…series are streaming live across various platforms like Twitter, LinkedIn, and more. So, you could be joining us from anywhere. Remember that we’ll also post the recorded version of this live stream on our YouTube channel for your convenience. If you’re watching us later to the YouTube recording, why not consider joining our lively discord community to stay updated about our upcoming live streams and interact with us in real-time? You can find an invite link to this in the video description below. It’s an excellent opportunity for you to ask strategy-related questions and get immediate responses. It’s a beneficial arrangement for anyone involved. And we understand that due to various commitments, time zone differences, and more, not everyone can join us live. In such instances, you’re always welcome to watch the recorded version on YouTube at a time that suits you. Don’t forget, our YouTube channel is filled with a variety of Strategy of the Week videos. So, if today’s strategy doesn’t resonate with you, there are numerous others to discover. Right. Without further ado, let’s jump into it. This week, we’re focusing on a strategy that utilizes the relative strength index, or RSI, the MFI, or Money Flow Index, and the MACD to identify entry points for long positions. For exits, we’re again leveraging these three technical indicators including a fixed take profit and stop loss condition.
The key appeal of this strategy is it operates independently of TradingView signals, enabling it to leverage Coinrule’s Any Coin scanner. This function will tirelessly browse the market identifying coins that fulfill our entry criteria, and trigger trades accordingly. Plus, this strategy is readily available as a template on Coinrule. Simplifying the setup and launch. For those wanting a detailed understanding, the corresponding script for the strategy can be found on TradingView. If you’re interested in conducting a backtest, it’s completely feasible and I’ll walk you through the process later on. Okay, so let’s have a quick look at the broader macro picture first.
So last Wednesday’s FOMC meeting caused a temporary dip in equities and also crypto, but they’ve been on the path to recovery since then, you can see this dip here following the meeting.
The Fed kept interest rates unchanged, which was in line with expectations get the tone and projection of the meeting, embodied in the update the dot plot was decidedly more hawkish than most had anticipated. The prospect of further rate hikes during the course of the year was underscored by these developments. According to the revised dot plot, the average fan member now foresees a need for two more hikes in 2023, pushing the interest rate to 5.6% a noticeable increase in the 5.1% forecast back in March. Additionally, there was a striking coherence among the members’ forecasts for year event expectations, indicating a shared view that the hiking cycle will persist. Meanwhile, the European Central Bank made a contrasting move by increasing rates by 25 basis points to 4% since last Wednesday’s Fed meeting, however, markets appear to be resilient in the face of the hawkish narrative. A two per year yields have returned to similar pre-meeting levels around 4.65% and the 10-year yields have seen a marked decrease to roughly 3.72%.
As for the crypto markets, they too experienced a slump during the Fed meetings last Wednesday. What was peculiar though was a sharp downturn that took place later in the day around 4 pm. The cause of this abrupt drop is still unknown, but it was amplified but liquidations exceeding $100 million of long positions in that hour alone.
The decline appears to have been led by ETH before rapidly extending to the broader crypto market. Additional concerns arose due to negative sentiment surrounding USDT as a large number of users opted out of USDT triggering a slight deepfake. The proportion of USDT and curves three to a since spiked from around 22% a few days before the meeting to over 70%. Furthermore, USDT now comprises approximately 98% of Uniswap USDC USDT pool, as arbitrage traders are likely to step in a significant amount of USDT that might be needed to be redeemed, a scenario for which Tether CTO assured readiness.
Now let’s have a quick look at the Bitcoin four-hour chart. From a technical perspective, the window before the FOMC meeting was characterized by restrained price fluctuations and low volatility. As we can see here, the Bollinger Bands were quite tight, which implies low volatility.
However, as you can see, the landscape swiftly changed with the commencement of the FOMC meeting.
Bitcoin initially plummeted about 4.65% in a span of two hours, only to bounce back with an 8% rally. This scenario of amplified volatility, concurrent with FOMC meetings can serve as an opportune moment for scalpers or traders seeking to speculate on the meeting’s outcome. Moreover, it’s worth highlighting that the daily candlestick both opened and closed below the channel support. We can see this here, which subsequently retested the line as well.
And this occurrence could signal an impending shift in Bitcoin’s bull trend observed over recent months.
