225: Algorithmic Crypto Trading - Pavel Kycek

Welcome to Better System Trader Live, the show for systematic and algorithmic traders. Welcome to this show. We're going to be talking about something that we don't often get to talk about. It's a topic I think Uh maybe in this industry there isn't a lot of or that I know of a lot of legitimate

uh systematic or algorithmic traders. But today the guy I found for you is uh I think he's amazing actually he's been on the the the trading panel the last couple of weeks so you may recognize him but he is an algorithmic trader crypto specialist Welcome to the show, Pavel Kiche. Thank you, Andrew. Hi. Uh thank you for having me. I have to say that um I love your podcast, so um for me it is really an honor to be here. Thank you.

Excellent. Well it's it's great to have you on BST Live. As I mentioned, you've been on the trading panel a couple of times and you've always uh got a lot of good um you know, insights and comments to share there. So I'm really looking forward to uh you know having this conversation with you today. And as I mentioned, our topic is going to be our algorithmic crypto trading.

Um, so I discovered you actually on Twitter, I don't know, maybe a couple of months ago, right? And um Uh, there was I think it was something about robustness, and I was like, you don't often see people in the crypto space talking about robustness. drawdown portfolios. I was like, this guy's uh good. So I, you know, we had some discussions and I've looked into some of your stuff and we're gonna di dig into some of that today. So um yeah I'm really looking forward to our chat.

But first, how about a little bit of background on yourself? Can you tell us a little bit of your uh I guess your trading background so we can have some context around our discussion today? Yeah, of course. Well, the topic robustness, by the way, is one of my favorite ones, so I'm really looking forward to it. Uh so my background, I have to say I started as typical discretionary trader. So I thought that I will outsmart I will outsmart market.

by looking at the charts as often as possible to get a feeling of the charts. You know, you you know, probably all of us know it. so these were my starts in let's say 2007-2008 Uh then I started trading di like semi discretionary half automatically or half Systematically, I used to be trading like mean reversal strategies on e-mini equities.

Uh and level two data. So this was the first time after let's say five years, four to five years when I studied being somehow profitable. But to me, I have to say I was. always struggling trading profitably discretionary because I I missed some background, some data that I could for example use if I was in drawdowns and so on. So when my I started in fact then I started investing systematically, like those miniver or not these rotational strategies like gold.

uh ETF on Spider and these very simple rotational strategies that are working and I think many people could start with them just to get the confidence uh in systematic trading. And then like seven to eight years back I switched completely to systematic trading. I traded many assets, uh, for example, mini reversion strategies on Forex. I traded breakouts on commodities. I and then mainly I created uh

Portfolios on uncorrelated strategies on equities. And a few years back I started investing in Bitcoin. Because to me it was an interesting asset. But I don't know why. I didn't recognize the volatility and uh the possibility of how crypto in general is volatile, you know, because for us traders I would say volatility is the First reason or the reason number one, we what why we want to trade the asset.

And that's why it it took me like another two years uh the before I started uh trading crypto systematically like two years ago. But the problem of course is

that there is no infrastructure for us algorithmic traders. So we have to start uh we have to start building the overall infrastructure for crypto trading with uh my partner Ciro Baxio because The problem in crypto is that for example on equities you can trade semi-automatically or semi-systematically which means you will download the data at the end of the day you will run your scanners and you will send your orders but on crypto

it's impossible, especially if you want to trade ten, fifteen strategies together in one portfolio. That's why uh that's why we started building this uh this back end and started uh trading purely automatically.

Yeah. Okay. Well, we're gonna dig into that a little bit uh deeper in our discussion today. But I just wanna start with a um

Uh a Twitter message between you and I. This was a private one, but I so I hope you don't mention it. I hope you don't mind that I share it, but it's it's uh it's it's a good message. Um it's uh just reading it here. I'm trying to So we were talking about I think I might have been asking you why, you know, what are you doing with your trading and you said I'm trying to give back some of my knowledge on Twitter because especially in crypto trading, people have such wrong expectations.

And it's a bit of a shame because I still think we have a nice period of a few years of many huge inefficiencies in crypto. Um so that's a good that's a good comment. What types of wrong wrong expectations are you seeing people have in crypto? Well, there are many, many, many wrong expectations. Most of them have their roots in hindsight bias. You know, there are many coins that made like ten thousand percent, one hundred thousand percent in the past.

And everyone is jumping on the last best uh crypto opportunity to make those uh ten thousand percent on this individual or single coin. which is basically the biggest the biggest problem in crypto and then of course expectations that have their roots as in this in this thinking, you know, because how I feel it uh for us traders, once we get wrong mindset about trading, then it is very hard to switch.

To the proper risk management type of thinking that we should always hold and we should always be in, and once you get into this gambler mindset like buy this coin because it will be going to the moon overnight and so on, then you are basically done. I don't think uh you can make any money in crypto. Yeah, yeah. That's a um a really good point. And I'm I I think we're gonna dig into risk management a little bit later, but at a high level, what are some of the risks with crypto trading?

