Why do I need backtesting?
Manual trading can be very dangerous as human emotions tend to get in the way of profitable trading results. Furthermore, manual trading is very time-consuming. In order to use automatic trading strategies successfully, they have to be tested intensively over the past.
The more extensively a trading system is tested over various market phases in the past, the higher the probability that it will continue to behave in this way in the future.
The number of trades, the total profit and the drawdown within this period of time play an important role for the quality of the system.
Is Automated Trading secure enough?
With around 20% – 25% Bitcoin growth per month* the cashflow is high enough to leave your coins on an exchange over time. For further security you can even split your portfolios on multiple exchanges. We did not have any security issues in the past. But on the contrary, most exchanges like Binance have insurance.
We recommend you to take small profits, while your portfolio is growing over time.
What is more profitable over time? Automated Trading or buy and hold?
This video answeres that question. We compared buy and holding ADA (a very profitable coin) vs. Automated Trading Bitcoin against Altcoins. During these 25*25 (625) tests overall Automated Trading generated around 300% annual return in terms of ADA*. That means Automated Trading was around 3 times more profitable than buy and holding ADA during that period.
Short or Long?
We are not doing leverage trading. So there is no liquidation risk. We are only buying Altcoins and selling them for a higher price. The only risk you have is lump risk, of getting single positions too large and drawdown.
How do I prevent risks?
Ideally, the ratio between Bitcoin and Altcoins in the bot should be as balanced as possible. The remaining Bitcoin balance is then used for further altcoin trades, so that the trading system always remains active and does not clump into individual altcoin positions.
The initialCostPercentage value represents the used costs of an opened Altcoin position relative to the total portfolio. The fewer coins that are traded, the larger it should be. But not too big either, otherwise the lump risk of individual coins could become too big.
Buy signals do not provide a complete guarantee of success in trading, but in the best case only a high probability of success. DCA compensates for the erroneous buy signals. A DCA purchase means that a coin is bought at a lower price. This results in a lower average purchase price, so that the TradingBot can then more easily sell the coin again with a profit. The disadvantage of DCA is that a cluster risk can arise as the position size of the coin increases. Therefore, the DCA coins should always have a rather small ratio to the non-DCA coins. This ratio is regulated by the parameter lossUntilDCARebuy. The lower this parameter is, the lower the price of coins must drop before the bot can buy them via DCA.
Drawdown means momentary loss compared to the purchase or starting price. The buy signals affect the drawdown. The better buy signals are found, the lower the drawdown over time.
Does this only work in bullish markets?
In principle, automatic trading works in every market. Accordingly, more filtering needs to be done in bearish markets. For example, the initial costs can be reduced, the lossUntilDCARebuy value can be set lower and the buy signals can be set more sharply. Suitable values can be found using the backtesting software.
What is the goal of the backtesting process?
There are different backtesting targets available, which consider maximum profit, amount of trades and drawdown. Everything can be fully customized.
If you chose maximum profit for instance, the backtesting process will output the test with the greatest overall profit. That means the greatest ratio between end balance and start balance. All test statistics will be issued for this test.
My backtesting process failed. What is the reason?
The backtesting process will succeed if there is a profit in the end.
In case the backtesting process failed, you may consider to adjust the parameters. It is recommended to only make small parameter changes between the tests in order to easily track the changes. If that does not help, you can still restore the default settings.
In case you enabled hints option, the program will issue helpful information about issues and further optimizations after any backtesting process.
What trading bot shall I use?
Since Crypto Backtester Pro uses standard indicators and standard parameters, basically all bots can be used that also support this. We recommend using Profit Trailer as it is very customizable. But you can also use Cryptohopper.
*the results depend on your backtested trading strategy and on the market condition during that period.