Technical trading and cryptocurrencies

Hudson, Robert; Urquhart, Andrew

Abstract

© 2019, The Author(s). 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.

Citation

Hudson, R., & Urquhart, A. (2019). Technical trading and cryptocurrencies. Annals of Operations Research, https://doi.org/10.1007/s10479-019-03357-1

• Journal Article Type: Article
• Acceptance Date: Aug 6, 2019
• Online Publication Date: Aug 30, 2019
• Publication Date: Aug 30, 2019
• Deposit Date: Aug 8, 2019
• Publicly Available Date: Aug 31, 2020
• Journal: Annals of Operations Research
• Print ISSN: 0254-5330
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1007/s10479-019-03357-1
• Public URL: https://hull-repository.worktribe.com/output/2328042
• Publisher URL: https://link.springer.com/article/10.1007/s10479-019-03357-1
• Contract Date: Aug 8, 2019