Crypto Trading: Riding the pump and dumps! - Part 1 the Pump
Its become a common sight, every so often there is sudden surge and a rapid lightening like fall in the prices across the crypto exchanges. Crypto’s are not the only playing field where this happens, its a well documented across various markets and is mostly attributed to market movers and whales or some FOMO, its a world we live in. There are entertainment and literature works showcasing the glory, psychology, mechanisms and aftereffects of this.
These activities on cryptos in last 1 year might not be at the same scale as some those uncovered in the traditional exchanges, but there is certainly significant amount of value being moved around to get people interested.
As a individual what can I do, should I be ignorant, should I close my windows and get under a blanket or take out my surf board and ride these pumps/dumps like a pro. Well it depends, what are my odds, what am I capable of, do I need to glue my eyes to a monitor and let go of my life to catch these?
Well obviously not!
Let’s look at the charts of a typical pump.
Let’s take a closer 1 min view at the rise (pump), we can see there is a significant amount of time available to cash in this opportunity by making an entry at lower price and exiting before the pump looses its momentum.
Hypothesis : Taking a deeper look along with indicators, we can see that there is significant volume and RSI has a significant surge along with support from +DI showing extreme bullish strength.
A similar pattern of this can been seen in Binance and other exchanges too. This exact levels might be different for other pairs based on their volume increase levels or percentage change.
So based on these findings what can we do? How can we ride this wave? Lets see how the above hypothesis works in a backtest.
A backtest of the algo shows, Feb 19 would have generated +9.33 % just on BTC/USD Coinbase with a max drawdown of -1.72%. If you ask me, its pretty impressive to achieve this after just a few lines of technical analysis.
So whats does the strategy look like !
Explanation:
The algo will buy when RSI is higher than 80, along with 5x(500%) increase in traded volume compared to previous 3 minute candle, along with support fron Parabolic SAR and +DI trend indicators pointing towards a bullish trend.
This is just one version for the BTC pairs and exchanges shown above, and can be further modified for other exchanges and currency specific strategies can be easily created and tested. ETH volume change levels will be about 50x(5000%) and technical levels will be about the same.
All this is good, but how does this fare in real time, you may ask. Have a look your self. Note: These pump events are rare, so I keep the algos running for this, and one some fine days they catch the right move.
Now what about the dumps? Well I will be covering it in my next article, once some drop happen and my live deployments catch them.
All the above results and strategy was built and generated on Streak.world.
A brief about Streak, its the first platform in the world where you can create, backtest and deploy your ideas and strategies as algos in less than few minutes. Streak abstracts all the complexity of fetching and handling data from various exchanges, coding to validate the trade ideas, into a single smooth platform. It supports all major exchanges and pairs along with various order types (like post only, limit). On Streak users have already run over 10 Million backtests and have traded over $230 Million+ USD.
Note : All the analysis, backtesting, paper trading(also my actual trading) mentioned here is carried out using streak.world. The platform is currently in in beta, you can signup and give it a try yourself here.
Platforms and sources :
https://www.streak.world
https://discuss.streak.world
