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Building a profitable Bitcoin RSI strategy

“Buy when oversold, and sell when overbought. Time to PRINT MONEY.” We have all been there, no shame in that. …

Read moreBuilding a profitable Bitcoin RSI strategy

The post Building a profitable Bitcoin RSI strategy appeared first on CoinDiligent.



“Buy when oversold, and sell when overbought. Time to PRINT MONEY.”

We have all been there, no shame in that.

After all, the idea of buying Bitcoin after a heavy sell-off, and selling it after a strong rally, makes intuitive sense.

But could our intuition be lying to us?

Time to run some actual backtests.

Teaser, this is what we’ll build at the end of the article:

equity curve rsi strategy

Ok, first of all, let’s define the scope and parameters of the backtests.


  • RSI periods of 14 and 2.
  • H4, H1, and m30 timeframes.
  • Only Bitcoin.
  • Fees not included.

RSI entry conditions:

  • 70 as the RSI overbought level (short entry).
  • 30 as the RSI oversold level (long entry).

RSI exit conditions:

  • 40 as the RSI exit level for shorts.
  • 60 as the RSI exit level for longs.


  • Long when oversold, exit at RSI exit level.
  • Short when overbought, exit at RSI exit leve.

It’s also important to note that I used Pro Real Time for the backtests. Their Bitcoin price data is not the best, but it’s good enough.

Results for the H4 chart

The performance stats for both RSIs is horrendous on the H4 timeframe.

However, It’s interesting that the 2-period RSI gives significantly better results, even though the 14 period RSI is a LOT more popular among traders.

Let’s see if this holds up on other timeframes as well. 

Results for the H1 chart

Well, for the H1 chart too, all performance metrics are incredibly poor.

But, we can also see again that the 2-period RSI outperforms the 14-period RSI.

Results for the m30 chart

Slightly better results than in the last 2 tests, but still horrible. Again, RSI(2) outperforms.

Interestingly, both RSIs were NOT profitable in 2019 in any of the backtests.

This is likely due to how price trended much harder in 2019 than in 2018, which isn’t ideal for a mean reversion strategy.

Creating a viable RSI strategy

We learned 3 main things:

  • RSI(2) seems to give better signals than RSI(14).
  • Lower timeframes are more profitable than higher timeframes.
  • We need a trend filter to avoid getting run over. 

Hence, I added the following rules to the existing entry/exit conditions already defined in the intro:

  • We use the H1 MACD to determine trend direction.
  • We use RSI(2) on the m30 chart to get overbought/oversold signals.
  • Only go long if MACD is in a bull trend and RSI(2) gives an oversold signal.
  • Only go short if MACD is in a bear trend and RSI(2) gives an overbought signal.

The results:

Now returns are OK-ish and the drawdown is fine.

Certainly much better than what we had so far.

That said, would I trade this strategy? In its current form, no.

But it’s interesting to see how much a simple trend filter and a shorter period can contribute to the profitability of an RSI strategy.

Final thoughts

First of all, please remember that I did not include trading fees in the backtest. If you mostly trade using taker orders, then this is the first thing that you want to look into.

I didn’t include fees because mean reversion strategies usually trade during GREAT environments for limit order fills. If you’re using an exchange like BitMEX or Bybit, the hefty maker rebate is well worth the effort of making this work.

So, is this all there is to mechanical trading with RSI?

Absolutely not.

A few ideas that you can test next:

  • Combine RSI(2) with another momentum indicator to get a confirmation for overbought/oversold signals. With this filter in place, try to run this on low timeframes (m15 and m5).
  • Work with limit orders. e.g. if oversold, place limit order 1% below the current price.
  • Try trend filters with less lag than the MACD.
  • Test using cumulative RSI values. e.g. if the sum of the last 3 RSI values is more than x, go short.

RSI is a powerful indicator and can be used to trade profitably. But you’ll have to ditch the mainstream overbought/oversold concept and think a bit out of the box.

I have a few more backtests that I’ll be sharing publicly. I will probably publish one of these posts a week.

If there’s anything specific you’d like me to test, comment below or let me know on Twitter. I may add it to my to-do list if it’s interesting.

pascal thellmann

Pascal Thellmann is an algorithmic trader mostly focused on market making. You can get in touch with Pascal on LinkedIn or Twitter.



Avalanche raises $230M following sale of >1500% returning AVAX



This season of the crypto-market has highlighted altcoins and altcoin projects that have been striving to bridge the gaps existing in the industry. Avalanche is one such project, with the same in the news today after it raised $230 million from the sale of its cryptocurrency, AVAX.

