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The Importance of Backtesting Cryptocurrency Investment Strategies

Crypto backtesting involves the process of running and applying a specific trading strategy to historical market data to evaluate how it would have performed. The analytical method delivers a clear overview of qualified strategies that can be applied in a real-world environment using real capital.

The mathematical simulation provided by crypto backtesting is an essential component that traders use to analyze past market data and ultimately develop an effective trading system. If conducted properly using a reliable backtesting engine, the process can empower investors to pick out a crypto strategy that shows promise and performs. Investors can then apply these proven tactics to their portfolios before committing real money to the live markets.

Unfortunately, if the analytical method uses unreliable or erroneous data, it can provide inaccurate results that chew away at returns. Read on to learn about backtesting and how the relatively new option in the crypto sector can empower users to maximize yields in a highly competitive trading environment.

Why Backtesting Matters For Crypto Traders

Conducting a backtest is a proven method for any trader to make their performance more precise and successful while navigating the crypto market. Backtesting offers investors a systematic way to evaluate exact bid-ask pricing info from past trades and use them to optimize their analytical models before implementing them.

Users can leverage technical signals such as simple moving averages, order book data, candlesticks, and more and use the info to detect the recurring patterns and exploit them for profits. 

Essentially, backtesting enables users to study a period in history, activate the replay of the presented data, and make the discretionary decision to buy or sell based on the signals documenting those trades.

Backtest simulations rely on precise data like trading fees on exchanges, price slippage for market orders, and the timing of each trade to predict future market trends. Ultimately, backtest trading strategies require high-quality data on even the tiniest aspects of market data, such as exchange spreads, commissions, and slippage, to simulate the real-world market accurately.

Using the backtesting results, crypto investors can gauge their strategy’s win-loss ratio and annualized return and adjust the average price of their filled entries/ exits to maximize profit. They can also use the deduced data to estimate their maximum upside and drawdown and the amount of capital to allocate from the entire portfolio.

Shrimpy’s High Precision Backtesting Engine

Shrimpy, a leading automated portfolio management platform for crypto, offers an advanced backtesting tool that allows investors to study multiple trading strategies and minimize their risk of losing in the crypto market. 

The backtesting function leverages comprehensive, high-quality datasets extracted from the market to construct accurate strategy profiles that empower users to navigate the volatile crypto space. The platform’s high precision engine gives users a reliable method to identify and filter the effective crypto trading tactics from the ineffective ones.

Shrimpy’s backtesting platform leverages tick-level data sourced from top-tier exchanges to help users develop a winning strategy that reflects real market conditions. The platform uses computers to systematically code a trading strategy and instantly run a test against historical market data. 

Users simply need to log into their Shrimpy account, click here, select the rebalance period and crypto portfolio and click on the automation tab to perform a backtest.

How the Shrimpy Backtest Feature Works

Shrimpy offers traders a backtesting feature that allows them to construct a portfolio from an assorted list of digital assets and seamlessly study portfolio returns. Users can apply multiple trading simulations to their holdings and leverage Shrimpy rebalancing strategy and other tools to pick out winning formulas.

Shrimpy outsources its data management to Kaiko, a digital assets data provider that offers institutions seamless connectivity to high-fidelity exchange-pair data that meets the highest standards. Essentially, Shrimpy leverages two sets of powerful historical market data from Kaiko to offer traders a suite of backtesting tools they can count on to develop robust strategies for top exchanges.

Firstly, Shrimpy accesses tick-by-tick trade data, which provides the most granular insight into real orders filled on crypto exchanges. The platform also leverages Kaiko’s order book snapshots vital in simulating how orders would be filled. 

This market data allows traders to gain insights into market depth for trading pairs, price slippage, the spread, and more. The Shrimpy backtesting engine leverages the precise statistics that reflect market conditions to test trading strategies and offer crypto investors results they can trust.

Conclusion

Backtesting the historical performance of a given strategy in the crypto market doesn’t always guarantee future success. Still, the mathematical simulation can be an invaluable tool in any trader’s toolbox. 

If done accurately, simulating a crypto strategy with fake data allows users to gain results that provide invaluable insights into the real market.

The processing power of computers and emerging software enable savvy investors to backtest multiple crypto trading strategies analytically. This tech empowers investors to accurately evaluate the performance of a trading strategy and identify robust or poorly developed schemes.

Users can then apply the backtest results to generate precise stats about their strategy that help them improve their trades. Unfortunately, most crypto traders often lack the technical know-how to properly collect and interpret historical market data to craft a winning algorithmic strategy.

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That is why platforms like Shrimpy have stepped up to offer an accurate engine that automates the process and delivers better quality backtests.

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