Pattern portfolio

The portfolio consists of 3 price action patterns. Each of them trades on the long and short
side.

What does a price action pattern mean?

It is a pattern that describes the entry logic using only a chart. In our case, we use daily price
action. Therefore, we describe the patterns using daily candles.

Trading approach

I trade algorithmically. This means that each trading strategy is coded and traded
automatically by our Robuxio software.

To match the backtested results you will see in the following lines, this portfolio must be
traded quite routinely and consistently.

Otherwise, you are just betting on chance.

How I build my strategies

Always the idea first.

This means that I don't try to put all possible indicators in the backtesting software and look
for the best possible combination to get good results in history. That way I would get
strategies that have been profitable in the past. But I want to make a profit in the future.

How do I achieve this?

There are several ways: I go through various long-term researches. I build on my strategies
that I have been trading in stocks for a long time. Or I take inspiration from very old
approaches that I modernize and apply to cryptocurrencies.

In the case of this portfolio, all 3 patterns are based on L. Williams' ideas from the 80s and
90s. He traded them on the commodity market, which at the time was as volatile as crypto.
So there is a good chance that these strategies will be profitable in the future.

How to choose which coins to trade?

We trade the crypto futures market. We select the 5 coins that are trending the most on the
side we want to enter. We then enter those with our patterns.

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Bitcoin Regime Filter

Bitcoin is King. When Bitcoin moves, the entire crypto market starts to move. Therefore, all
strategies use Bitcoin as a filter for market entries.

The condition is very simple:

BTC > MA(50) - Long trades only

BTC < MA(50) - Short trades only

If Bitcoin closes above its 50-day moving average on the daily candle, only signals to the
long side are traded.
If Bitcoin closes below its 50-day moving average, only signals to the short side are traded.

This is a very simple, yet really powerful technique to trade patterns and have trend support
at your back in the broad market.

The trend is your friend!

Read more about regime filters on our blog: Regime Filter

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Inside Bar Pattern

Inside Bar pattern is a situation where today's candle moves all day within the previous
candle. Such a situation indicates a certain degree of consolidation in the market.

And we traders know that there is only one 100% cycle in the market: a period of low
volatility is always followed by a period of high volatility and vice versa. That's what we're
trying to take advantage of in this pattern.

There are 2 entry options to the inside bar:

1. At the breakout of high or low of that Inside bar

2. On the breakout of high or low of the previous bar before the Inside bar is formed

I'll tell you right now that the first approach almost never works. Maybe because that's how
most amateurs enter. We will use approach number 2.

At the same time, this pattern works better in correction. Again, simple logic: the market
goes in a certain direction, then makes a correction, forms a consolidation (Inside bar) and
continues the original movement.

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We express this correction very simply: We will want the close of the previous bar to close
lower than the close of the previous one for long entries and higher for short entries.

The exit is simple: We hold the trade for max. 1 day. The trade is closed at the close of the
entry bar.

Trading rules:

1. The creation of the Inside Bar.

2. Trade according to Regime filter: Long if BTC > MA50, Short if BTC < MA50
3. Trade only after correction.
4. Entry on High or Low of the bar before the Inside bar. The entry signal is only valid the day
after the Inside bar is created.
5. Hold the position for 1 day only. Close the position on the close of the entry bar.

Money management rules:

1. Always divide the capital for a strategy into 5 parts. Always enter one pattern with a
maximum of 20% of the capital allocated to the strategy.

2. At any one time I can enter a maximum of 5 patterns on the most trending coins.

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Results:

The grey curve shows the equity curve, which consists of the profits of long entries (green)
and short entries (red).

You can see that the long and short entries are complementary. Thanks to the regime filter,
we always trade only long entries or short entries. We can therefore use the same trading
capital without any leverage.

Overall Profit: 400%

Historical Drawdown: 17%
Winning trades: 51%

Not bad for one simple pattern. But the strength here is in the consistency. It is necessary to
trade all signals because you never know which one will be strongly profitable and cover
your other losing trades.

