In the simplest way, take you to understand classic strategies.
OKX, in collaboration with the high-quality data platform AICoin, has initiated a series of classic strategy research, aiming to help users better understand and learn different strategies through data analysis and analysis of strategy characteristics in core dimensions, and to avoid blind use as much as possible.
This article is the conclusion of the strategy testing, aiming to help users understand 8 major classic trading strategies in one article by summarizing the core content of the previous 5 issues. These strategy summaries demonstrate the performance and application scenarios of different strategies in specific market environments. Traders should choose suitable strategies based on their own risk tolerance and market judgment, and continuously optimize strategies to cope with market changes.
1. Dollar-Cost Averaging Strategy
The dollar-cost averaging strategy is a strategy that spreads the risk of a one-time large transaction over a fixed amount of time intervals and maximizes returns through the compounding effect of time. This strategy is particularly suitable for long-term holders, aiming to reduce the psychological pressure and trading risks brought by market fluctuations.
Data Sample
By comparing the dollar-cost averaging returns of Bitcoin in different halving cycles, the results show that the win rate of the dollar-cost averaging strategy exceeds 50% in each cycle, especially during the period from the second halving to the third halving, the return rate of the dollar-cost averaging strategy reached 170.03%. However, this return rate is still inferior to the overall market increase of Bitcoin. For the dollar-cost averaging data sample of nearly four years, the dollar-cost averaging return rate in 2022 was -48.75%, showing the risks that the dollar-cost averaging strategy may bring in a bear market.
Advantages and Disadvantages
Advantages: The dollar-cost averaging strategy reduces the impact of market fluctuations by spreading out the trading time, suitable for traders with low psychological pressure. It is characterized by simple operation and lower risk, especially suitable for long-term traders.
Disadvantages: The dollar-cost averaging strategy may not maximize returns in sharp market increases, and it requires long-term adherence, with the possibility of lower returns during long market downturns.
Strategy Summary
The dollar-cost averaging strategy provides a relatively stable trading method in highly volatile markets, but it may not capture the maximum increase in a clear market trend. When using this strategy, traders need to adjust it based on market conditions and personal trading goals.
2. Grid Strategy (Spot and Futures)
The grid strategy is a strategy that divides multiple grids within a preset price range and executes buy and sell operations when the price fluctuates. This strategy is mainly suitable for oscillating markets, aiming to achieve stable returns through frequent small trades.
Data Sample
In the testing of neutral contract grids and spot grids, the data shows that the neutral contract grid has the highest return rate in an upward oscillating market, reaching 33.91%, while the return rate of the spot grid under the same market conditions is 19.05%. However, in a downward oscillating market environment, the spot grid incurred losses, showing its limitations in a declining market.
Advantages and Disadvantages
Advantages: The grid strategy performs well in oscillating markets, especially the neutral contract grid, achieving higher returns through leverage and frequent trading. It is flexible and adaptable.
Disadvantages: The grid strategy performs poorly in a one-sided market, especially the spot grid, which is prone to losses in a declining market. In addition, although the contract grid strategy has higher returns, it comes with higher risks.
Strategy Summary
The grid strategy provides an effective way to achieve returns in oscillating markets, especially the neutral contract grid, which performs well in different market environments. However, traders need to use leverage cautiously and pay attention to the potential impact of one-sided market trends on the strategy.
3. Martingale Strategy (Spot and Futures)
The Martingale strategy is a high-risk strategy that doubles the trading scale after a loss to lower the average cost and expects to make up for all losses through eventual profits. This strategy is suitable for traders with strong capital strength and performs well in oscillating or rising markets.
Data Sample
In different market environments, the testing data of spot Martingale and contract Martingale show that both can achieve considerable profits in an upward market, especially the contract Martingale, which performs exceptionally well in a sideways oscillating market. However, in a downward market, both face significant loss risks, especially the contract Martingale, which has more significant risks due to leverage usage.
Advantages and Disadvantages
Advantages: The Martingale strategy lowers the average cost by continuously adding positions, with high profit potential in oscillating and rising markets, especially the contract Martingale strategy, which amplifies profits through leverage.
Disadvantages: The main risk of this strategy is the potential for significant losses in a sustained downward market, especially the risk of liquidation in leveraged trading. In addition, the Martingale strategy requires strong psychological resilience and capital support.
Strategy Summary
The Martingale strategy can bring significant profits in appropriate market environments, but its high-risk nature means that only traders with sufficient risk tolerance and capital strength can use it effectively. In a one-sided downward market, traders should use this strategy cautiously or consider adjusting the strategy to lower the risk.
4. Funding Rate Arbitrage Strategy
The funding rate arbitrage strategy is a strategy that profits from the difference in funding rates between futures contracts and spot, suitable for markets with small fluctuations and significant funding rates, aiming to achieve stable returns by locking in the funding rate difference.