Yeah, in crypto one of the biggest risks is just being in crypto, you know, because uh yeah it's it's just true, you know, in crypto there is a lot of uh regulatory in clarity still. even though there are like new laws uh that will be valid in this or following year, for example in Europe, there are still a lot of in clarity here. So one of the biggest risks is just trading on single exchange because we all know uh FTX case and so on. Another huge risk is

investing into one or two three coins, you know, not to allocate accordingly. Another risk is just being scammed by many people who are trying to sell you something or just purely steal your assets from your wallets and so on. So you really have to be very concentrated if you want to invest into crypto. But on the other side, my premises If all these risks will be covered and they will be covered in the future, I'm pretty sure about it.

the potential the potential rewards will be much lower. So you know we are again to these reward to risk uh ratios and expectations and to me in crypto it is more about allocation, how much you should allocate that then if you should allocating because the potential is still very big here.

Well let's um let's talk about that potential a little bit more. In the second part of that Twitter message that I just read out a moment ago, you said that we're gonna have a nice period of a few years of many huge inefficiencies in crypto. So let's talk a little bit about these inefficiencies or more specifically maybe about um you're building crypto strategy.

Uh now I'm sure we've all heard about the huge rise and fall of um some of these crypto uh markets. What type of strategies do you think uh or s uh trading style works best for crypto? Yeah, this is a very very interesting question, uh because Again, my premise is that I don't know much about the market, especially I don't know much about the future of the market, especially in crypto, because we all know crypto is pretty young asset.

So now if I should pick up one strategy or one approach that is making the most money, it will be trend trading or trend strategies or breakouts. On the other side. We don't know how the market in general will be evolving. So that's why I'm thinking about it more in general. For example, will it be behaving in the future as forex? Will it have more like range bound characteristics, for example, or will it be really an asset that will in fact have some value because most of the crypto coins

Just don't have any value at all. That's why there are very short but sharp trends, but not long-term trendiness, as we can, for example, see in So to me, it is really more about building broader portfolios and uh taking advantage of trends through trend strategies and breakout strategies.

inefficiencies through mean reversal strategies because yes there are big trends that you can catch thanks to trend struts but on the other side There are many of those pumps and dump schemes or basically like overreactions uh thanks to the emitters that are on the market that you can trade against uh thanks to min reversion strategy.

Yeah, yeah. Y you hear these stories of um All right. Excuse me, sorry about that. You hear these stories of traders from you know the nineteen seventies or nineteen eighties and they say, you know, when I was trading the futures markets back then, I could just put on a simple moving average, buy above, sell below, and make a lot of money. Like it was really they had these really basic

trading strategies that seem to work well and then over time As I guess the markets become more mature, you get more participation, different levels of experience in those markets, it tends to get noisier, and the characteristics of the market change, which means then you've got to adjust the the style of trading a little bit. So are you seeing that kind of development now in crypto? Like do do simple strategies work now or do you need to be more complicated?

That's exactly what I expect even in the future that something like that will be happening here. But For example, let's uh talk more specifically. If you try some moving average crossover strategy, it will be making money on crypto. But you can see that three, four years ago. Uh the edge, the overperformance compared to some benchmark was much higher than today, for example. Uh but it is still overperforming benchmark, just this very simple strategy.

On the other side, min reversion strategies, uh, for example, to the short side on crypto. weren't that profitable two, three years back, but now they are like performing massively. But of course there are big risks because crypto is exponential asset. So you can just shorting these.

huge moves to the short side, mean reversal strategies, I would say, have to be more professional built compared to even equities because for example equities are like short term min reverting market I would say and uh min reversion strategies are performing quite well on crypto, at least to the short side, you have to think about it a little bit more in which uh time and in which in which periods you want to trade them.

Okay. But yes, it is exactly as you said, uh I can even see I can already see that the very simple strategies are performing well, but a little bit worse than two, three years ago. So that's interesting because you can I guess you could study the developments of these other markets that are more mature now, like the futures market.

and kind of overlay that on what potentially the crypto market might be doing, maybe in shorter cycles, because, you know, we've got a lot of technology and stuff these days that accelerates that type of thing. But it's pretty cool to think of maybe you've got a like a uh what's it called? Like a roadway or a or a path to follow. Newly developing market now.

Exactly, that's by the way exactly what we are doing in Robuxo and by myself when I'm building strategies. I'm looking at the past, I'm looking at commodities in 1980s, I'm looking at for example, stocks uh on the start of 2000, uh before the tech bubble or during the tech bubble. You know, you have to find some other assets uh to make your robustness testing and to

See what was working in those times and in those periods because I think it is worth it. And for example, I still don't get uh the reason why, for example, Larry Williams. doesn't trade crypto because he used to be trading commodities which I think in nineteen eighties were similar similarly risky as crypto these days. And this was also the reason why he was making ten thousand or he made ten thousand percent in a year.

audit it uh and in crypto, I think in a very good year you can still make something like that if you want to go through such a huge risks as, for example, Larry went in in 1980s. Well Larry's not twenty something years old now, so maybe his appetite for risk is a little bit different, but But I I believe that Larry that young Larry would definitely trade crypto these days. I'm pretty sure about it. Yeah.