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Pinbar breakout Pattern

Pinbar pattern is one of the most famous patterns in technical analysis. But I'll tell you a
secret right away: 99% of traders trade it completely wrong!

For those who don't know it, a definition:

- Coin has both close and open in the body of the previous bar
- During the bar, it attempted to break above the H or below the L of the previous bar
>>> Thus creating a Pin

How do Pinbar amateurs trade? On the opposite side from the formed Pin. And that's wrong!
Such an entry has no statistical edge, even if the entry seems logical.

If you trade Pinbar this way on crypto, you can expect your account to evolve this way…

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How to trade a pattern correctly? On the Pinbar breakout!

If you think about it, this is a fairly strong and logical pattern: the market rejects a level and
creates a Pin. If it immediately tries to break this Pin again on the next bar, it probably really
wants to go in that direction.

By the way, these are already all the entry conditions of the pattern!

Trading rules:

1. The creation of the Pinbar.

2. Trade according to Regime filter: Long if BTC > MA50, Short if BTC < MA50
3. Entry on High or Low of the Pinbar. The entry signal is only valid the day after the Inside
bar is created.
4. Hold the position for 1 day only. Close the position on the close of the entry bar.

Money management rules:

1. Always divide the capital for a strategy into 5 parts. Always enter one pattern with a
maximum of 20% of the capital allocated to the strategy.

2. At any one time I can enter a maximum of 5 patterns on the most trending coins.

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Results:

The grey curve shows the equity curve, which consists of the profits of long entries (green)
and short entries (red).

Here again, we are taking advantage of the huge benefits of portfolio trading. Thanks to the
regime filter we can use the same capital for longs and shorts.

Overall Profit: 2,100%

Historical Drawdown: 27%
Winning trades: 49%

Pinbar pattern and Inside bar pattern characteristics

Both patterns above are from the breakout pattern category.

This means that they profit especially during periods when the markets are more volatile.
The higher the volatility, the greater the chance that the breakout of these patterns is real
and not fake.

The opposite of breakout strategies are mean reversion strategies. These make money
especially in a market that doesn't trend as much.

They therefore have a completely different entry philosophy. This makes them make money
(and lose it) at a different moment in time, making them a perfect addition to a portfolio.

And the 3-bars pattern is an example of such a mean reversion strategy...

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3-bars pattern

3-bars pattern is a mean reversion strategy. This is a strategy that speculates on a return to
the mean. It is based on the assumption that a quick and stronger than average move in one
direction tends to be corrected.

Why to trade mean reversion on crypto?

Crypto is a breakout market. You will make the most money on trend and breakout
strategies.

Mean reversion strategies have one advantage: They can make money in different phases
than trend strategies. They can stabilize your profits.

How do we achieve "a quick and stronger than average move in one direction" here?

Using the following condition: In order to trade a 3-bars pattern on the long side, the market
must close lower three times in a row. Today's close must close lower than yesterday's.
Yesterday's close was lower than the day before. And the day before yesterday's close must
again close lower than the day before.

Three days in a row of lower closes. This situation does not happen every day in the market.
The market may therefore be oversold at least in the short term.

This is also a full entry pattern.

Compared to breakout strategies, there is one difference in the entry. We do not trade with a
stop order on the H or L of the pattern as in the case of the previous strategies.

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Here we enter with a limit order.
This limit entry is placed at a distance: close - 0.1*ATR(3).

With this limit entry, we enter at an even greater extreme, ensuring a decent probability of a
subsequent return to the mean.

Using the ATR indicator, we use the current volatility from the previous bars and want to
enter 10% lower of this volatility.

And to push the whole thing to an even greater extreme, one more condition must apply:

The 3rd candle with the lower close must have a daily low lower than the previous 5 candles
to enter the long side.

The 3rd candle with the higher close must have a daily high higher than the previous 5
candles to enter the short side.

A short note:

You may notice a similar formula for all three patterns. Here, too, we enter in a very different
way than the general public would.