Data Sample
Under different market conditions, the testing of the funding rate arbitrage strategy shows that when the funding rate is high, the strategy can achieve stable annualized returns. However, when the market fluctuates significantly or the funding rate experiences abnormal fluctuations, the strategy's returns may be affected.
Advantages and Disadvantages
Advantages: The funding rate arbitrage strategy provides a relatively stable way to achieve returns in low-volatility markets, especially when the market fluctuates less. It has relatively low risk and is suitable for long-term trading.
Disadvantages: The strategy is highly dependent on market conditions, especially performing well in markets with small funding rate fluctuations. However, it may be difficult to achieve expected returns when the funding rate fluctuates significantly or abnormally.
Strategy Summary
The funding rate arbitrage strategy provides a stable way to achieve returns in low-volatility markets, suitable for risk-averse traders. However, traders need to closely monitor changes in the market's funding rate and adjust the strategy as necessary to cope with the risks brought by market fluctuations.
5. Time-Weighted and Iceberg Order Strategy
The time-weighted strategy and iceberg order strategy are two common trading strategies suitable for splitting and executing large orders. The time-weighted strategy spreads large orders over a specified time to reduce market impact, while the iceberg order strategy hides the actual size of large orders to avoid drastic market price fluctuations.
Data Sample
The time-weighted strategy reduced market impact and achieved better returns by splitting large orders during a bull market; in a bear market, it avoided overpaying by setting limit prices, thus reducing the risk of losses. The iceberg strategy effectively hid the actual size of large buy orders in a bull market, avoiding pushing up prices; in a bear market, it hid the actual size of large sell orders, avoiding panic selling in the market.
Advantages and Disadvantages
Advantages: The time-weighted strategy reduces market impact by spreading order execution over time, with smooth and controllable prices. The iceberg order strategy protects trading privacy by hiding order size and is highly adaptable.
Disadvantages: The time-weighted strategy may not achieve the best prices in highly volatile markets and may be identified and targeted. The iceberg order strategy has liquidity risks and is easily identified by advanced algorithms.
Strategy Summary
The time-weighted and iceberg order strategies provide effective solutions for executing large orders, especially suitable for markets with high volatility or poor liquidity. When using these strategies, traders need to flexibly adjust strategy parameters based on market conditions and personal needs to achieve better trading results.
How to access OKX strategy trading?
Users can access OKX strategy trading through the OKX APP or official website, enter the "Trading" section, and then click on the "Strategy Trading" mode to experience the strategy square or create strategies. In addition to creating strategies on their own, the strategy square currently provides "High-quality Strategies" and "Strategies with Followers", allowing users to copy strategies or follow strategies.
OKX strategy trading has multiple core advantages such as easy operation, low fees, and security. In terms of operation, OKX provides intelligent parameters to help users set trading parameters more scientifically and offers graphic, text, and video tutorials to help users get started and become proficient quickly. Regarding fees, OKX has comprehensively upgraded its fee rate system, significantly reducing user trading fees. In terms of security, OKX has a security team composed of top global experts, providing bank-level security protection.
How to access AICoin's strategies?
Users can find grid trading strategies, full-currency DCA strategies, and funding rate arbitrage strategies in the "Strategies" option on the left sidebar of AICoin's product. In the "Market" option on the left sidebar, users can find AI grid strategies and spot DCA strategies. In the "Custom Indicators/Backtesting/Live Trading" section of the "Market" interface, users can find dollar-cost averaging strategies and contract DCA strategies. In the "Trade" section on the right sidebar of the "Market" interface, users can find intelligent order splitting strategies.
AICoin's Strategy Square selects various high-quality strategies, including arbitrage robots with low risk and stable returns, AI grids with the ability to capture price differentials rapidly, and full-currency DCA with the advantages of cost averaging and batch bottoming of all market currencies, making them suitable for various types of investors to use.
Summary of Data Testing Series
Strategy Testing 01 | OKX and AICoin Research Institute: Dollar-Cost Averaging Strategy
Strategy Testing 02 | OKX and AICoin Research Institute: Grid Strategy
Strategy Testing 03 | OKX and AICoin Research Institute: Martingale Strategy
Strategy Testing 04 | OKX and AICoin Research Institute: Funding Rate Arbitrage Strategy
Strategy Testing 05 | OKX and AICoin Research Institute: Time-Weighted and Iceberg Order Strategy
Disclaimer
This article is for reference only, representing the author's views and not OKX's position. This article does not intend to provide (i) trading advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may experience significant fluctuations. You should carefully consider whether trading or holding digital assets is suitable for your financial situation. For your specific situation, please consult your legal/tax/trading professionals. You are responsible for understanding and complying with applicable local laws and regulations.
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