In our previous strategy, we built mean reversion using the simple 'Price' block. Lets us try and improve the strategy now.
Hypothesis:
What goes up must come down. Reversion to the mean is one of the most fundamental properties of markets. As a result, let's try and create a strategy that looks at a short period average and compares it with a long period average and takes decisions on it.
We can use the Exponential Moving Average (EMA) indicator for this.
Strategy
- Buy when: The short-term EMA, EMA (9), crosses up the long-term EMA, EMA(26) signalling that recent prices are now getting closer to the long-term average and increasing
EMA(9) crosses up EMA(26)
- Sell when: The short-term EMA, EMA (9), crosses down the long-term EMA, EMA(26) signalling that recent prices are now getting closer to the long-term average and decreasing
EMA(9) crosses down EMA(26)
Creating the strategy on Mudrex
- Components: To make this strategy all we need is 2 compare blocks since we are comparing 2 indicators, one each to buy and sell. Below is how the blocks would look like:
- Final strategy visual: We would then go out and connect the compare blocks with the buy and sell blocks to complete our strategy.
- We will also add a stoploss and take profit to prevent losses
Testing the strategy
- Running on ETH/BTC -1H period from 1st Jan to 1st June gives a + 64.01% ROI
- Running on TRX/BTC -1H period from 1st Jan to 1st June gives a -12.92% ROI
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