Comparative Relative Strength Trading with Ratio Thresholds

Summary

This strategy compares the closing price of a chosen market with a benchmark by calculating their price ratio and smoothing it with a simple moving average. It enters long when the smoothed ratio exceeds a buy threshold and short when it falls below a sell threshold. A separate close threshold exits an existing position as the ratio moves back toward the middle; an input can reverse the trade direction. The published example uses BTC/USDT swap as the comparison symbol, a lookback of 10, and thresholds near 1. The stated backtest setup uses BTC/USDT futures on daily bars from September 2022 to September 2023, but supplies no performance results.

The approach is intended to trade relative outperformance or weakness rather than a market’s price direction alone. Its usefulness depends on selecting a meaningful, synchronized benchmark and calibrating the entry and exit bands. Although the description calls the opportunity arbitrage, it does not establish that the positions are hedged or market-neutral. It also provides no explicit stop loss, transaction cost analysis, or evidence that the thresholds generalize across assets or market regimes.

Key ideas

• The strategy smooths the ratio of a comparison market’s price to a benchmark’s price.
• Thresholds on the smoothed ratio define long entries, short entries, and position exits.
• A reverse setting can invert the direction of the signals.
• Benchmark selection and threshold calibration are central design choices.
• The document provides backtest settings but no outcome data or evidence of market-neutral arbitrage.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.