OG-CAT: A Novel Algorithmic Trading Alternative to Investment in Crypto Market

Surinder Singh Khurana (), Parvinder Singh () and Naresh Kumar Garg ()
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Surinder Singh Khurana: Central University of Punjab
Parvinder Singh: Central University of Punjab
Naresh Kumar Garg: Maharaja Ranjit Singh Punjab Technical University

Computational Economics, 2024, vol. 63, issue 5, No 3, 1735-1756

Abstract: Abstract Cryptocurrencies have emerged as a good tool for investment/trading in the last decade. The investors have achieved promising gains with the long-term investments made at reasonably good price/time. However, investment in cryptocurrencies is also exposed to extremely high volatility. Due to this, the investment may suffer from a high drawdown as the price may fall. In this work, we proposed optimized Greedy-cost averaging based trading (OG-CAT) a novel trading framework as an alternative to long-term investment in cryptocurrencies. The approach exploits the wavy structure of the price movement of cryptocurrencies, the high volatility of price, and the concept of cost averaging. Furthermore, the parameters of the approach are optimized with the simulated annealing algorithm. The approach is evaluated on the two prominent cryptocurrencies: bitcoin and ethereum. During the evaluation, OG-CAT not only outperformed the buy-and-hold investment approach in terms of profit but also demonstrated a lower drawdown. The profit percentage in the case of trading BTC with OG-CAT is 1.63 times more and the max drawdown is 1.62 times less than compared to the buy-and-hold strategy.

Keywords: Algorithmic trading; Cryptocurrency; Trading strategy; Optimization; Dollar cost averaging; Blockchain; Bitcoin; Ethereum (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10614-023-10380-9

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