Catching Crypto Trends; A Tactical Approach for Bitcoin and Altcoins
A comprehensive analysis of Donchian-based trend-following strategies for cryptocurrencies, offering robust, risk-aware, tactical portfolio construction and performance evaluation.
What it examines
The paper applies a classic trend-following method using Donchian Channels to cryptocurrencies, starting with Bitcoin and extending to altcoins. It tests various lookback periods, incorporates volatility-based position sizing, and adjusts for transaction costs. The study aims to build a risk-managed tactical framework for crypto trading.
What it concludes
The findings show that trend-following can yield strong, risk-adjusted returns and lower drawdowns versus passive strategies. Potential applications include diversified crypto portfolios and enhanced risk management for both retail and institutional investors. Future work may refine models and explore long-short implementations.
Evidence objects
The study demonstrates a trend-following strategy using multiple Donchian Channel models with various lookback periods and volatility targeting, delivering robust, risk-adjusted returns in the volatile cryptocurrency market, notably outperforming benchmarks.
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Employing short to medium lookback periods between 5 and 30 days, the strategy yields attractive Sharpe ratios and limited drawdowns, outperforming passive Bitcoin holding by controlling momentum and risk effectively.
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An ensemble approach aggregating signals from different horizons achieves a compound annual growth rate of approximately $$30%$$, exhibiting alpha over Bitcoin, with reduced rebalancing constraints, model overfitting, and execution risks.
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Leveraging established trend-following methods in cryptocurrency trading, the paper uniquely applies an ensemble of Donchian channel-based models while carefully accounting for transaction costs. Although building on conventional techniques, it offers a novel perspective on rapidly evolving crypto markets, making it compelling for readers interested in methodological applications and market insights.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … This model, applied to a rotational portfolio of the top 20 … a straightforward yet effective portfolio technique to … by institutional asset managers, with participation dominated …
Source row: 372 · abstract type: snippet