According to the foundation behind the blockchain, Avalanche received this sum of investment through a private sale to a group led by Polychain and Three Arrows Capital.

Reportedly, R/Crypto Fund, Dragonfly, CMS Holdings, Collab+Currency, Lvna Capital, and a group of angel investors and family offices also participated in the investment round. The token sale was completed in June and the objectives of the foundation were to support and accelerate the growth of decentralized finance [DeFi], enterprise application, and other use cases on the Avalanche public blockchain.

Its token AVAX has recorded tremendous growth, despite the market trend being increasingly bearish. The asset, at press time, was returning 1,589% to investors year-to-date after it rallied to $63.62. AVAX also registered a strong surge of almost 30% in one 24-hour window, a consequence of the latest updates to the ecosystem.

Another reason why the blockchain surged higher was the onboarding of several blue-chip DeFi projects like Aave, Curve, and SushiSwap. On Wednesday, Avalanche Foundation asked for ‘signaling’ from the Aave community to accept a deployment of the Aave protocol into Avalanche.

Aave ecosystem could leverage Avalanche’s blockchain due to scalability, high throughput, and near-instant finality. According to the blog,

“Through the Avalanche Rush program, the Avalanche foundation has allocated up to $20M AVAX for users of the Aave protocol over a three-month period to earn AVAX rewards while using Aave on Avalanche for the first phase of the program. This program will bring new users to the platform, and reach more users from the established Avalanche community.”

It added,

“Having the Aave community embrace deployment on established chains like Avalanche will allow more users to access Aave’s offerings across the DeFi ecosystem.”

With competition between layer one protocols heating up, Avalanche has been trying to secure a top position. According to Emin Gün Sirer, Director at the Avalanche Foundation, there is “still so much potential yet to be tapped at the intersection of institutional and decentralized finance on Avalanche.”

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Scaramucci’s SkyBridge Capital Secures $100M For Algorand Fund, Files For Crypto ETF



Scaramucci’s SkyBridge Capital Secures $100M For Algorand Fund, Files For Crypto ETF

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The number of cryptocurrency-focused exchange-traded funds (ETFs) applications in the U.S. has been growing as several asset management companies have shown interest in offering their clients exposure to cryptocurrencies via regulated exchanges.

In an SEC filing on September 14, SkyBridge Capital became the latest to apply for a crypto-focused ETF – the First Trust SkyBridge Crypto Industry and Digital Economy ETF. According to the filing, if approved, the ETF will invest about 80% of its assets in companies representing the crypto-industry. This also means that the ETF will not have direct exposure to cryptocurrencies.

More recently, Anthony Scaramucci, the founder of the firm and former Whitehouse Communications Director, revealed that the investment firm now had over $700 million in crypto investments and intends to increase its positions in the market even further.

He stated this during an interview with CNBC Television yesterday in the aftermath of the ongoing SALT Conference New York 2021. During the interview, Scaramucci revealed that the firm was starting an Algorand fund that will be capped at $250 million and had already raised over $100 million.

Remarkably, the firm first added Bitcoin to its portfolio last and in July revealed that Bitcoin was the largest contributor to gains this year at the firm according to a Financial Times report. The firm has previously filed applications for both Bitcoin and Ethereum ETFs.

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Another notable cryptocurrency ETF development was the report that Fidelity Digital Assets met with SEC officials privately to push for the approval of their proposed bitcoin exchange-traded fund and argued the cryptocurrency market is now big enough to support it.

According to a Business Insider report, in the meeting, the firm cited an in-house survey that showed that bitcoin exchange-traded products held massive appeal to US institutions. They also argued that institutions had a strong interest in digital assets, and a significant number of institutional investors already hold cryptocurrencies. 

This argument has been made by other companies but has so far not swayed the SEC. The crypto-industry has been applying for cryptocurrency-focused ETFs for around eight years with the first being from Bitcoin billionaires, the Winklevoss brothers. Since then the SEC has been denying the application.

In 2021, there are more than 20 companies that have filed for crypto-focused ETFs with the SEC. Some include Galaxy Digital, VanEck, and Valkyrie Investments, all notable investment managers.

The SEC is yet to approve any of the applications. Gary Gensler, the SEC chair has stated that the commission is being cautious with the industry so as to be able to protect consumers maximally. However, there are speculations that approval may arrive before the end of this year. Just last month, Eric Balchunas and James Seyffart – Bloomberg’s in-house ETF analysts – on Tuesday published an investor note that speculated that a Bitcoin ETF approval may likely arrive in October.

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Shiba Inu Token Is Up 25% Following Coinbase Listing




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