Algorithm Trading Application and Persistence in the Cryptocurrency Market

Subject Areas : Financial engineering

Saeed Moradpour ¹ , Mojtaba Dastoori ²

1 - Department of Finance Management,, Bandar Abbas Branch, Islamic Azad University, Bandar Abbas, Iran
2 - Department of Finance Management, Kish International Branch, Islamic Azad University, Kish, Iran.

Received: 2020-10-31 Accepted : 2021-01-02 Published : 2021-06-22

Keywords: cointegration, pair trading, Cryptocurrency, Market memory,

Abstract :

This article, had been analyzed the persistence in cryptocurrency market. At the beginning of the process, the autocorrelation of the time series data of four cryptocurrencies Bitcoin, Light Coin, Ripple and Ethereum during the period 2017 to 2020 has been studied. The data of this research are obtained daily from the investing database showed significant autocorrelation among cryptocurrencies. Long-term memory methods such as R/S analysis and fraction integration are used for analysis of market persistence. The results of this study showed that this market is persistence. That means there is a positive correlation between past and future values, and its level and value change over time. These results provide evidence for market inefficiency. Using the pair trading algorithm and redefining it, profit has been made and the results show a return of 1463% in 2 years from 2018 to 2020. The use of trading algorithms based on market memory and cointegration has the potential to generate profits, and the development of models and algorithms can help investors to generate returns and on the other hand lead to more efficient market in the long term.