BitCoin Trading Strategies BackTest With PyAlgoTrade

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Written by Khang Nguyen Vo, khangvo88@gmail.com, for the RobustTechHouse blog. Khang is a graduate from the Masters of Quantitative and Computational Finance Program, John Von Neumann Institute 2014. He is passionate about research in machine learning, predictive modeling and backtesting of trading strategies.

 

Introduction

Bitcoin (or BTC) was invented by Japanese Satoshi Nakamoto and considered the first decentralized digital currency or crypto-currency. In this article, we experiment with a simple momentum based trading strategy for Bitcoin using PyAlgoTrade which is a Python Backtesting library. The Moving Average Crossover trading strategy we start with is defined as:

  • Enter position:
    • Long when MA10 > MA20
    • Short when MA10 < MA20
  • Exit position:
    • reverse trend
    • Take profit when we gain $20
    • Cut loss when we lose $10

MA10 refers to 10 day moving average price and MA20 refers 20 day moving average price.

 

Data

The bitcoin data can be obtained from Bitcoin charts. The raw data of this source is at minute based sampling frequency and we group the data to 15-minutes prices as follows:

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

BitCoin Trading Strategy BackTest With PyAlgoTrade

PyAlgoTrade, as mentioned in previous blog, is an event-driven library. So we must override the basic events onEnterOk and onExitOk, which are raised when orders submitted before are successfully filled.

 

 

The main process of trading algorithm is in onBars, which is raised every time there is new record of time series. PyAlgoTrade feed the data series and put it in bars, on each time given. This mandatory method is implemented as follows:

 

Then the main script as follows:

 

The trading transaction detail of this strategy from Jan 2014 to Mar 2014 are as follows:

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

In this short time window, the Sharpe Ratio is indeed poor and only -1.9. Moreover, there are a total of 200 trades executed in 3 months, and most are unprofitable trades (132/200 trades = 66%). Therefore, we need to reduce the number of unprofitable trades.

 

Tweaking BitCoin Trading Strategy BackTest

The problem might be that we are using a very short-length moving average window to calculate the change of trends, so the strategy is very sensitive to changes. Now we try a longer moving average window with MA(80,200) crossover

 

The result of this trading strategy as follows for the same period.

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

The summary result when running this strategy between 2013-2015

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

Charts In 2013

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

Charts In 2014

 

BitCoin Trading Strategies BackTest With PyAlgoTrade

 

Charts In 2015

BitCoin Trading Strategies BackTest With PyAlgoTrade

We see that the trading performance is better now. The Sharpe ratio is larger than 0.5, and in 2014, the cumulative returns is as big as 33%. The length of Moving Average could be further optimized (data-mined!).

 

Note on Transaction Costs

In real trading, it is mandatory to add commission rates or transaction costs. Usually, the transaction cost can be computed as the difference between ASK price and BID price (BID-ASK SPREAD) if market orders are used to buy or sell. In our data set, the average “bid ask spread” is about 0.11, so we set the cost of each transaction to BTC 0.11.

Overall, the strategy is still profitable, though we have to be mindful that because BitCoin history is very short, so the statistical significance of the strategy is inconclusive. Note that we assume there are no broker transaction fees. In reality, usually this fee cost 0.7$ per trade.

 

By the RobustTechHouse team

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