was in progress, and then reflected on my trade once closed. After doing this for multiple months I had a detailed notebook full of everything I needed to develop an algorithm. Finally learned how to code this algorithm and tie it into my exchange through API placed orders.
Within this five month period displayed the HODL strategy returned a yield of -7.84%. If one exited at the top they would have received 56.37%. The maximum drawdown on the HODL strategy was 42.23%.
Within this five month period displayed the HFAT strategy returned a yield of 69.36%. If one exited at the top they would have received 74.67%. The maximum drawdown on the HFAT strategy was 7.22%.
The average daily return was 0.598% and the population standard deviation return was 1.725%. The calculated Sharpe ratio is 0.23.
Using the close at 134 days trading the true daily return rate was calculated to be 0.394%. The algorithm grows invested capital at a rate of 0.394% per day, just under half a percent, and is able to trade 365 days a year. Therefore this trading algorithm is on pace to return 320% this year, which would be an account balance of 420% the original Investment.
