The Evolution of Our Crypto Trading Strategy: How Drawdowns Shaped Our Setup and Future Plans

1. INTRODUCTION: THE JOURNEY TOWARD A UNIVERSAL TRADING STRATEGY

Everything starts with a dream. For Jarno and me, that dream has always been to develop a universal trading strategy that works across all financial assets and instruments. While we’re not fully there yet, we’ve made significant progress. Just like Rome wasn’t built in a day, our trading setup has been the result of years of refinement and overcoming challenges. We’ve developed a strategy for Bitcoin perpetual futures that’s profitable on an annual basis, and in most months too. But it didn’t come easy, as we had to face our biggest nemesis: drawdown. In this blog, we’ll walk you through how our trading strategy has evolved, largely thanks to those drawdown periods.

Here’s what you’ll learn:

• What our trading strategy is all about
• Why many institutional clients include our strategy in their multi-asset portfolios
• The biggest drawdown periods we faced with our trading strategy
• How we improved our setup after experiencing those losses
• Why a drawdown can sometimes be a hidden opportunity
• Why drawdowns are never completely avoidable with our type of strategy
• Our future plans

All data in this blog reflects the average of our strategies on Binance, Bybit, and OKX, using USDT as collateral. All FCFS data is backtested data, while the data for the setup without FCFS is live data, except for 2020, which is also backtested. In the future, we plan to share data for individual exchanges and expand to other risk profiles and collateral types, such as Bitcoin, to give our clients a clearer view of the potential impact of FCFS on their chosen trading strategy.

2. UNDERSTANDING OUR TRADING STRATEGY: A BREAKDOWN OF THE CORE APPROACH

The current version of the trading strategy is best described as a fully automated scalping multi-strategy for Bitcoin Perpetual Futures, a derivative product of Bitcoin that allows speculation on Bitcoin’s price without owning the asset itself and with no expiry date. It’s a multi-strategy because the system combines two different trading approaches for Bitcoin Perpetual Futures, which hedge each other to reduce risk. The scalping element involves trading on lower time frames, targeting quick, small profits.

3. WHY INSTITUTIONAL CLIENTS TRUST OUR STRATEGY IN MULTI-ASSET PORTFOLIOS

In 2021, Oxido Solutions primarily catered to high-net-worth individuals. By 2023, however, we shifted our focus to institutional clients, partly out of necessity as regulatory changes made crypto derivatives less accessible to personal investors. Since then, we’ve adjusted our trading setup and business model to better meet the needs of institutional players like crypto market makers and family offices.

Institutional clients typically seek trading strategies that deliver an annual gross return of 25-50%, with a maximum drawdown of 10-15%. The low-risk version of our Bitcoin Perpetual Futures trading strategy meets these requirements, offering institutional investors a way to generate passive income in their preferred collateral, whether it’s Bitcoin, stablecoins, or fiat.

An increasing number of institutional clients also prefer to invest through a segregated managed account (SMA) structure, and Oxido Solutions provides this option. Here’s how it works: clients set up two sub-accounts on Binance, Bybit, or OKX, each funded with at least $125,000 or the equivalent in crypto. They then generate API and secret keys for each sub-account and provide them to Oxido. Our system sends trading signals to both sub-accounts through the API connection with the exchanges: one for strategy 1 and the other for strategy 2, which operate independently. When profits are made, Oxido takes a share in the form of a performance fee.

Another reason institutional clients are attracted to our strategy is its low correlation with Bitcoin spot and other strategies typically included in a multi-strategy portfolio. This makes Oxido Solutions’ fully automated scalping multi-strategy an important tool for enhancing portfolio diversification.

4. FACING SETBACKS: NAVIGATING THE BIGGEST DRAWDOWN PERIODS

By now, you have at least a high-level understanding of what our trading strategy entails and why it’s valuable to institutional investors. With that foundation, let’s dive into one of the major challenges we’ve faced: managing significant drawdowns, which refers to the decline in the value of a portfolio or strategy from its peak before recovering.

Compared to market-neutral, delta-neutral, and arbitrage strategies, scalping strategies like Oxido Solutions’, generally experience larger drawdowns (but also offer the potential for higher profits). This is often the case during choppy price action or when prices move up or down too quickly. Over the past few years, our trading setup has had to deal with various challenging market conditions.

Below is an overview of the biggest yearly drawdowns per risk profile in our trading history. Additionally, the drawdowns are categorized by risk level. Oxido Solutions offers its trading strategy in three risk types: low, medium, and high risk. In the current version, low-risk trades involve risking 1% of trading capital per trade, medium risk involves 2%, and high risk involves 3%, excluding slippage.

5.TURNING LOSSES INTO GAINS: HOW WE IMPROVED AFTER TOUGH DRAWDOWNS

Drawdown periods are never fun and can be stressful, but they can also be a blessing in disguise, as we’ve seen at Oxido Solutions. These tough times pushed us to rethink our approach and look for areas where we could improve and innovate. I’ve personally witnessed how Jarno and our quants were able to come up with remarkable innovations during challenging times. Here’s an overview of the five key features that came out of those drawdown periods.

5.1. Dynamic Position Sizing (Late 2021)
In 2021, we faced a notable drawdown between 9.8% (low risk ) and 25.6% ( high risk), partly due to slippage. At that time, our system used a fixed position size for every trade. In highly volatile markets, it’s better to adjust the position size to market conditions because a fixed stop-loss and position size can lead to more frequent stop-outs in volatile environments.

