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To what extent can traditional technical analysis tools accurately predict medium-term price movements in the cryptocurrency market?

Jonet, Corto
(2024)

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Details

Supervisors
Desagre, Christophe
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
This thesis investigates the effectiveness of traditional technical analysis tools in predicting medium-term price movements in the cryptocurrency market. The study applies and evaluates three widely-used technical indicators—Simple Moving Averages (SMA), Relative Strength Index (RSI), and Bollinger Bands—across four distinct trading strategies. Historical daily price data for major cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Cardano (ADA), and Dogecoin (DOGE), were analyzed from 2014 to 2024, encompassing different market phases such as preliminary initialization, early market, intermediate, and mature market phases. Our analysis reveals that both SMA and RSI strategies exhibit significant profitability and are reliable, particularly when parameters are optimized annually for the SMA strategy. For instance, Bitcoin achieved an annualized return of 86.74% with annual parameter optimization compared to 64.46% with static parameters. Conversely, the Bollinger Bands strategy consistently resulted in negative annualized returns across all analyzed cryptocurrencies, indicating its limited effectiveness in the highly volatile crypto market. Combining RSI and SMA strategies yielded mixed results. While the combined approach showed potential for profitability, it also demonstrated higher volatility and occasional losses when parameters were not optimized regularly. This finding underscores the importance of continual recalibration of technical indicators to adapt to the rapidly changing market conditions in the cryptocurrency space. The study contributes to the ongoing debate about market efficiency and the applicability of technical analysis in cryptocurrencies, challenging the Efficient Market Hypothesis (EMH) and supporting the notion that, despite inherent volatility, certain technical indicators can provide reliable trading signals in the crypto market. Our results indicate that while individual indicators like SMA and RSI can be highly effective, their combined use requires careful consideration and regular optimization to achieve desired trading outcomes.