After three rising or three falling bars, most amateurs catch FOMO and try to enter the
market at the last minute. Only to be immediately dumped on small stop-losses.

Don’t do this. Don't trade like amateurs...

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Back to the rules:

Long entries:

1. 3 consecutive falling bars (3 bars with lower closes)

2. 3rd bar has a low that is the lowest in the last 5 bars
3. Regime filter: Bitcoin is above 50-day moving average
4. Entry limit: C-0.1*ATR
5. Exit: at the close of the entry bar

Short entries:

1. 3 consecutive growing bars

2. 3rd bar has a high that is the highest in the last 5 bars
3. Regime filter: Bitcoin is under 50-day moving average
4. Entry limit: C+0.1*ATR
5. Exit: at the close of the entry bar

I can imagine that for many of you, this pattern is something completely different than
most of the entries you have seen. It's a very counterintuitive entry, but that's why it
works.

If you want different results than most, you have to trade differently…

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Results:

Mean reversion strategies have a different distribution of gains and losses. They have a
larger number of profitable trades and a relatively stable equity curve. However,
occasionally there will be larger and sudden drops when the market does not revert to
the mean for some reason.

Overall Profit: 1,200%

Historical Drawdown: 37%
Winning trades: 59%

You can see that right now the strategy is going through a drawdown. This drawdown could
be smaller if we used a better exit condition, which I don't want to disclose.

Often, however, there is no need to improve individual strategies. The real power of trading
is in trading multiple very simple strategies together.

Ideally uncorrelated. That is, ones that have gains and losses at different times.

And we're gradually getting to portfolio trading...

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Portfolio trading

If there is a holy grail of trading, it is portfolio trading.

In trading, one approach never makes money in every market environment. But many
traders are still trying to achieve this. The result is almost always an over-optimized strategy
that is not profitable in the real world…

A better solution is to trade strategies that are low correlated. Simply put, if strategies
generate profits and losses at the exact same moment, the correlation coefficient is 1. If one
strategy generates profits at the exact moment the other is in a drawdown, the correlation is
-1 (strategies are negatively correlated). And if there is no connection between the
strategies, they are uncorrelated and the correlation coefficient is 0.

The closer the correlation is to 0 and below 0 the better.

Take a look at the correlations of each strategy in returns and drawdowns.

You will simply see that the correlations are quite low. Only Inside Bar and Pinbar are more
correlated. And it's logical. They are both breakout strategies.

On the other hand, the 3-bars pattern is uncorrelated to negatively correlated in drawdowns
to the other patterns. And that's perfect because we can use that to determine the weights of
each pattern for the entire portfolio.

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Weights of individual strategies in the portfolio

This is where the real magic of portfolio trading comes in. If you trade one strategy and don't
want to use too much leverage, you can trade a maximum of 100% of your capital. But if you
trade uncorrelated strategies, you can leverage capital much better.

The weight of each strategy in the portfolio:

Pinbar long: 50%

Pinbar short: 50%
Inside bar long: 50%
Inside bar short: 50%
3-bars pattern long: 50%
3-bars patter short: 50%

Sum of weights 300%!

But do you know what is the average capital usage in the WHOLE portfolio? 31%!

How is that possible?

1. Thanks to the regime filter, we can never enter long strategies and short strategies at the
same time.

2. Thanks to capital allocation. Each strategy divides its capital into 5 smaller parts and can
only enter one pattern with this one part of capital (50%/5=10% of capital per entry).

3. There are not many entries, most of the time the market will not provide any entry
situation.

4. Due to low correlation, strategies enter the market at different stages. E.g. 3-bars pattern
long after a deep correction vs. Pinbar breakout long in a strongly rising market.

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Results of the portfolio

Overall Profit: 4,500%

Historical Drawdown: 27%
Winning trades: 54%

If you take a good look at the profit vs. drawdown for each strategy, you can see that the
following relationship applies: the greater the potential profit, the bigger the potential
drawdown.

This is quite logical, because you have to go through some volatility to earn profits.