To address this, we introduced the dynamic position sizing (DPS) feature at the end of 2021. This upgrade calculates the size of a trade based on real-time market volatility. During periods of high volatility, the system automatically reduces the position size, while in low-volatility conditions, it increases the position size accordingly. By adjusting positions to match market conditions, dynamic position sizing helps minimize slippage and reduces drawdowns.

This dynamic approach offers better risk management than the earlier fixed position size model, making our strategy more responsive and less vulnerable to sharp market swings.

5.2. Sideways Filter (Late 2022)
The maximum drawdown in 2022 ranged from 8.5% (low risk) to 21.7% (high risk), much of it caused by the extended choppy price action that year. To better handle sideways market movements, the sideways filter was developed at the end of 2022. This tool measures the strength of trends and quickly detects when prices are stuck in a sideways range. As a result, the trading system only takes action when a clear trend emerges, helping reduce losses and improve profitability.

5.3. Post-Only Limit Orders (Mid-2023)
Following the previous drawdown periods, the trading strategy was updated in 2023 to include post-only limit orders, ensuring trades are placed as maker orders. This means trades are added to the order book rather than executed immediately against an existing order, allowing liquidity to be provided to the market instead of consuming it. The key advantage of this approach is that it significantly reduces slippage, which occurs when an order is filled at a less favorable price than intended. By placing orders as maker orders, they only execute at the specified price or better, and if the order would match an existing one, it’s canceled to avoid becoming a taker order. This prevents unnecessary slippage and avoids higher taker fees, which are typically more expensive than maker fees on most exchanges. The result is improved trade efficiency and reduced drawdowns, as fewer trades are executed at suboptimal prices.

5.4. Double Stop Loss Mechanism (Jan 2024)
2023 brought challenging price action for the trading setup, with frequent sideways movements and zig-zag price action, where prices sharply rose and fell. This contributed to four losing months and a maximum drawdown ranging from 9.7% to 23.3%, depending on the risk profile. To better handle these market conditions moving forward, a double trailing stop loss mechanism was introduced in January 2024.

A single trailing stop loss moves with the market price, protecting profits by closing positions if the price moves against the trade. The double trailing stop goes a step further by using two trailing stops. The primary stop is set close to the market price to lock in quick profits or limit losses when the market turns suddenly. The secondary stop is placed further away, allowing for larger movements in the trade to capture more significant gains without getting stopped out by minor fluctuations.

This dual-layer approach improves risk management, securing profits in volatile conditions while providing flexibility for larger market moves. As a key part of the fully automated system, the double trailing stop has helped reduce drawdowns and improve performance in similar market environments.

5.5. First Come First Serve (Oct 2024)
Apart from a very trending first quarter, 2024 has so far been marked by a lot of choppy price action, but our setup has handled it relatively well. It seems that we’ve benefited from the implementation of the DPS, sideways filter, and double trailing stop loss, resulting in a more stable equity curve with reduced drawdowns. But there’s always room for improvement, and we continue to innovate.

In October 2024, we introduced the First Come First Serve (FCFS) feature to our trading setup. This upgrade expanded the range of timeframes for buy and sell signals from the previous 8- and 9-minute windows to a broader range of 6 to 14 minutes. Additionally, trades are no longer limited to execution by the ATR algorithm but now also include the Range Maker (RM) algorithm, allowing two algorithms to operate across different timeframes.

This expanded range and the integration of both algorithms have significantly increased the number of potential trades, with each trade maintaining a minimum 65-75% win rate over an extended period. The addition of the Range Maker has also made trades more unique and less likely to be copied by other bots, opening up more opportunities for profitability and improving overall performance. Furthermore, the FCFS system reduces drawdowns, enhancing the risk-reward ratio compared to the previous setup.

In the FCFS setup, trades are triggered on a first-come, first-served basis, meaning that once a trade is opened by one algorithm, no other trades are made until that position is closed. This orderly flow of trades may increase profitability while minimizing risks. Based on both backtested and live data, we expect this feature to bring significant improvements in both performance and drawdown reduction.

6. LOOKING AHEAD: OUR VISION AND PLANS FOR THE FUTURE

We’ll always have a love-hate relationship with drawdowns—they’re just part of the game with directional strategies like ours, so it’s something we’ve learned to accept. The reality is that many of our past drawdowns have driven the key innovations we’ve made to our setup. In a way, we’ve turned those losses into progress.

Looking ahead, we’re optimistic. Even before we introduced most of the recent upgrades, our strategy consistently generated profits year after year, even during tough market conditions and periods of low volatility. Now, with the combined power of our DPS, sideways filter, post-limit orders, double stop-loss mechanism, and FCFS, we expect even stronger performance.

The crypto market is constantly evolving and becoming more correlated with traditional asset markets. As a result, fundamental analysis is becoming increasingly important, even for technical analysts like us. We’ll need to stay agile and keep a close watch on market trends and conditions, adjusting our strategy as needed to stay ahead.

We’re also committed to developing new algorithms for Bitcoin Perpetual Futures and expanding our strategies to include altcoins. In addition, we’ll continue exploring partnerships to bring our strategy into other markets, such as forex and additional assets, as we work toward fulfilling our ultimate dream: creating a universal trading strategy that works across all financial assets and instruments.

Networking, knowledge-sharing, and helping raise funds for other crypto quant teams will also remain a key part of our journey, helping us stay at the forefront of innovation and performance.

7. DISCLAIMER

The information and opinion provided in this blog is for general purposes only and should not be considered as specific financial advice or recommendations for any individual, exchange, security, or investment product. No rights can be derived from the live performance, backtest data, or any other data mentioned in this blog. Remember, past performance is not a guarantee of future results.