How to Trade Crypto

Crypto Quant Models Backtesting

In this lesson, you’ll learn how to evaluate the performance of MenthorQ’s crypto quant models through practical backtesting examples. We walk you through three different backtesting strategies that demonstrate how our quantitative indicators can be applied to cryptocurrency trading with specific entry and exit rules.

The first backtest examines the Q risk on indicator using a straightforward approach where you go long when the indicator is greater than zero and short when the indicator goes below zero. This strategy remains always in the market, switching positions when the indicator crosses the zero level. The results show the strategy achieved around 80-90% return on Ethereum over a six-month period, with a peak of almost 200%, while Ethereum itself underperformed during the same timeframe.

The second backtest focuses on the RSI indicator with two distinct buying conditions designed for crypto’s trending nature. The pullback entry triggers when RSI is less than 20 at least once in the past 3 days and the closing price is above the 5 day simple moving average. The overbought retracement entry occurs when RSI is greater than 90 in the past 3 days with price above the 5 day SMA. Positions are held for exactly 10 days with no stop loss, allowing the strategy to capture momentum continuation and buy retracements during strong trends. By mid-2025, this approach achieved about 18% cumulative return while Bitcoin remained around 10% with higher volatility and drawdowns.

The third backtest uses the direction indicator with additional moving average filters. You buy when you see a directional signal and the 5 day simple moving average is greater than the 20 day simple moving average, and sell when you see a sell signal with the 5 SMA lower than the 20 day SMA. This strategy includes a 2% stop loss and a 10% take profit from entry. On Ethereum, while the asset lost about 50% during the testing period, the strategy returned over 20% by applying tight risk management and profit targets.

These backtesting examples demonstrate how different indicator strategies can be constructed with varying levels of complexity, from simple zero-line crosses to multi-condition entries with defined risk parameters. Each approach is designed to work with the unique characteristics of cryptocurrency markets, particularly their trending behavior and volatility patterns.

Video Chapters

  1. 00:00 – Introduction to Q risk on indicator backtesting
  2. 00:50 – Q risk on strategy results on Ethereum
  3. 01:42 – RSI indicator backtest with dual entry conditions
  4. 02:19 – Overbought retracement entry explained
  5. 03:50 – RSI strategy performance results
  6. 04:05 – Direction indicator backtest with moving averages

Key Takeaways

  1. The Q risk on indicator strategy achieved 80-90% returns using simple zero-level crosses while Ethereum underperformed
  2. The RSI strategy uses both oversold (less than 20) and overbought (greater than 90) conditions to capture trending moves in crypto markets
  3. The direction indicator combined with moving average filters and 2% stop loss with 10% take profit returned over 20% while Ethereum lost 50%
  4. All strategies demonstrate how quantitative indicators can outperform the underlying asset through systematic entry and exit rules
Video Transcription

[00:00:03.01] - Speaker 1
All right, so now let's go into some backtesting, Some backtesting results and we're going to start with our Q risk on indicator. All right, so this is a very, very simple backtest. Again we, we don't, we don't have any stop loss or take profit in consideration. We are going long when the indicator is greater than zero and we're going short when the indicator goes below zero. So you know, the exit long and go short position really are when the indicator crosses the zero level from above to below.

[00:00:50.15] - Speaker 1
And again we, we do the opposite in the other, in the other way. So the strategy is always in the market and basically we are either long or short. And again this is a very, very simple exercise. So as you can see here, we have the risk on risk of strategy versus Ethereum. So while Ethereum underperforms for the past six months the strategy actually had a peak of almost 200% and now is obviously at around 80 or 90% return based on, on the indicator.

[00:01:26.29] - Speaker 1
So that's like very, very simple using simply the indicator crossing above zero or going below zero. So very, very, very simple.

[00:01:42.19] - Speaker 1
Then we have a backtest of our RSI and this one gets a little bit more tricky but we're going to try and explain how this works. So we have two buying condition and we are only going long using the indicator. So we go long when we see what we call a pullback entry. So we go long when the RSI is less than 20 at least once in the past 3 days and today's closing price is above the 5 day simple moving average. The reason why we do that is because we're trying to see a trend reversal.

[00:02:19.26] - Speaker 1
So we're trying to spot a trend reversal. The second conditions which is obviously non traditional because typically when you use the traditional RSI you would short when the RSI is greater than 70. What we do here is we, we buy because we are looking for an overbought retracement entry. So when the RSI is greater than 90 at least once in the past 3 days and the closing price has closed above the 5 day simple moving average, then we also enter, there's no stop loss and the position is sold exactly 10 days after entry. So we keep the position for 10 days.

[00:03:01.23] - Speaker 1
The reason why we do this is because the crypto market is typically a trending market. So we are trying to use these indicators to potentially understand when there could be a very strong trend that could actually give us an edge. And as you can see basically in red we see the price of bitcoin. And in green we see the RSI strategy. So this E approach allows the strategy to buy momentum, continuation early buy the retracement for overbought exhaustion.

[00:03:37.27] - Speaker 1
And the idea is again is really that if we see a strong trend in the crypto space and a failure to break down, then of course the trend could potentially continue.

[00:03:50.18] - Speaker 1
So by mid-2025 this strategy achieved about 18% cumulative return while bitcoin kind of like remain at around 10% with a high volatility and obviously high drawdowns.

[00:04:05.17] - Speaker 1
And the last backtesting is using the direction indicator. Here what we do is we buy if only if we see a signal. So if we see a directional Signal and the 5 day simple moving average is greater than the 20 day simple moving average and then we sell. If we see a sell signal in the indicator and again the 5 SMA is lower than the 20 day SMA, we apply a stop loss of 2% and we apply a take profit of 10% from entry. And again here on Ethereum we see the ethereum lost about 50% during the period.

[00:04:50.08] - Speaker 1
The strategy return over almost 20% return. And again just really simply applying tight stop loss and a 10% take profit target.