Analysis of profitability of cryptocurrencies trading strategy based on technical analysis

Cryptocurrencies are a new phenomenon of the last decade which has attracted very much attention of theoreticians and practitioners. The volumes of their trades have immensely increased and the price development of some of them is so dramatic that they have become unignorable assets for potential investment target. A substantial amount of researches has been devoted to prediction of their price dynamics. To contribute to this stream, we propose a trading strategy that is based on technical analysis. We use ten various technical indicators and combine them together to form our trading algorithm for two most noticeable cryptocureencies: Bitcoin and Ethereum. Then we evaluate its profitability and compare it to the one obtained from the traditional buy and hold strategy. The preliminary results show that if properly proceeded, the profitability of our strategy exceeds the one of buy and hold strategy. The results hence indicate the existence of inefficiencies in the cryptocurrencies trading market and the well-known Fama's efficiency market hypothesis may not fully hold in the case of these two cryptocurrencies.