Yeah, exactly. Now I just wanted to uh I noticed there's a comment here from Antonio in the chat, which is kind of leading to my next question about volatility. So Antonio said check the standard deviations per hour if you scalp, which is an an interesting approach. Um, you've already kind of mentioned the volatility in crypto markets can be pretty huge at times. How do you how do you use that that knowledge or that insight to to adjust how your trading strategies work?

Yeah. Well first of all I love the volatility of crypto. I think every trader basically loves volatility. So to me it's the biggest advantage of crypto to tell through it's the reason why I'm in crypto. So ham um dealing with volatility. is that I'm trading portfolio of uncorrelated strategies and it means that I'm Also trading strategies in which every strategy basically trades up to 15-20 position.

So this is first thing how I'm dealing with uh volatility. Many uncorrelated strategies. Every strategy has a little bit different role in the overall portfolio, and that's why I'm also uh having some maximum threshold how much exposure I want to have to one coin, for example. Because as I said earlier, one of the biggest risks is to be overexposed to one coin because you never know if this coin

won't go to zero overnight, you know. So that's why uh the exposure, the overall exposure to one asset, one coin has to be pretty low. And then um I'm really dealing with the volatility the way that I'm trading mean reversion strats, trend strats, breakout strategies, and I'm spreading the capital accordingly.

Yeah. Yeah. Now you make a good point there about um some coins potentially going to zero and some have had a huge run up. And you you made a point in um I think it was two weeks ago in the trading panel about survivorship bias. Or maybe I made the point. I don't recall. We were talking about it anyway. Yeah, we were talking about it. Yeah, and um and I noticed when I was looking on your blog that you had a really interesting chart about survivorship bias and

Do you want to talk about this one in crypto? I think this was a really excellent example. I'm going to put it on the screen. Yeah, yeah. Um can you talk about the impact of survivorship bias on crypto trading? Here we go. It's coming up. Boom.

Yeah, well survivorship bias has a huge impact to any trading, you know, not just uh on crypto, but especially on crypto, the impact is huge. Why? Because crypto is Firstly, exponential assets, and secondly, there are many losers and just a very few of uh real winners so for example uh this example is a very good one if you trade for example today's top ten coins

uh with some trend strategy, which is basically this example, you would get the performance of the blue chart. But if you would be trading top ten coins On the day when they were really in top ten, you would get the green chart, which is basically for like uh five X lower or maybe even ten X lower the performance. So More volatile the asset and more immature the asset.

the more the survivorship bias can affect your trading and your backtesting especially your backtesting because if you don't backtest properly on survivorship bias free database Then you just can't get the proper results that should somehow be similar to real life trading. But again, this is quite problem because for example for equities you have your Nordgate data.

But in crypto there are not many services. I don't know about any, so that's why we built our own solution just to have proper data and proper results of the background. Yeah, yeah. I think this is a really excellent example that shows the impact of survivorship bias. I'm I remember when I was trading stocks many, many years ago and I had access to the um the Norgate survivorship bias and

the results can sometimes be huge. And this is an excellent example'cause I think a lot of people, especially beginner traders, don't understand the the impact that that can have and So they they would think this blue line is what they're gonna trade and then they get a bit of a shock when it's uh nowhere near what they're expecting. So it's a brilliant example here.

Yeah, thank you. But the survivorship bias is in fact everywhere. You can see it even on ETF investing, you know, that people are uh choosing just, for example, NASDAQ because it is overperforming these days, or they are choosing

uh I don't know Nvidia because it is performing uh like crazy these days but you never know if it will be overperforming even in the future. So that's why this Survivorship bias and hindsight bias are two biggest problems for traders and investors in general, I would say.

Yep. Okay. Now I want to move on to robustness testing in a moment, but I know this question is it hasn't come up in the chat yet. I'm quite surprised. But people will ask, What platform do you use for testing? Where do you get your data? All that type of practical things. Uh so how do you You how do you actually do your your testing, your strategy testing?

Well, first of all, you have to have good data, which again in crypto, it is a bit of problem. So we are getting data from Binance and from KuCoin. We are creating and building our own survivorship bias free databases. on which we are making tests. For testing, we are using uh real real test, which is a software I can really recommend to anyone, especially to non-programmers.

as as myself for example, because the code, the the language is like super simple. I can compare it for example to Emi Broker that I used to uh be using in the past. And Totest is really very, very nice and very simple, very logic software. And then of course uh I think that if you

really want to be serious with your trading, you have to have at least two solutions that you cross check your results uh uh between each other. So that's why We also built our proprietary backend backtesting software. uh and we are like checking those results with real test and we are having like two uh different sorts of uh of backtesting. But real test is a good start.

