Relative Volatility Strategy (RVS) Explained

The Relative Volatility Strategy (RVS) utilizes the differences in volatility between indicators or assets to make informed predictions about future price movements of an asset.

The Basics: Relative Volatility

Relative volatility measures the value differences that occur between time periods, indicators, or assets, as well as the variation of these differences over time. These measurements provide insights into how significantly an asset’s price is stretched and the behavior of that stretch.

Choosing the 1-Minute Timeframe

The 1-Minute timeframe is sensitive enough to detect changes in volatility quickly, which is crucial in the highly volatile cryptocurrency market. This timeframe can be used in conjunction with higher timeframe values for trend analysis, or it can continue using 1-minute indicators but over a longer period.

Practical Tools: TradingView and APIs

TradingView for Market Analysis: TradingView offers the necessary charts and tools to analyze the market within a one-minute window. It is invaluable for monitoring trends and volatility, aiding in timely decision-making.

APIs for Ease of Trading: APIs from cryptocurrency exchanges automate the trading process. They execute pre-set buy and sell orders, adjust strategies as directed, and can manage multiple trades simultaneously. This automation is a key factor in making RVS manageable, especially for those who cannot monitor the market continuously.

Making RVS Work

The strategy’s goal is to use relative volatility to identify potential price reversal points. It remains active in the market continuously, waiting for these reversal opportunities.

No Stop-Loss Orders: Instead of employing stop-loss orders, RVS relies on its ability to identify reversal points to manage positions. This approach balances the trade-off between risk and maintaining strategic coherence.

Averaging Performance: To balance performance and risk, entries can be staggered using strategies such as dollar-cost averaging (DCA) or time-weighted entries. For example, distributing a series of ten entries over an hour can average the entry price and compensate for entries that are made too early in a trend when anticipating a reversal.

Conclusion

The core principle of the strategy is to use relative volatility to identify reversal points. Enhancements like dollar-cost averaging or time-weighted entries are incorporated to refine the outcomes.

Backtests

Backtests are conducted on Tradingview with the following settings: