It’s easy to get impatient when trading. One might be tempted to withdraw funds at the first sign of a market downturn, or switch between strategies after only a few days or weeks. But HAL strategies are designed with a long-term view, and giving them time to perform can be rewarding. How? This is what we will explore in this article.
What’s Long-Term Trading?
Time is subjective: to some people, a month is a long way off, while to others it’s just around the corner. In trading, a 10-15 days horizon is considered short-term, while anything between 30 to 180 days and above is considered mid-term.
An investment always comes with a time frame. You might be willing to allocate funds to a strategy – or hold on to an asset in the equity market – for as little as a few hours (this is called day trading) to a few years (if you are investing in a pension fund).
HAL strategies are algorithmic trading strategies that open or close positions on crypto exchanges based on a signal. This signal crunches technical data to make decisions every hour, day or week. An hourly signal, surely that means HAL strategies are designed for the very short term?
Actually, no: it’s important not to confuse level of activity with time horizon. Some strategies on HAL are built to be very reactive, but they are still designed to be robust in the mid to long term, wherever the entry point (the price at which the crypto was initially bought or sold).
Why Trade in the Long Run?
The crypto market is volatile. Short term valuation can be negatively affected by specific pieces of news. Some might be coming from within the crypto sphere, like an altcoin losing momentum, and others might be tied to global macroeconomic and geopolitical concerns. On top of news, technical dynamics, thresholds and resistances as well as volume peaks also influence the market itself.
In order for a new trend to occur, the short-term noise has to be smoothed down. And this can only happen over a time period longer than just a few days or weeks.
On the other hand, medium and long-term values for cryptos evolve based on fundamentals such as profitability, liabilities or growth potential. Being a patient trader, instead of overreacting to every news story, should allow your funds to go through less price variations. Riding long-term market cycles can also prove to be extremely profitable.
HAL strategies analyze the market before making decisions. When markets are highly volatile, false signals can appear, leading to erroneous decisions – for example, going long in expectation of a price rally only to see a further drop. It can take time for a strong trend to emerge and be detected, and for the strategy to remain resilient in a rangy market.
A Real-Life Example: HAL Strategies
The graph above shows past median performances on several time horizons for two HAL Strategies. As a reminder, the median performance is the value that falls directly between the top and bottom 50% of items in the set – it is usually a more reliable indicator than the average performance.
On the left is Artificial Intelligence (AI) Pick, a strategy that leverages artificial intelligence to pick top ETH/BTC strategies for the next 24-hours. You can see its performance is rising steadily, and its 180-days median performance is more than 33 times higher than its 15-days median performance.
On the right is Pulse: ETH, a strategy that trades on daily ETH uptrends and downtrends. Thanks to its ability to go 100% long/short, its performance curve rises higher, faster than Artificial Intelligence (AI) Pick which balances several strategies. Its exponential growth is followed by a stabler path after 60 days.
This is in line with what we highlighted in the previous section: not all strategies have the same time horizon. But these two examples show it makes sense to keep HAL strategies running for at least a month in order for their median performance to rise.
Conclusion: Why Patience Matters
The market moves at its own pace: trends do not consolidate overnight. Of course, after a drop, you are impatient to see values rise again. But this can take time, and waiting for longer trends to emerge can be worthwhile on HAL, as our strategies need time to detect these macro trends and maximize profits. HAL is built for the long run. Are you too?
Investing involves risk, including the possible loss of all the money you invest. In particular, crypto-assets are a highly volatile and speculative asset class. HAL is only suitable for traders who are willing to bear the risk of loss and experience sharp drawdowns. Past performance is not necessarily a guide to future performance. The performances presented are real performances calculated net of execution fees and slippage from a proprietary Binance account.
The purpose of this material is to provide objective, educational and interesting commentary and analysis on developments in the crypto-assets sector. Nothing in this material should be interpreted as constituting an offer of (or any solicitation in connection with) any investment products or services by any member of the CoinShares Group where it may be illegal to do so. Access to any investment products or services of the CoinShares Group is in all cases subject to the applicable laws and regulations relating thereto.