The only problem is the data. I don't think you can find proper data for survivorship bias free testing these days. Or I didn't find any tutorial. What about the length of the data? Because some of those coins don't have a lot of history, right, compared to if you look at stocks or the futures markets, which go back a long Way. How does that impact what you're testing? Of course history we just

That's true. We just don't have enough data in crypto. That's definitely true. That's why it it's affecting the roots of building the strategies, I would say. You really have to think about building strategies a little bit differently compared to, for example, commodities, compared to equities, where there is a lot of data. So that's why, for example, I'm building the strategies that way that most of my strategies

Have some roots in very old strategies. So, for example, from Larry Williams, 1980s, or another well-known traders from the start of 2000, because I can see that those strategies. went over quite long uh out of sample like real testing. Of course you can't use the strategy by itself for crypto because crypto is much quicker. But the logic, the entry logic or the exit logic can be very similar to those like older ones.

But you have to spread the capital, so you have to uh really trade every single strategy as a portfolio, and it is like sub-portfolio for your overall broad portfolio, because otherwise you are just to expose to one coin. Because basically the idea of my trading is making money from volatility, not from betting on one or two or even 10 coins.

Yep. Okay. Um, we've got a question in the chat about diversification, which we'll get to a little bit later'cause I know you've got some good insights about that one. But let's jump to robust robustness testing for a bit. So I know this is one of your um uh one of your uh favorite things based on our previous discussions and also on your on your blog you talk a lot about robustness tests. So how do you know when a um a strategy is robust? What are you looking for?

Yeah, well that that's a very good question to tell you through. Uh I have to say that you never know if your strategy is robust, you know. You you y like really, you really never know. You ha you just have to make as much as possible. uh and go through some robustness procedure and through robustness processes to know that you made as much as possible for uh the strategy to let her like trading clive. before even robustness you have to make really one stack uh

One step back, and you have to build the strategies properly. For example, my ideas are that you have to build the strategies idea first with idea-first uh approach, which means

that you follow some logic. So you what you want to trade, you know, if you want to trade trend strategies, mean reversion strategies and so on. Because then you can go to the proper robustness testing. For example, It is quite hard to use uh some Walk forward optimization and walk forward robustness testing because on five, six years of data.

You can get very good results just by by pure luck, you know. So this is not good method in my opinion. What I'm looking at uh the most is really robustness over parameters. which means basically that for example, if I'm trading some very simple strategy and I'm using moving average 10, for example, moving average 20, I want to see that the strategy is performing very similarly with moving average.

Five, seven, eight, up to fifteen. Let's say minus fifty percent, plus fifty percent. Another thing that or another approach that I'm using is that I'm testing all our strategies on 4-hour charts or 12-hour charts. just to get as much data as possible and I want to see them performing well or at least average. I don't want to see them like going uh down immediately.

And another thing that we are using just to get more data, for example, I don't think that many traders are using it, is that we are taking the advantage of crypto being twenty four seven market.

Which means that we are create creating our own artificial daily closes. You know, so we are using the official daily close and we are having another twenty three unofficial artificial daily clauses and I want to see again the stability over these artificial daily clauses and how it is impacting the strategy in general. So this is one of robustness testing, but another one I would say that is having its root just in pure logic is for example that if I'm trading trend strategy to the long side.

I want to see this strategy performing well in trends basically in long trends. I know this is very simple logic, but not many is in is using it. And if I'm look looking at mean reversion strategies to the short side. I don't mind if it is losing money in strong long trends, you know. And if you really start building your strategies with idea first approach.

You know when your strategy should be making money and when it should be losing money. And if it is losing money in the faces when it is supposed to be losing money, then you don't have to care about it that much.

you just look at it and you are basically looking at like general parameters and if it is still in some right. Right. Okay. So what about which which um market do you actually test on? Like, you know, obviously the big one is Bitcoin. Are you testing strategies on Bitcoin and then testing them on other markets as well? Or do you like where do you start your testing?

Well, I never test the strategy on single coin. I'm always testing my strategies on survivorship bias free databases and I'm always starting with with I would say some kind of k basic characteristics I want to trade. For example I'm building the strategies that way that they have to be able to trade with few mills, for example. So I need to be able to trade on highly liquid or at least average liquid coins.

And that's why I'm I'm building the strategies that way that I will choose some dataset of highly liquid coins, And I'm testing I'm testing the strategies on those coins, but without survivorship bias free. So let's say I want to uh trade on 10 most liquid coins. which I don't want to, I'm choosing a little bit different uh parameters, but let's say ten most liquid coins and you have to use the same ten liquid coins today.

Or the ten most ten most liquid coins like one year back, but not the same ones. You just have to have this survivorship bias free database, which is really again the biggest mistake I can see. in beginner traders, but even in intermediate traders, I would say not many are realizing how big the survivorship bias free like survivorship bias is. Yeah. So you made a comment in the um in the previous answer about um looking at the the performance results of a strategy when it should lose. Yeah.

So do you ever test with regime filtering or you know, trying to switch a strategy off? Because I guess using this idea first approach which you talked about. you you kind of know logically when a strategy should work and which when it shouldn't. So yeah. Does that lean nicely into regime filtering?

I'm using regime filters with some strategies but not with all of them. It again depends on the nature of the strategy. For example to me Um it doesn't make sense to use trend strategies without regime filters. Why should I entering uh to the long trend uh positions if the overall market is falling like crazy? And the same to the short side. So that's why I'm for example using regime filters for trend strategies.

