BTCUSD trading with Supertrend Indicator

16 thg 1, 2022

This idea is based on the well-known indicator Supertrend. Using three days as a timeframe and operating on a broker that you can long or short with BTC (for example, Binance Futures with 1x leverage) gave a significant profit after almost four years of trading.

I will go through all the details on the trades and how to use this strategy in other markets.

First the Indicator: Supertrend
Let's start with the main idea, the Supertrend indicator. It's a trend-following indicator that gives similar signals as moving averages. It's an easy-to-understand indicator. It plots green area and line for an uptrend (below the price) and red zone and line for downtrend (above the price). It has two parameters to set the signals, which is very simple.

Now, how do you enter the trades?
This is where you can improve for other markets, timeframes and instruments. In this idea, I just followed the Supertrend indicator blindly. When the indicator signal turns green, Long, when red, Short. No other indicator or analysis was made.

And to exit the trades?
This is something that can be modified for even better profits. In this example, I closed the trade and started a new one following the indicator signal. Example: First opened a long trade, then a short sign appeared. I close the Long trade and open a new one. Short trade, and vice-versa. Open one, Close the opened before, and so on.

So, it's that simple? Follow the indicator blindly and make a profit?
This example I am giving here may sound easy, but this will change in different time frames and markets. I used the 4-year cycle of BTC (more info here cryptopotato.com/what-are-crypto-market-cycles/). It will not always behave like this idea, but it should give you a better understanding of market trends and when it's changing.

What about those statistics on the chart?
Let's dive into those numbers now

* Cumulative profit: 572%
This means that when you sum all the profits and losses, the total profit percentage was 572%

* Trading Time: 1458 days (3,99 years)
The total time in days/years trading. Remember that the time frame is three days to check the market ten times a month.

* Number of Trades: 12, winning trades 8, and losing trades 4
The total amount of trades in that period, winning trades (ending in profit), and losing trades (ending in loss)

* Winrate: 66,67%
After the period, 66,67% of the trades were winning trades.

* Broker Fee: 0,1%
Depending on the broker you use to trade this market, this number will vary, so check it first on the market and instrument to better calculate the fee statistics. I used Binance Futures with 1x leverage and increased the fee to the spot value to simplify the calculations.

* Biggest Winning Trade: 442% and Biggest Losing Trade 22%
The most significant profit made on one trade and the most significant loss on one trade

* Average profit per trade: 47,67% and Average profit per month: 11,76%
The average profit percentage per trade (no matter if it is a winning or losing trade) and the average profit per month since the first trade. This gives a better idea of monthly gains and per trade

* Buy and Hold Profit: 291%
This statistic shows how much you would have made by buying at the first trade and holding the entire period. Compare this with the Cumulative profit to see if it's worth following this strategy or not. In case the buy and have gained more significant than the cumulative profit, the strategy is not profitable as buy the asset and wait for better prices

* BTC used per trade: 0,086668351
The amount of BTC used in every trade (in this example, 12 trades). I used the same amount on every trade to make it less risky and straightforward to calculate the fees and the profits. If you decide to use compound or other money management, this will increase the risk and the profits. Remember that we started with capital in USD, bought the coins, and made the trades using BTC, not USD

* Total Fee in BTC
Since I used a fixed BTC amount per trade, the fees were calculated from the same amount on every trade.

* Initial USD Capital: $1.000,00
The initial amount in USD was used to buy BTC to start the trades.

* First Trade Entry Price: $11.536,22
The entry price of the first trade was made. This value is used to calculate how much BTC was bought and used on all trades (I am using a fixed BTC amount)

* Initial BTC amount: 0,08668351
The total BTC amount bought when the initial capital is first trading day and used on all trades.

* Final BTC Amount without Fee: 0,49582968
The total BTC amount after all trades, based on the profit made, not discounting the fees of every transaction. You get the fixed BTC per trade and multiply it by the cumulative gain since using a fixed stake. For other money managements, the value will vary with the BTCUSD price at the trade moment.

* Final BTC amount with fee: 0,49374928
The amount of BTC earned with the trades, discounting the fees.

* Capital after selling Coins: $21.189,89
After selling the coins, you earned your capital with the trades at the last trade price. This not includes the fees to convert BTC to USD.

* USD capital Increase: 2.118,98%
The percent amount increased after the trades based on the initial capital.

The capital increase was more significant than the profits made by the trades. Why is that?
This happens because BTCUSD price increased during the trading period, adding to the profits made with the trades, there are the profits made with the price increase of the asset.

Will this repeat for the next market cycle?
The pattern and vast profits stayed the same when the last three cycles (2010-2013, 2014-2017, 2018-2021?). We are in a different scenario globally. The world economy is very different from 12 years ago, so we are sailing into new waters right now. The demand for BTC is increasing like never before in this cycle (check this article hindustannewsindia.in/ledger-ceo-says-retail-demand-is-pushing-the-bitcoin-price-up/)

What other indicators can I use to reduce my risk with this strategy?
Since this strategy is based on the Supertrend indicator, a trend follows indicator, any indicator that reduces the noise in that category will work. Moving averages, Bollinger Bands, Ichimoku, ADX, to name a few. I don't advise using oscillator indicators to trade against the trend, like RSI, MACD, Stochastic, etc. It's not worth the risk, and you may miss a big move because of them. 

Any better way to exit the signals and make more profit?
Exiting the trade when the next signal appears is not the best way, but this indicator is sure a profitable way. Since you are following the trend, you don't exist on small price retractions, just when it breaks the trend. Many indicators can be used to exit the trades. Moving averages, MACD, Ichimoku, ADX, to name a few. You can use them with smaller periods to get the exit signal earlier and ensure more profits, using them as moving stop losses (flowbank.com/en/research/moving-a-stop-loss-to-protect-profits-in-winning-trades)

Can I make more trades besides the trend-changing days? 
A way to make more trades without compromising the main trades is adding to the position when the price is close to the Supertrend indicator. Taking the first trade as an example, it was an excellent opportunity to increase the position when the price got close to the indicator. The same way to exit some parts of the position when the price moved away for the indicator.

Looking at this chart and seeing a 2.000% increase in the capital may sound too good to be accurate, but it happened. Of course, it may never happen again, but if this indicator gives an average of 10% of that profit, it's 50% per year profit, not bad for three trades a year. 

This indicator can be easily found in the technical indicators on Tradingview and several other trading platforms.

Please ignore big numbers in the bottom panel, use the chart for a better understanding of the profit curve and the risk