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Is it profitable or not? The setup and approach...

By DutchCryptoDad | DutchCryptoDad | 4 Feb 2022


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In this first post I will present my setup and process of the backtests and strategy optimisations that I will use in my 'profitable or not' video's for finding the best trading strategy for a trading bot.

To compare these strategies with some sort of rigorous testing, I have to make sure that every time I test, the circumstances are the same.

If you ever have second thoughts of the results I get and if they are valid or not, well then you are probably right. You should definitely always do your own research (DYOR) before ever using these strategies that I test!

Also to be honest, I just present the results I get from the backtesting module of the Freqtrade trading bot. So if you have any doubts on these numbers, or their calculations, then please report them to the Freqtrade developers because I am not affiliated to them.

Anyway, let's continue...

The setup of these strategy series

Here you see the principles for testing the strategies.

  • 1000 USDT starting capital
  • 10 trades open at a time max.
  • Top 50 coins of end 2020 https://coinmarketcap.com/historical/20201227/
  • Pairs available on Binance exchange
  • Take a well known strategy and test it
  • Keep it simple
  • Test multiple timeframes (5m, 15m, 1h, 4h, 1d)
  • Backtest date range: jan 2016 - dec 2021 (if available)
  • Use Freqtrade tradingbot for automatic backtests/hyperopt

Some choices are arbitrary, like the amount of open trades at one time and the choice between compounding stake amounts or using the same stake for eacht and every trade.

However I had to make a informed decision on how to reasonably measure performance between multiple strategies and keep in mind that there is also a profit to make. Preferably in the shortest amount of time with the least amount of risk.

The whole idea behind this setup is that the strategy should be tested under ‘mechanical circumstances’ and no furtner human interpretation should be necessary. This way I’m taking all emotions out of trading and hope to find out the raw performance of the proposed strategy.

Secondly, by finding out if a strategy is performing under mechanical circumstances, you can turn this strategy into programming code and use it with a trading bot. With a bot you are always ready for a trading opportunity because crypto trading is a 24/7/365 business.

The last reason is that this way you can backtest your strategy in a mechanical way.
This takes the grinding out of the process and hopefully will give you a good indication on the strategies performance

The process

Every time I test a strategy I will follow the next approach:

  • Test multiple timeframes with the strategy
  • Choose the timeframe with the best results
  • Optimize it one more time with hyperparameter optimisation
  • Backtest one more time with optimised parameters
  • Investigate the differences in performance
  • Compare the endresults with earlier tested strategies


Each strategy will be tested on its performance by trading multiple digital asset pairs over their largest possible backtest period.

I will test the strategy on multiple timeframes, even when it is advised to use it only on one timeframe
Then I will choose the timeframe with the best results

Next I will optimize it one more time with hyperparameter optimisation, which is a special function with the bot that I use for backtesting
And then I will backtest one more time with optimised parameters

Finally I take the best results and compare them with other strategies which i have tested earlier
This way I hope to find the best strategy for cryptocurrency trading.

The tools

All my backtests will be done with the help of the Freqtrade trading bot. I think it has good potential and it produces a good report on the endresults of a strategy.

The strategies are written in Python,  so you should at least know how to read that code to understand what a strategy is doing.

So again, whether you think this is a good way of testing a strategy or not, before you ever are going to use a strategy with live testing.

Final note

I expect that this post will not collect many attention, views or comments but nonetheless I think it is an important post because it forms the basics of what I will be doing in this series.

 

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DutchCryptoDad
DutchCryptoDad

I'm just a regular Dutch dad with a passion for crypto, trading, technology and learning. This channel is my personal journey into the world of Crypto, blockchain, programming, trading bots, trading strategies, NFT's, Defi and many things more.


DutchCryptoDad
DutchCryptoDad

I'm just a regular Dutch dad with a passion for crypto, trading, technology and learning. This blog is my personal journey into the world of Crypto, blockchain, programming, trading bots, trading strategies, NFT's, Defi and many things more related to digital assets. I want to share my knowledge with others to help them as well in this vast world of digital assets.

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