I'm not using uh regime filters for for min reversion struts that much. It depends again, but again, what I want uh from my trading solution is to be as diversified as possible. So that's why. Sometimes I don't use regime filters, even though with regime filters uh the performance would be better, but I will get slightly different logic. from from the strategy. So that's why sometimes regime filters are good, sometimes they are not.

Yeah. I guess though, um, you know, as we spoke about a little bit earlier about the limitations of the the length of the historical data, um, you also get I I guess a a limited number of different types of regimes. Does that reduce the reliability of regime filtering? This is very good very good question. I think it depends on what type of regime filters you are using. Because again, if you are using very simple regime filters.

Those that, for example, you can use on equities, something like, let's say, very, very well-known regime filter is. uh two hundred day moving average on S P or something like that. And you can reuse this kind of regime filter on crypto, for example on Bitcoin or on Total Three Crypto Index. It doesn't matter uh that much to tell the truth. But I'm pretty sure that this logic is very strong and you can use it even though there is not enough data encryption.

But I'm really not trying to be like super crazy with regime filters because there could be this issue uh that you mentioned that you can just get good results by pure luck. And this is not something I I would like to get. Yep. Yep.

All right. Um, let's move on now to portfolio and uh diversification a little bit. It's come up a few times in the chat here. So uh first of all, you've you kind of already touched on this a little bit already, but maybe might be good to just review it. Why do you think? It's important to have a portfolio of strategies in crypto or I guess in any market really.

I think it depends on what you want to get from your trading. For example, if you want to maximize profits and you don't care about stability of your returns at all. For example, you can bet everything on one single trend strategy in crypto and maybe or even very likely you will get you will make the most money. in this let's say bull market if this bull market will continue.

But if you want to get stability and you want to be prepared for almost anything in markets, you just have to spread the capital between many different approaches. just for you to know that if the market will be involving and it will be somehow involving, we just don't know how, you just have to have like many different trending trends, not trend, but trading strategies.

because then you are basically covered. My general approach is trading these all-weather portfolios even on equities, on crypto, because that way You can make some money if the market will be, for example, highly volatile, but it will be moving basically sideways. with mean reversion strategies or you can make money if the market will be moving up or down thanks to your trend strategy. And then the only phase that is really not good for us directional traders is basically

Sideways low volatility market. This is the market where you will lose money, probably. Yeah. Yeah, this is what it is. Yeah. So we've got a question in the chat from Dalibor. Apologies if I said your name incorrectly. This one's about diversification, but I like it because it's in the context of correlation. How do you diversify in crypto with everything so correlated? Yeah, this is good question.

You know, it is also about the meaning of diversification. Of course, if I want to think about diversification in general, then I think that you should be allocated into crypto, but probably you should diversify into different assets. This is I would say the highest level of diversification.

If we get to crypto, you can of course diversify because you can just go over top twenty coins these days and go one by one, and you can see that some of them Uh made like today, let's say five percent, another one, twelve percent, another one, minus six percent. So yes, they are diversified long term, but if you are trading, because it also depends on what type of strategies you are trading. I'm trading shorter term strategies like

one day, two days, but also like weekly strategies where you are holding your position two, three weeks. And especially with this quicker strut. the diversification plays a big role because you never know when you will hit those outliers that will really push your equity much farther. So yeah, diversification. I get this question pretty often, but I don't agree to tell the truth because it is more about the the general approach of trading.

Yeah. Because many times people are thinking about diversification and trading the way that you are trading trend strategy on Bitcoin, miner version strategy on Ethereum, for example. another trend strategy on, I don't know, Dogecoin or something like that. And then you are right that the correlation would be pretty high. But if you are trading portfolio in every strategy, then the diversification is pretty big.

Now on the trading panel, um I think it was two weeks ago, you made a comment uh which we didn't really dig into a lot at the time, but I thought it was interesting and I saved it for today. So you you said something about um you really went into you know in in your crypto trading you really went into oversimplification of strategies. And more, I think you said crazy, but advanced techniques in the portfolio. Can you expand on that a little bit more? What exactly do you mean then?

What I mean by that? Well, firstly, why I'm trying to oversimplify single trading strategy. The main reason is that I don't know if the strategy will be performing in the future. And the more metrics the strategy will have, or more conditions. The higher the probability that the strategy will fail in the future. That it was just overfitted strategy on a few years in the past. So that's why I'm really trying to build a strategy that has.

one, two uh entry conditions, one regime filter, and let's say one exit condition. Something like that. You know, some of my strategies have just one entry condition and one exit condition, really. That's simple. but their main logic is very strong and this is how I'm trying to build uh the strategies because as you said Andrew, we just don't have enough data in crypto. So that's why the strategies really have to be really have to be super simple.

just to be at least somehow sure that they will be performing in the future. And by the the advanced approaches uh with in portfolio building what I was thinking about was that You really have to think how you are building this the portfolio because I can see traders that are like building many strategies and they are just putting them into the portfolio.

just for the purpose to have as many strategies in the portfolio as possible. To me It's pure nonsense because that way, for example, you can be good for I don't know, trend b uh creating uh trend strategies, for example, and you will build 10 trend strategies and you will put them into the portfolio. But how much are they diversifying your overall trading results? Not much, not much. That's why I'm trying to build.

or add every strategy to the portfolio only if it will have some some uh diversif you know only if it is like diversifier to the overall portfolio if not You I will just keep it somewhere, but I won't use it for the portfolio building in general. So this is really something uh that's why I can imagine that you build your very simple. I don't know, crypto strategy in one day, but the portfolio, the proper portfolio, you will be building many months, maybe even a year, and in fact.