Okay, so let’s discuss the technical indicators that we’re using. Let’s start with the RSI down here.
So, this is obviously one of the most popular tools used in the technical analysis of financial markets. It’s a momentum oscillator that measures the speed and change of price movements.
Developed in 1978. The RSI oscillates between zero and 100 and traditionally the RSI is considered overbought when above 70 or above this dotted line here and oversold when below 30 which is this dotted line down here.
In other words, the RSI value is above 70. It might suggest that the asset is being overbought and could be due for a price reversal. Conversely, an RSI value below 30 suggests that the asset may be oversold and could be due to price bounce or reversal.
The RSI is typically calculated using average price gains and losses over a defined period of time, which is typically 14 periods. Essentially, it is used to help identify whether an asset’s price momentum is strong or weak.
And it’s worth noting like all technical analysis tools, the RSI is not perfect and doesn’t guarantee success on its own. It’s typically used in conjunction with other tools and analysis methods to make informed trading decisions.
Okay, the next indicator we’re going to be using is the MFI. I’m just going to load this up with the Money Flow Index. You’ll see it looks very similar to the RSI here oscillating between zero and 100.
This is again, a momentum indicator that is used to identify overbought or oversold conditions and a price trend. It is often considered a volume-weighted version of the RSI that incorporates both price data and trading volume. This is why it’s quite good to use these in conjunction with one another.
The MFI again uses a scale of one to zero to 100 as I mentioned, and typically considered a value over 80 as an overbought condition which would indicate an impending price drop value under 20 as an oversold condition, which could signal an upcoming price increase. So, you can see the oversold and overbought conditions are just slightly different from the RSI one.
The MFI is calculated by accumulating positive and negative Money Flow Values, which consider the day’s average price and volume, and then creating a money ratio. The MFI is a normalized version of the money ratio and expresses it in a range of zero to 100. Again, it’s important to note that like other technical indicators such as the RSI, it should not be used in isolation.
Okay, now finally on to the moving average convergence divergence or the MACD, as most people are. So sorry, I’ll have to just close one of these.
Here we go. So, most of you will probably be familiar with the MACD this is done here. Let’s close this and get a back view of it.
So, the MACD is a trend-following momentum indicator that demonstrates the relationship between two moving averages of an asset’s price. And the MACD line is calculated by subtracting the 26-period exponential moving average from the 12-period EMA and the result of that calculation is the MACD line which is this blue line here.
And the result of that calculation is yeah as the MACD line as I mentioned and then a nine-day EMA of the MACD known as the signal line is then plotted on top of the MACD line and can function as a trigger for buy and sell signals. Traders may buy the asset when the MACD crosses above the signal line and sell or short the asset when the MACD crosses below the signal line. Additionally, the MACD helps identify bullish and bearish market conditions. And when the MACD is above zero, the short-term average is above the long-term average indicating bullish momentum. Conversely, when the MACD is below zero, the short-term average is below the long-term average signifying bearish momentum.
Again, like other technical indicators, the MACD is not foolproof and can produce false signals. It shouldn be used alongside other tools and indicators to reduce the risk of false signals and increase the odds of successful trades. This is why we’re using a combination of the three indicators at once when entering long positions. Okay, cool. So now let’s discuss the entry conditions and the strategy. To enter positions. The strategy looks for the three following conditions to be met. The first buy condition relies on the RSI we require the RSI is below 50 indicating potential overselling and an opportunity for a price bounce back. Let’s just set this here.
The next entry condition relies on the MACD and waits for the MACD line to cross above the signal line indicating a bullish signal. Just like this example here.
And the final buy signal relies on the MFI and requires MFI to be below 40 indicating the asset is more likely to be oversold. Again. All three conditions must be met for a buy order to be executed.
All right, let’s go over the exit conditions. To exit the strategy again utilizes the same indicators. The strategy will wait for the three conditions to be met before exits and also includes a fixed take profit and stop loss condition. And the first sell condition triggers when RSI is above 80 indicating overbought conditions and the potential for a price downturn the MACD the sell condition triggers when the MACD line crosses below the signal line indicating a bearish signal. For the MFI the sell condition triggers when the MFI is above 50 indicating the asset could be overbought.
So, all three of these conditions must be met simultaneously for the first exit condition to be triggered.
