Sideways market: how do we handle it?
6-29-2021

One of the questions that came up recently is algorithmic performance in the crypto market over the past few weeks. In mid of June 2021, EndoTech’s community participated in two large moves of the crypto market: bullish one, then bearish one. And then there was also the sideways market.

sideways market illustration

Moves of the crypto market and EndoTech’s reaction

During the bullish move, EndoTech took both Bitcoin and Ethereum, and even altcoins.

bullish profitable trade

During the bearish move, our winner was Ethereum followed by Bitcoin. We stayed away from the altcoins. Their extremely high volatility leads to low predictability and insufficient liquidity.

bearish profitable trade

Then, during sideways markets, we took a few drawdowns, each time fairly small ones of 2% to 4%.

What is a sideways market?

The sideways market is the most challenging period for trend following or breakout algorithms.

When the market goes up, the algorithm tends to buy at the bottom and sell at the top resulting in 20% to 80% of profits. When the market goes down, algo aims to sell at the top and buy back at the bottom resulting in 20% to 50% of profits. But when the market goes sideways, it looks almost like it turns around every time we make a buy or a sell trade.

Despite investor’s struggle to accept such trades and such losses – there is no possibility for algorithms to escape them. They are called false breakouts in the trend systems. We face 20% up to 40% of winning trades, while the other 60% or even 80% are losing trades. And EndoTech’s goal is to limit the number of false trades and to limit each individual loss.

Example of results

Let’s do the math.

For example, you made a winning trade resulting in a 50% profit. The system allows to make up to 10 trades, each one losing 5%. And you still have profit at this point. Also, the system is limited by a maximum of 6 consecutive losses. During the recent sideways market, it made overall 3 losing trades, resulting in a total of 10% loss.

sideways market profit calculation

Eventually, you should be happy with this result of the algorithm same as we are. And we are confident that EndoTech’s strategies will continue to perform well in crypto markets as markets of high volatility.