You are still working, maybe even you you are still working on your portfolio to be as good as possible. So so this is how I'm thinking about it.

Yeah. So how do you then determine if a strategy is contributing to the diversification of the portfolio? What are you looking at? Yeah, so firstly basic logics, which means if the logic is the same or very similar to any other strategy that I already have in the portfolio. And then I'm using as probably everyone correlations, cor correlation coefficients. I'm looking when especially draw I'm looking at drawdowns.

similar strategy that I already have in the portfolio and if the strategy is building the drawdown in different periods just by luck or if it is by some characteristics that is in the strategy if you know what I mean really for me it is not about Trying to push the performance as high as possible, but trying to push the stability as as much as possible. And uh the only thing that you can basically control is drawdown.

not performance, because performance is more function of the trendiness and of the volatility of the market, but the drawdown is function of your portfolio or strategy building. Yeah, well said. Um I think one of the appeals, especially for beginner traders, is when they're building a strategy to make it look Like a really nice, you know, straight line. I imagine in crypto you can probably build ones that go exponential, right? Yeah.

But by the sounds of it, you almost you probably don't even look at the equity curves, right? Well, I'm looking at equity curves, but uh I'm not trying to build uh the best equity curve possible because again I'm thinking about every single strategy as part of the portfolio. I I could never imagine trading just one strategy.

And I also think that it is big, big problem for many traders that they are trading one, two strategies because they just fall in love with them then and they try to over-optimize them, they try to overfit them, they really try to make as much money with just one or two strategies instead of building more uncorrelated strategies in broader portfolio.

I think this is the biggest pain point of many traders that they are try they are really trying to build the best possible one single strategy which which can be working. I I can imagine that it can be working all the time because you have trend strategies when mini reversion strategies and breakout strategies and every strategy, every

Trading approach makes money just in some market phase, not in every market phase. So this is how traders should be thinking about it. And I I think you had a very good point about about building st uh strategies on the past. because this is another huge trap that uh like novice or beginner traders are falling into, that they are trying to be rich on the past data, you know, they don't think about the market.

That way, that future will be always very different compared to the past. It won't it will never be the same. And you should have it always on your mind if you are building the strategy that. past is really only the past and the future will be probably very different and probably worse.

Yep. Okay. Well, we've got some questions in the chat which I want to get to in a minute, but just as an extension of what you were just saying, what other Uh I guess mistakes do you see traders making when they're approaching uh agro algo crypto trading? Well definitely overfitting it's number it's number one problem of of all. Then they are building the strategy of one asset, especially in crypto. You can see it all the time. Everyone is selling those bots.

that made 100% in last three years just because it was it is trading or it was trading Solana that that made like 100 uh thousand percent you know if you have such an exponential coin, then everything will be making money on it, you know, and this is really a huge trap that I can see all the time how people are uh falling uh to it. Another one of course is Building strategies on like survivorship bias or on data that.

includes survivorship uh bias, which is very big, especially in crypto or in equities. For example, on commodities is it is a little bit different. This is not such a big deal, but on equities and crypto it is Huge problem. Hindsight bias is a huge problem. And then in general, I can also see that algo traders are making just mistakes in code.

you know, that they are not uh checking their codes uh well. Yeah. Even I made quite a few of those mistakes in the past and I even traded unfortunately on live data I'll I've I really did. So Everyone uh did it probably. But this is a big problem too that we think that we got the code and we just let it trade and yeah and we just

Okay. Well we've got a couple of questions here in the chat. Um So let's go first here with John. So this is more of a clarification one and this actually came up when you're talking about regimes. I just didn't see it on the screen at the time. So John would like to confirm. So in a long regime, you'd limit momentum breakout trades to long only, but mean reversion and trending strategies are free to do their thing.

Yeah, well it depends. It depends. Uh some of uh our min reversion struts do have regime filters because for example the logic is Is uh in for regime filters. Uh regime filters. For example, let's think about some correction you know you want to trade correction to a trend correction uh in general is trading correction in general is min reversion trading why shouldn't I use uh

regime filter when I want to trade uh correction into trend, you know. So in these min reversion types of strategies I'm using regime filter, which is basically one of the conditions of the strategy. But it really depends. It is not that simple that I would say mean reversion without a regime filter and trend strategies with because I tried to combine uh as many uh different approaches as possible. Okay, thank you for that. Uh question from Antonio.

