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Technical Analysis and Cryptocurrencies

Last Updated on 10 February, 2024 by Rejaul Karim

The exploration outlined in “Technical Analysis and Cryptocurrencies” delves into a comprehensive analysis of technical trading rules within cryptocurrency markets, drawing on data from two prominent Bitcoin markets and three other widely-recognized cryptocurrencies.

With a meticulous application of almost 15,000 technical trading rules spanning the primary five classes, the study unravels a compelling narrative of substantial predictability and profitability associated with each class of technical trading rule across the spectrum of cryptocurrencies.

Notably, the study sheds light on the revelation that breakeven transaction costs markedly surpass the conventional benchmarks within cryptocurrency markets. Furthermore, the meticulous implementation of multiple hypothesis procedures corroborates the findings, affirming the significant predictive power and profitability offered by technical trading rules, a factor that extends beyond mere protective measures against enduring and pronounced drawdowns inherent to cryptocurrency markets.

However, the study also unveils the absence of predictability for Bitcoin in the out-of-sample period, juxtaposed against the persisting predictability in other cryptocurrency markets.

Abstract Of Paper

This paper carries out a comprehensive examination of technical trading rules in cryptocurrency markets, using data from two Bitcoin markets and three other popular cryptocurrencies. We employ almost 15,000 technical trading rules from the main five classes of technical trading rules and find significant predictability and profitability for each class of technical trading rule in each cryptocurrency. We find that the breakeven transaction costs are substantially higher than those typically found in cryptocurrency markets. To safeguard against data-snooping, we implement a number of multiple hypothesis procedures which confirms our findings that technical trading rules do offer significant predictive power and profitability to investors. We also show that the technical trading rules offer substantially higher risk-adjusted returns than the simple buy-and-hold strategy, showing protection against lengthy and severe drawdowns associated with cryptocurrency markets. However there is no predictability for Bitcoin in the out-of-sample period, although predictability remains in other cryptocurrency markets.

Original paper – Download PDF

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Author

Robert Hudson
Hull University Business School (HUBS)

Andrew Urquhart
ICMA Centre, Henley Business School; University of Reading – ICMA Centre

Conclusion

In sum, “Technical Analysis and Cryptocurrencies” culminates in a revealing portrayal of the pronounced predictability and profitability inherent in technical trading rules across various cryptocurrencies, gleaned through a meticulous assessment of data from prominent Bitcoin markets and other popular cryptocurrencies.

The study’s scrutiny of almost 15,000 technical trading rules spanning the primary five classes unfurls a compelling narrative of the substantial predictive power and profitability exhibited by each class within the realm of each cryptocurrency.

Notably, the juxtaposition of breakeven transaction costs against the customary benchmarks within cryptocurrency markets underscores the distinct economic landscape that characterizes this domain. Furthermore, the implementation of multiple hypothesis procedures safeguards against data-snooping, affirming the potency of technical trading rules as harbingers of significant predictive power and profitability to investors.

The study further illuminates the ascendancy of technical trading rules, offering substantially higher risk-adjusted returns in comparison to the conventional buy-and-hold strategy, as a shield against protracted and severe drawdowns entrenched within cryptocurrency markets.

Nonetheless, the discernment of the absence of predictability for Bitcoin in the out-of-sample period, while predictability persists in other cryptocurrency markets, adds a layer of intricacy to the landscape of cryptocurrency predictability and market efficiency.

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FAQ

Q1: What is the main focus of the research paper “Technical Analysis and Cryptocurrencies”?

A1: The main focus of the research paper is to conduct a comprehensive examination of technical trading rules within cryptocurrency markets. The study analyzes data from two Bitcoin markets and three other popular cryptocurrencies, employing almost 15,000 technical trading rules across five classes. The primary goal is to assess the predictability and profitability associated with different classes of technical trading rules in the context of various cryptocurrencies.

Q2: What are the key findings regarding the predictability and profitability of technical trading rules in cryptocurrency markets?

A2: The study reveals significant predictability and profitability associated with each class of technical trading rule across various cryptocurrencies. The findings suggest that technical trading rules exhibit substantial predictive power and profitability within the cryptocurrency market.

Q3: What does the study indicate about breakeven transaction costs in cryptocurrency markets?

A3: The study indicates that breakeven transaction costs in cryptocurrency markets are substantially higher than those typically found in traditional financial markets. This highlights the distinct economic landscape of cryptocurrency markets.

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