Master cryptocurrency backtesting with 24/7 market handling, volatility management, funding rates, and exchange-specific strategies.
| Asset | Market Cap | Volatility | Data Quality |
|---|---|---|---|
| Bitcoin (BTC) | Highest | Moderate | Excellent |
| Ethereum (ETH) | 2nd | High | Excellent |
| Major Alts (BNB, SOL, ADA) | Top 20 | Very High | Good |
| Small Caps | < Top 100 | Extreme | Poor |
Start with BTC and ETH for most reliable backtesting data. Altcoins have spotty historical data and survivorship bias (many went to zero).
| Market | Typical Daily Move | Large Move | Crash Scenario |
|---|---|---|---|
| S&P 500 | 0.5-1% | 2-3% | -5 to -10% |
| Forex Majors | 0.3-0.8% | 1-2% | -3 to -5% |
| Bitcoin | 3-7% | 10-15% | -30 to -50% |
| Altcoins | 5-15% | 20-40% | -50 to -90% |
Critical: Your position sizing MUST account for this volatility. A 2% risk per trade that's safe in stocks can wipe out a crypto account in one bad move.
Unlike stocks (one price) or forex (relatively consistent), crypto prices vary significantly between exchanges. This affects backtesting accuracy.
| Exchange | Trading Fees | Data Quality | Leverage |
|---|---|---|---|
| Binance | 0.1% (spot), 0.02-0.04% (futures) | Excellent | Up to 125x |
| Coinbase | 0.4-0.6% (retail) | Excellent | Up to 5x |
| Bybit | 0.1% (spot), 0.02-0.055% (futures) | Good | Up to 100x |
| Kraken | 0.16-0.26% | Excellent | Up to 5x |
BTC price can differ $100-500 between exchanges during normal times, $1000+ during volatility. Always backtest using data from the exchange you'll trade on.
Perpetual futures (no expiration) use funding rates to keep prices anchored to spot. Paid every 8 hours between long and short holders.
| Scenario | Funding Rate | Daily Cost | Impact on Strategy |
|---|---|---|---|
| Bull Market (Long) | +0.05% | -0.15% ($15 per $10K) | Hurts long-hold strategies |
| Bear Market (Short) | -0.05% | -0.15% ($15 per $10K) | Hurts short-hold strategies |
| Sideways Market | ±0.01% | -0.03% ($3 per $10K) | Minimal impact |
| Euphoria Rally | +0.30% | -0.90% ($90 per $10K) | Can kill profitability! |
A swing trading strategy holding positions 3-5 days pays funding 9-15 times. At 0.05% per funding, that's -0.45% to -0.75% additional cost beyond trading fees. Many "profitable" backtests become unprofitable when funding is included.
Measures market sentiment on 0-100 scale. Useful for contrarian strategies.
Tracks funding rate extremes to identify overheated markets.
Blockchain data not available in traditional markets.
Critical in crypto due to lower liquidity and larger spreads.
| Metric | Good | Red Flag |
|---|---|---|
| Win rate | 45-60% (spot swing/mean reversion) | >70% with tiny R:R or only in bull runs |
| Profit factor | 1.3-1.8 (spot), 1.5-2.0 (perps) after costs | >2.5 with few trades or no costs |
| Max drawdown | <30% | >50% or unrecovered |
| Fees + slippage / round trip | Spot <0.25%, perps <0.35% | Ignored costs or >0.5% drag |
| Funding drag (per day) | Modeled, typically <0.10% | Not modeled or >0.30% drains edge |
| Liquidation buffer | Stops >3x away from liquidation; >30% price move cushion at 10x | Stops inside liquidation band; <10% move to liquidation |
Crypto volatility + high leverage = liquidation. Here's how fast accounts blow up:
| Leverage | Liquidation Price (Long BTC @ $50K) | % Move to Liquidation | Risk Level |
|---|---|---|---|
| 2x | $25,000 | -50% | Safe |
| 5x | $40,000 | -20% | Moderate |
| 10x | $45,000 | -10% | High |
| 20x | $47,500 | -5% | Extreme |
| 100x | $49,500 | -1% | Suicide |
Remember: BTC regularly moves 5-10% in a day. 10x+ leverage is gambling, not trading.
To backtest crypto: 1) Choose cryptocurrencies (BTC, ETH, major altcoins), 2) Use 24/7 continuous data (no market close), 3) Include realistic fees (0.1-0.5% per trade), 4) Account for funding rates on perpetual futures, 5) Test during high and low volatility periods. Use at least 2-3 years of data including bull and bear markets.
Crypto has unique characteristics: 24/7 trading (no weekends/holidays), extreme volatility (10-30% daily swings), lower liquidity than forex/stocks, funding rates on perpetuals, exchange-specific pricing differences (arbitrage opportunities), and susceptibility to market manipulation. Always include larger slippage estimates and test during crash scenarios.
Exercise extreme caution. Crypto volatility makes leverage dangerous - a 10% BTC move with 10x leverage = 100% gain or total loss. Start with 2-3x leverage maximum. Always include liquidation scenarios in backtests. Many profitable spot strategies become losers with leverage due to liquidations during volatility spikes.
Critical for high-volatility crypto trading
Especially important with limited crypto data
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