Profitable Crypto trading strategies part 8: Macd 2.0
In yesterday’s post I explained the MACD indicator, how you can use it for trading and analyzed our Macd 1.0 trading strategy. In today’s post I will introduce the second version of our Macd strategy and explain how it differs from the first one.
Macd 1 vs. 2
The only difference between Macd version 1 and 2 is that the second one has more sophisticated “buy” criteria. This means it’s more calculated on when it decides to enter “buy” trades. It may come to you as a surprise, but just a couple lines of additional code can actually double the ROI.
Also Read: Best Crypto Trading Bots
Using hourly candlestick intervals, a 30 day period from 2 April to 2 May we obtain the following ROIs:
LTC-USDT
Macd 2.0 yields 29.09% (±7.22%), while Macd 1.0 only 18.59% (±6.11%).
ETH-USDT
Macd 2.0 yields 79.90% (±9.93%), while Macd 1.0 only 11.08% (±4.11%).
BTC-USDT
Macd 2.0 yields 22.12% (±4.57%), while Macd 1.0 yields 22.03% (±5.65%).
It’s fascinating how much ROI was generated (on average) by trading ETH compared to all the other coins using the exact same strategy and market conditions.
The state of the market matters
This is a concept I emphasized a lot in our previous post, simply because it’s that important I have to press it again. These wonderful ROIs by the Macd strategy are only possible during favorable market conditions (i.e. shape of the market favors the strategy).
Let us repeat the same analysis but for more recent market conditions, specifically from April 17 to May 17:
LTC-USDT
Macd 2.0 yields -4.17% (±4.58%), while Macd 1.0 only -6.71% (±5.32%).
ETH-USDT
Macd 2.0 yields 37.01% (±6.27%), while Macd 1.0 only -2.05% (±1.96%).
BTC-USDT
Macd 2.0 yields -1.13% (±3.37%), while Macd 1.0 only -5.58% (±2.23%).
Does all of this mean that Macd 1.0 is obsolete? Definitely not, it serves its purpose and the data proves. On average the Macd 1.0 strategy has a lower ROI deviation from the mean, meaning its more predictable in its outcome. While Macd 2.0 has higher ROIs, it also has more unpredictable outcomes.
But even by taking the standard deviations into account, the ROI of Macd 2.0 (on average) remains better.
Conclusion
The ROI in the second part of our analysis was much worse, and even negative for both the BTC and LTC trades. The reason is because there were too many losing trades from 6 May to 17 May, due to down-trend market conditions. This means the strategy is unable to generate profit during bad market conditions.
Up to this point our algorithms were not designed to take down- and up-trend conditions into account. So that’s an additional variable I am going to include in all our algorithms in the near future. The basic idea would be to completely stop trading during bad conditions, or minimize their effect. Alternatively we can develop and use different strategies specifically designed for generating revenue during bad conditions as a backup mechanism when things go bad.
I thank you for reading and make sure to stay tuned for the next episode.
- Ilya Nevolin
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