Do you focus on meme reversion from a range expansion perspective? Miner version from Orange expansion. Yeah, well if I understand the question correctly Then some of our strategies are using uh like range expansion condition for miner version strats, but again it depends. I think I think this is a very good question in general because what I think is a l one of those problems you were uh asking Andrew, uh what traders are making like mistakes when building struts is those

indicators versus price action wars, you know, because to me you can describe uh ranch expansion with indicator or with price action pattern. It doesn't matter, in fact. This is just the tool. And how you describe it is up to you. But how you trade it, what you want to trade, this is this is like one step back that one should be always thinking about before building the strategy. But in general range expansion playing with range expansions.

Uh for mid-reversion struts, breakout strats is a good way to go, not just in crypto but in any highly volatile. Okay.

Uh here's a question from oh my goodness, I don't know how to say this. It looks Croatian maybe. Sridj, can you say that one? Srijan. Um sorry for butchering your name. Does your trading system analyze order books? And do more complex decisions on positions, or do you focus more on logic, the strategy logic, and care less about exchange mechanisms like market or?

Yeah. Uh I'm more concentrating on really general logics on higher higher data like daily, weekly, and so on, because You really have to think about cost of trades, which is another big mistake traders are doing that they are not thinking about.

uh cost of trading uh which is not only fees but also slippage and so on and yeah the lower you want to go and the ex uh for example here uh and i order books and this is really quick trading and i don't feel comfortable trading this kind of strategies on crypto because again i think that especially those very quick strategies Will be changing the characteristics very quickly as smart money will be entering crypto markets and so on. So that's why I prefer like trading.

slower strategies because even on stocks or on commodities you can see that those strategies if they are losing edge the face of the edge losing can take even a year or so but if you are trading one minute two three minute strategies I have seen those strategies that they were performing and in a day, two, or a week they were just going to the zero very quickly. So that's why, especially in our service.

I want to have the stability pretty high, so that's why I'm really concentrating on this uh daily, weekly, or maybe twelve hour strategies. Okay, thanks, Pavel. Uh question, another question here from John. Are you trading CFDs or actual crypto or something else? And why? Yeah, we are trading futures on crypto and why there is biggest liquidity and lowest fees and basically this is the best market for us traders. So yeah, and it is also the simplest the simplest solution for trading. So there is

There are not many reasons to trade differently if you can trade that way. For example, I know that in the US you can't trade futures on crypto. This is very different question then. But if you can I think futures are the way to go. Yep. Okay. Um now there was a question submitted on X to you uh from Sean.

says, uh I can't put this on the screen. I'll just read it. If you're a US trader who can who cannot trade crypto futures, would you trade actual coins including smaller ones or just F F B D C L T C N? Yeah. Like the biggest point. Slippage and commission low. Yeah. Yeah, this is a good question but very hard to answer to tell through because There is a problem with the universe in general. I'm not a big fan of choosing five.

six seven eight or ten coins and trade just them because again you are getting into some kind of hindsight biases but if I would have to choose I would trade probably the top 10 biggest coins uh with uh trend strategies. For example, because trend strategies have the highest average trade, and that's why even fees. and slippages on like general crypto market is not such a big problem.

Okay. Uh question here from SummerSquad. Welcome, SummerSquad. What's the simplest system or method you would advise a beginner to start with that would work across commodities too? Okay, good question. If I should choose the simplest system, I would choose something like Don Chian or Donchian to tell you through. I still don't know how to pronounce it, Don Chian, the some kind of Don Chan breakout strategy.

like thirty days, one hundred days or something like that and really stick to breakouts slash uh trend strategies type of of Probably the most robust one. And then a similar kind of question here from Mr. C. Any reading recommendations for finding trading system ideas? Well, of course my Twitter account. But yeah, I'm trying to share quite a lot of information, but if I If I would start building

Crypto trading strategies from the scratch now. I would really go over odd books like really Larry Williams books, Linda Rashke books. And you can definitely take some kind of inspiration there, but you have to and you also have to add some. Books from, for example, Nick Rage and so on, just to get the feeling of what portfolio trading is, because you just can't trade crypto without portfolio approach. I think this is too risky.

Yeah. Yeah. I think another good book it's probably worth looking at is Perry Kaufman's I think it's called Trading Trading Systems and Methods or something like that. Yeah. Which was a it was an older book, but I think you might have updated it. But that's uh that's got amazing trading ideas in it. So I imagine a lot of those would work in crypto too. Definitely.

Um okay, here's another question from Mr C. To use Monte Carlo simulations with random data, parameter sensitivity testing, and all the other robustness tests you mentioned, is the system ready to go live for live trading? Uh I don't know if I understand the question properly. Uh if this is the only robustness testing uh for crypto, but For me, especially with the the amount of data we have in crypto, this is not enough because

Really, the robustness testing starts with how you build the strategies. You just can't build your strategies on data. I would say indicator first type of strategy building. and just go over the general robustness testing that are very usual in traditional finances, I would say this is not enough because if you make Monte Carlo on five years, six years and two huge uh long trends, what can it what kind of information you get. No the the information is really

The value of the information is pretty low. So that's why this is definitely not enough. You also, I think in crypto, especially in crypto, you already have to know how to build the strategies properly because Yes, I'm repeating all the time that I'm building very simple strategies, but sometimes it is quite hard to build simple strategy that will be performing in the future too, because

uh it is the you really have to understand the markets. This is this is the main idea I think. You really have to understand the market logics, the market dynamics. And if you do then you can build a profitable strategy on any type of market. Okay, we got a final question here from John. Have you ever looked at a system of closing a portfolio's complete set of trades at say one percent gain? This short circuit's mean reversion multiple position trade set. Yeah. Not sure if I understand.