But look at the ratio of profit vs. drawdown for this portfolio. The profit is greater than the
individual strategies and the drawdown is less than or equal to the two most profitable
strategies.

This is the magic of portfolio.

Now you understand why portfolio trading is so important. You also probably understand how
you could take the whole approach further.

Add other uncorrelated strategies.

And that's exactly the approach we take at [Link]. We automatically trade broad
portfolios of low-correlated or uncorrelated strategies for our clients. We also work on new
strategies that could further help our clients' portfolios.

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Automation is key here. But if you want to trade this portfolio manually the process is as
follows:

1. Look at the Bitcoin regime filter first.

2. Scan crypto futures universe before the daily close.
2. Sort all the coins by current trendiness.
4. Look for individual patterns on each of these cryptocurrencies.
5. Always trade up to 5 entries per pattern.

At the end of the next trading day, remember to cancel any unfilled pending orders and
repeat the process above.

Is it manageable? Yes. But it's not fun. Prepare to have to be 100% consistent and sit at the
daily close every day to enter any new trades.

Final thoughts on trading psychology

You can easily see that even in the case of algorithmic crypto trading, you will have losing
trades and losing periods. Being flat for many months is perfectly normal. There is no other
way. As traders, we make money when the market provides us with good conditions. We just
have to wait patiently to see when it happens.

If you don't build that patience, no approach will help you. It is better not to trade.

What can help you?

Knowing that you are trading approaches that have a trading edge. Without that, I wouldn't
risk money in the market. Without that, I wouldn't even be able to go through drawdowns and
keep going. Statistics and approaches based on logical methods give me a solid foundation.

Can I be sure I won't lose money? No. As a trader, I always take some risks. However, I
minimize it to a tolerable level.

Be risk managers, not gamblers!

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Let's build a community of algorithmic traders

Due to the growing wave of interest in algorithmic crypto trading, I have decided to do 2
webinars in the coming weeks. Book your place if you are interested:

[Link]

Seats are limited to allow room for your questions.

Join our algorithmic crypto trading group on Discord! I will answer questions about this
document here:

[Link]

Also don’t forget to subscribe to our YouTube channel:

[Link]

Final request

I put on Twitter a great amount of my experience I have picked up (expensively) in the

course of my trading. Unfortunately, Twitter's algorithm works in such a way that it quickly
stops displaying posts that don't receive a sufficient number of comments, likes or retweets.

Please, if you want to give something back to me for this document, be active in my posts.
Ask questions about anything that interests you. I will be very happy to answer and advise
you. And in doing so, you will help me grow.

To me, it's a win:win solution.

Thank you.

Pavel

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Fees, slippages

Neither fees nor slippages were included in this test. First, the fees. Since the portfolio
trades a mean reversion strategy one can assume that it will be a net beneficiary of trading
fees. In fact, we make money on funding fees. For example, over the last quarter we are
+1.8% in Robuxio on funding fees net of transaction fees.

The exchanges are essentially paying us to arbitrage the difference between the spot market
and the futures market. We don't do it just for the sake of it (yet) but it's definitely a big
advantage.

There will be slippages. The smaller the coins you trade, the bigger they will be. Part of the
slippages will be made up by the profit from the funding fees. Some of it will reduce the
return. I think if you subtract about 5% from the profit, you get roughly the real results.

My approach is to build robust strategies with high average trade and I don't have to worry
too much about slippages.

Disclaimer

All information provided by [Link] is in no way intended as a specific investment or

trading recommendation. We are not a registered broker or investment advisor. We are not
responsible for the specific decisions of individual readers of this presentation. Trading and
investing in financial instruments (and cryptocurrencies in particular) is high risk. The
decision to trade cryptocurrencies is the responsibility of each individual and only they are
fully responsible for their decisions. Never engage in trades that you do not fully understand
the merits of. Remember, the crypto exchange has rules that you need to understand before
risking your own money!

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN

INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED
RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE
NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR
OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS,
SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE
ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF
HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS
LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

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