Trading Pairs Forecast: LTC will outperform BTC
Supporting Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs LTCUSD vs. BTCUSD which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process. This joint bet will generate profit if the spread closes again in the near future. This trading strategy is:
- market-neutral: its returns are uncorrelated with market movements.
- synthetic statistical arbitrage: profits from temporal divergences of LTC/BTC stock relative to its fundamental value.
Cointegration (left chart): look at the divergence between pairs that have moved away from each other and then back together in a regular pattern:
1. There is a gap in the last 7 days.
2. I will trade the stocks assuming will return to their correlated path
Correlation
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that both stocks historically tend to move together with similar price trajectories, because generally they are traded in the same market, so the same factors impact them.
Technical Analysis of the spread (right chart):
Litecoin move together very closely and has a maximal correlation with Bitcoin. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, I can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the gap. BTC has performed better than LTC, in order to close the gap LItecoin will now perform better in the next 7 days.
Supporting Strategies: Cointegration, Correlation and Technical
Analysis : Elliot Wave Studies www.bitcoinprice.mobi/prediction/
Trading pairs LTCUSD vs. BTCUSD which has moved from its correlation can be done based on cointegration or technical analyzing the prices of the stock pairs and tries to profit from the mean-reversion process. This joint bet will generate profit if the spread closes again in the near future. This trading strategy is:
- market-neutral: its returns are uncorrelated with market movements.
- synthetic statistical arbitrage: profits from temporal divergences of LTC/BTC stock relative to its fundamental value.
Cointegration (left chart): look at the divergence between pairs that have moved away from each other and then back together in a regular pattern:
1. There is a gap in the last 7 days.
2. I will trade the stocks assuming will return to their correlated path
Correlation
The strategy is therefore to identify when the “gap” is created and to trade in the assumption that there is a high probability the gap will close or narrow.
This pairs have a high positive correlation between them, meaning that both stocks historically tend to move together with similar price trajectories, because generally they are traded in the same market, so the same factors impact them.
Technical Analysis of the spread (right chart):
Litecoin move together very closely and has a maximal correlation with Bitcoin. This means it's profitable when the relative value between the two assets is perturbed from equilibrium, I can take a contrarian position and profit from the spread trading as the prices revert back to their long-run mean.
The trade should be opposite to the gap. BTC has performed better than LTC, in order to close the gap LItecoin will now perform better in the next 7 days.
