Quantitative algorithm
Last updated
Last updated
The core concept behind Blackquant algorithm is a perfect mix between in-house trend-following methodology and market filtering indicators based on mean reversion principles. It is designed to identify trends and capture extended moves in the market, both up or down directions.
About trend-following strategies, they are furthermore deployed over wide range of instruments in traditional finance and reveal an extremely persistent, universal bias in the behaviour of investors which we are using to generate performance for our customers.
High Volatility
Long only
Do nothing
Short only
Low Volatility
Long only
Do nothing
Short only
High Volatility
Do nothing
Long and Short
Do nothing
Low Volatility
Do nothing
Do nothing
Do nothing
The logic behind combining trend-following strategies and mean reversion ones is to take benefit from multiple market conditions. When clear trends are identified, trend-following main strategy will successfully capture the move and generate benefits. On the other side, when no clear trends exist, other strategies such as mean reversion can be used under specific conditions.
Trend-following approach doesn’t require a belief. Rather it relies on unwavering scientific principles. Trend-following uses rigid rules rooted in numbers.
The methodology does not predict a specific top or bottom. In fact, it is trying to predict nothing. The aim is to take advantages of trends and trying to capture the biggest portion of such moves. There is zero forecasting involved.
As a result, hours spending while screening for fundamentals on social medias, experts opinion, newspaper are no longer necessary.
If there is a major worldwide news, changing overall picture, the market will react accordingly and the trend will soon shift, which will then be captured by Blackquant algorithm.
Extra ressources about Trend Following strategies :
Bitcoin market is known for moving in macro cycles. Generally each cycle lasts approximately four years. Investors using simple buy-and-hold strategies might generate some profits on the long run. However, in-between macro cycles, they will suffer very important drawdown (-80/90%) on their portfolio and waste time.
Most crypto funds usually offer long-only strategies, meaning that they will either fail during downside periods or in the best case scenario, protect capital but will not generate any profits for years until next upside trend kicks off.
In contrast, Blackquant team utilizes derivatives assets to allow trading on both market conditions. As a result, the strategy maximize profits while reducing the risk.
As a example, for someone investing in a simple buy-and-hold strategy at market peak of January 2018 when Bitcoin was at $20k, it then took 3 years to see this level again. 3 years to recover from potential losses.
By using Blackquant services, we maximize profits by also trading when there are downtrends. Via derivative products delivered by exchanges, the fear of investing in the top of macro cycle no longer exists. All conditions are good to generate profits.
Thanks to its inherent attributes, using trend-following strategies prevent user's portfolio to go to zero : if market reacts very fast to a black-swan event, the algorithm will cut its position soon enough to protect funds.
No, crypto exchanges are designed in a way so that if a user's position would have to go below bankruptcy level, then the exchange would close automatically the trade to avoid the user to be in-debt with the exchange. User cannot loose more than what he invested on the exchange.
Drawdown is defined by peak-to-trough decline during a specific period for user's portfolio. A drawdown is usually quoted as the percentage between the peak and the subsequent trough
At Blackquant, we backtested market historical data and fined-tuned algorithm parametric to get a max drawdown target of approx. 40%, including the leverage. To reach such substantial technical achievement and knowing intrinsic high volatility of crypto market, we tested the strategy accros last 7 years of market data. Hundreds of iterations have been performed to find perfect parametric settings.
A first draft of the strategy has been released in early 2020 and then has be audited for several month using live trading accounts.
At the end of this period, in late 2021, official release of the strategy has been successfully implemented with additional market filtering indicators to reach desired max drawdown target.
Since then, in 2022, algorithm is so far reacting as anticipated with a max drawdown under controlled and providing excellent results.
We permanently maintain, challenge and improve the algorithm in order to better react to new market paradigms.
Research is the cornerstone of Blackquant project. Our team is continuously researching, documenting and looking for both technical and fundamental data that could improve the algorithm. Crypto environnement is known as a fast evolving sector. Adapting to new paradigm is key to longevity and success.
If you want to propose your own strategy for Blackquant platform or if you have suggestions to share about current Blackquant algorithm, feel free to contact us.
