Which Technical Indicator Works on Bitcoin?

Which Technical Indicator Works on Bitcoin?

Back-testing a few technical indicators on Bitcoin using Python and evaluating the returns.

This article will be straightforward. We are simply interested in finding what works best on Bitcoin using simple technical indicators. We know that a pure indicator strategy does not work generally on financial time series but we will see that together by back-testing a few technical indicators and providing their code. The indicators back-tested will be:

  • The RSI.

  • The Stochastic Oscillator.

  • The MACD.

  • The Awesome Oscillator.

  • The Bollinger Bands.

  • The Parabolic Stop-And-Reverse Indicator.

    Image for post

BTCUSD Time series since 2014.

The Relative Strength Index — RSI

An overwhelming number of traders use the famous Relative Strength Index to help with their decisions, and although it can only serve as a confirming indicator, it nevertheless, has its weight in many trading decisions or at the very least timing the decisions. The RSI has been created by J. Welles Wilder in 1978 as a momentum indicator with an optimal look-back period of 14 bars. It is bounded between 0 and 100 with 30 and 70 as the agreed-upon oversold and overbought zones respectively. The RSI can be used through 4 known techniques:

  • Oversold and overbought zones as indicators of possible short-term corrections or reversals.
  • Divergence from prices as an indication of trend exhaustion (I’ve written about it here in Medium:

Back-testing the RSI divergence strategy on FX in Python.

This article will deal with a famous technical trading strategy called the divergence. We will define what a divergence…


  • Drawing normal supports/resistances on the indicator just as we would do with prices.
  • Crossing the 50 level as a sign of a changing momentum.

In this article, we will be back-testing the first RSI technique and see whether touching the 30 or 70 level can provide a reversal or correction point. In other words, should we develop a system that trades when the RSI touches these levels?

We will create the below function that calculates the RSI on an OHLC data

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