It kind of goes against the trend following principles though, doesn't it? Yeah. Clot closing out for trades early. Closing out for early profits. Like in general I'm not using profit targets at all. This could be inter interesting question too because I made so many tests on equities, on communities, on crypto, and I almost always find...

If not better performing, then definitely more robust approach than using profit targets. And the same is valid for stop loss. In fact, you can manage the risk differently than with stop losses. So yeah. I'm not doing something like closing positions if my portfolio is plus one percent or so. I think. you just don't you can't use the potential of crypto or of the asset that is moving. In fact, if you

set some boundaries with let's say one percent, two percent or so. I think this is discretionary type of thinking in general. that is not profitable even with discretionary trading, but definitely not on algot trading or I haven't found this approach. Yeah. John clarifies um reduces mean reversion drawdown. In that case, uh yeah, but I think you answered the the question. Sorry, do you have more? No no, I'm I'm maybe I just don't get the question

How I should but yeah. I don't know if you understand it, Andrew. Uh what This question. I think you covered it pretty well. So Yeah, thanks for the question, John.

Um all right, we're just about to wrap up here in a moment, but first it's crystal ball time, Pavel. I'm not gonna ask you about the price of Bitcoin next year. There's plenty of people who have guessed that and got it wrong. So but There's a question here from Summer first, and then I'm gonna ask you one about the future of crypto. So Summer would um ask, Do you think we're entering into a bull cycle cycle on crypto assets with Ethereum and Bitcoin moving near all time highs?

Good question, unfortunately, I don't know. I wish, but really I don't try to analyze uh the future of of crypto market that much, so really don't know. Okay, and then so my question is not really price based, but what do you think is the future of Crypto, we're seeing, you know, talk about different types of regulation. Some countries are making it illegal. What do you think is going to happen in the space? Do you even care?

Well I do care. I do care because I used to be working in traditional finance in the past too, so I'm having quite a few contacts and I can see how it is evolving. I can see how even banks are interested in crypto. Why? Because they can see their profits, of course, you know, because the margins, the fees are much higher.

uh with crypto than in traditional assets. So what um What I think that will be happening in the future is that there will be more and more regulatory clarity in the crypto space, and that's why more and more smart money and bigger funds will be entering

this space and that's why these inefficiencies and volatility will be getting lower and lower now I'm talking about like five years or so in my opinion so what I would expect is that over the time, like in ten years, five to ten years, crypto will be just another asset. that will be like divide diversifier for your portfolio, but not uh this uh like huge opportunity that is right now.

All right, Pavel. Well, thank you very much for um our chat today. It was really informative and we got a lot of great questions in the uh the chat as well. So thank you very much for that. Now how can people uh learn more from you or maybe even get in contact with you? Yeah, thank you. Thank you Andrew for having me here. Uh so let's just uh you can go to Robuxio dot com or to my personal Twitter. uh slash phitzek p k y c e k I can see you mentioned Thank you for that. Yeah, yeah. Okay.

Uh or just write me, you know, write me. I'm on Twitter quite often, so I'm always happy to answer any questions. Yeah, excellent. And I'll put links to those in the uh the description of the the um replay as well, so if people want to find those. Because that's a a a difficult one to spell in Twitter. So um yeah, so um yeah, thanks again for your time today. We've got some comments in the chat which I might just share here quickly. Um and then so C says thanks for the podcast.

Summer said thanks for the great info. I'll have to rewatch as I missed out the beginning. And actually, John put a comment at the beginning, which I haven't put up on the screen, which I'm going to do now, because it was a good one.

Um, John said, I really appreciate Pavel's approach of mixing trend, momentum breakout, and reversion to mean strategies. So thank you, John. Uh explained a lot of that today. So um yeah, thanks again for your time today, Pavel. Any closing comments or thoughts before we finish up

Well just think about trading crypto because I think uh there are many risks, but there are many opportunities, huge rewards, and at the end of the day it is about capital allocation, not if you should be trading but how much. Yep. Very well said and a nice way to end the show. So thanks again. Thanks to everyone for joining us and we'll be back again. Oh come to the trading panel, it's every week. on what time is it? I always forget. Four Pourp.

4 p.m. Eastern every Friday on all the better system trader channels and uh Pavel comes along as well. So you'll see him there again, I'm sure, in the future. So thanks again, everyone, for joining us. And uh happy trading. Have a trading. Hör upp. Dacks för ett nytt stryktips Gvis Mysterium. Vilket lag spelar på Citiground? Håll jag litro tack. Skog i stan. Smart. Nottingham Forest. Rätt tåring. Ett spel från svenska Spel, Sport och Casino för dig. stödlinjen.se