As I mentioned previously, the strategy also includes a fixed-take profit and stop loss. If the price depreciates 5%, our stop loss condition will be met, or if the price appreciates 5% or takes profit commission will be met. Once either all the indicator exit conditions are met simultaneously, or the take profit or stop loss conditions are met, a trade will close.
Great. So now we’ve gone over the entry and exit conditions. Let’s take a look at backtesting. If you remember earlier, I told you that the script is available on TradingView this is it here.
So, you’ll see initially you got a description of the entry and exit conditions. By the way, I’ll include a link to this in the description of the video. So, you don’t need to find this manually if you’re watching the recording. And so, it’s called the multi-index momentum strategy.
So, you’ll see you’ll get a description of the entry’s next conditions, this is just what we’ve been over, but it’s here for you, your reference if you want to view it again later. So, to back-test the strategy quickly, you just click and come and click this here. Come to the chart that you wish to run on. So, I’m going to test on like, say XRP, the two-hour timeframe. And I’m going to paste it here so you can see considering my favorites shows up.
There we go. Let me get some back-testing data. You’ll see once you adjust the timeframes, that the back-testing data will change. So, we can see it performed much better in the two-hour timeframe. You can also drop back test this on a range of different periods if you want, but I’m just going to keep on XRP. Because I’ve done a lot of backtesting, and I do not perform as well on this one.
I’ll just show you quickly how to extend some parameters as well if you want to tailor the test strategy to your needs and get some updated back-testing data. So, you just copy the code from here and come to Pine editor. And then you can just leave this, paste this here. Remove this one. And then you can just add to the chart once you’ve updated your parameters. So, for example, you could adjust the stop losses here and take profits. You can also change the sell conditions for the RSI and buy conditions for the MFI. It’s all pretty clearly labeled. So, you should be able to add in most of this yourself initial capital as well as a set to $10,000. But you could change this to $1,000 $100. Wherever really suits you. Another important note is this default quantity value, the percentage of equity allocated for each trade. So, this is 50%. So that means each trade will use $5,000. For the initial trade will commission value is also set to 0.1%, which is aligned with the base fee on Binance. And you could change this to a different number if you trade in an exchange with a higher or lower commission value.
And this is another important note, this is the time period for backtesting. So that means that this backtesting data that I just showed you earlier. So that’s the chart. So, this data here is from the start of 2022. So since then, we’ve made a net profit of 43.27% with a total of 45 close trades, and it was profitable 66.67% of the time, which is pretty good backtesting results. But if you wanted to just backtest this from 2023 For example, you can just change this number and click update on the chart.
Okay, cool. There we go. So, I’ll quickly show you how to run this strategy on Coinrule. As I mentioned, it’s available as a template. So, it should be super easy to set up and run, simply just come to Coinrule create a rule and just click templates up here and just paste that and it’ll load for you. I’m not going to do that I already got it loaded here.
So, we can see here these are our entry conditions. And this is our first exit condition. And then this is our second one. So, either this is met first or this is met first with XR trades basically?
So, I’m using any coin operators here, we could use just XRP because we know performs well not one, I’m going to keep it as any coin. That means it’s going to trigger it probably a lot more often than it would if it was just on XRP. I’m going to use the two-hour timeframe because as we saw it performed well in that timeframe.
I’m also going to buy 100 US dollars with each trade.
And I mean buyers limit orders changes to mark orders you want.
And then if confirmation one has RSI greater than 50 in a timeframe of two hours and confirmation was MFI greater than 50 in a timeframe of two hours and the coin is MACD crossing a blue signal line in a timeframe of two hours. Then I want to sell 100% of the amount bought of that coin to my USDT wallet as a limit order. And then from the “coin from Action 1” is price increased by 5%. So, a take profit condition or both, sorry, excuse me, or “coin from Action 1” if the price decreased by 5% from the price of which I bought, then I want to sell 100% of the amount bought of that coin to my USDT wallet as limit order and I want to execute this 20 times in total. And we’ll call this rule the “Multi-index Momentum Strategy”. Once it’s ready to launch, click this here. You’ll get a little preview of your strategy. And once you are ready click Launch. And there we go. The strategy is now live. Thank you very much for listening to the strategy live video. Really excited to see what you create. And please don’t hesitate to reach out if you have any questions.
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I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.
