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Bitcoin trading: Examining higher frequencies with nascent markets not always profitable

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Leading up to the third block reward halving, a key aspect of Bitcoin’s market was high volatility. Merely a day before the supply cut event, the price dropped to $8,100-level before rebounding and consolidating close to the $9,000-mark. However, if the traders had positioned themselves with a good strategy, they could have churned out even more outsized profits.

Besides, it is much more profitable to build strategies on a daily basis, rather than on an intraday basis. This was the conclusion of a recent study titled ‘Technical Analysis on the Bitcoin Market: Trading Opportunities or Investors’ Pitfall?’

After examining the proficiency of using intraday and daily trading rules on the Bitcoin price series during the period from 1 January 2012 to 20 August 2019, it was found that the most profitable strategy, with respect to intraday trading, is the Buy and Hold strategy. For daily trading, on the other hand, it is more profitable to apply trend-following strategies such as Bollinger Bands and Simple Moving Averages, than just passively holding the asset until the end of the period.

AMBCrypto had previously reported that while the most common interval for recurring buy orders is weekly, there have also been instances when an increasing number of clients set up recurring buys over daily intervals. This was even noted by River Financial’s COO and Co-founder, Andrew Benson. However, there is a risk of incredibly high odds of failure.

However, the aforementioned paper noted that the outcomes are driven by the noise present in high-frequency data. This essentially generates many trading signals that emerge to be unprofitable. It further added,

“To sum up, traders should pay attention to the frequency of the data with which they work. In particular, it is not always more profitable to go for higher frequencies with nascent markets such as the cryptocurrency one, as trading signals may be misleading and yield unprofitable trades.”

Meanwhile, high-frequency trading [HFT] has been a controversial practice in traditional markets for a long time. And it didn’t take much time to seep into the crypto-industry either.

Why are they still popular? It is simply because HFT firms use sophisticated computer programs to execute thousands of trades in a second and make large profits. In addition to trading bots, exchanges such as Huobi, Gemini, and ErisX have now welcomed ‘colocation’ in the crypto-niche.

Just a little over a decade into its existence, the crypto-market has a long way to go in terms of catching up with the traditional financial world. Despite increasing institutional participation in the Bitcoin space, the very need for the introduction of colocation by HFT firms is still being questioned.


Chayanika is a full-time cryptocurrency journalist at AMBCrypto. A graduate in Political Science and Journalism, her writing is centered around regulation and policy-making regarding the cryptocurrency sector.
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