Litecoin Trading Strategy (Backtest – How To Trade It)
Last Updated on March 15, 2023
The amount of tradable assets in the crypto market is enough to overwhelm experienced investors. While many focus on Bitcoin, the most valued cryptocurrency, it might be too expensive for beginner investors. Thankfully, Litecoin, considered by many as the silver of cryptocurrency, is a great alternative. So, what is your Litecoin trading strategy?
A Litecoin trading strategy involves buying and selling Litecoin in the hope of making a profit. Litecoin is a decentralized cryptocurrency that is used for peer-to-peer transactions.
Launched in October 2011 and inspired by Bitcoin, Litecoin was among the earliest altcoins, offering lower transaction fees, faster transaction confirmations, and faster mining difficulty retargeting. Litecoin is currently among the top 20 coins by market cap as of 2022.
In this post, we take a look at Litecoin. We end the article with a backtest of a Litecoin trading strategy.
Litecoin strategy video
What is Litecoin?
Litecoin is a decentralized cryptocurrency that is used for peer-to-peer transactions. Launched in October 2011 and inspired by Bitcoin, Litecoin was among the earliest altcoins created out of the Bitcoin codebase. Compared to Bitcoin, it offers lower transaction fees, faster transaction confirmations, and faster mining difficulty retargeting. Litecoin is currently among the top 20 coins by market cap as of 2022.
Litecoin is produced through mining like other cryptocurrencies, and it has a limited supply in circulation — no more than 84 million of them, just like Bitcoin’s 21 million. Litecoin has an advantage over Bitcoin in the area of block time. Typically, Bitcoin has a block time of 10 minutes, whereas Litecoin has a reduced block time of 2.5 minutes with a lower transaction fee.
How has the Litecoin market fared so far?
As with most coins, Litecoin has its share of advances and declines. The first significant win for Litecoin came in late 2013 when the price surged over 1,700 percent, which saw Litecoin explode from $2 to $40 within just a few days. Regrettably, this rally never lived to see the next year as it was cut short in December of the same year.
The drop continued till 2014 and gained more momentum, thanks to the Mt. Gox crypto scandal that dragged the price of Bitcoin down by a huge 36% with all other coins in tandem. Eventually, Litecoin recorded an all-time low of $1.11 on Jan 15th, 2015.
The price of Litecoin has been growing and ebbing up till this moment. It reached an all-time high of $225.79 following the surge of Bitcoin in May 2021 but has declined since November 2021, like other cryptocurrencies.
Where do you trade Litecoin? Litecoin trading platforms
To buy and sell Litecoin, you must have an account with an exchange. An exchange is an intermediary that helps you execute your buy and sell orders. Some of the most common cryptocurrency trading exchanges and platforms are:
- Binance
- Coinbase
- Kraken
- Crypto.com
- Gemini
- Bitfinex
- Huobi
- KuCoin
With so many exchanges, choosing the right one for you might be difficult. Here are some factors to consider when trying to make a choice:
- The interface should be easy to use and understand.
- The platform must provide graphical representation and charts to give you a clear picture of price action.
- It must also be regulated; that way, you know you have some level of protection from fraud.
Litecoin investment – is it a good idea?
Litecoin is considered the silver of cryptocurrency. This makes it an alternative option for investors who do not have sufficient capital to own Bitcoin. Historically, the price of Litecoin is strongly correlated with Bitcoin. Since the price is cheaper than that of Bitcoin, it is expected that during a strong rally, Litecoin will outperform Bitcoin in the short term.
However, cryptocurrencies are considered high-risk for long-term investment and unsuitable for every investor. Given the higher volatility in the crypto market compared to traditional financial markets like stocks, the risks may be too high for inexperienced investors. To illustrate the higher risks in cryptocurrency, the bear market that started in late 2021 has seen many crypto assets shed up to 80% or more of their values. In contrast, with the 2022 bear market in stocks, the S&P 500 Index hasn’t shed up to 30% of its value.
Is Litecoin good for day trading?
The cryptocurrency market offers greater volatility than the traditional financial markets, which is great for day trading. With Litecoin, you enjoy a lot of intraday volatilities which means more room for profits.
The good thing about day trading is that risks are managed tightly, and profitability can be scalable. Litecoin offers good daily price swings that you can exploit. While Litecoin may be great for day trading and even swing trading, be very careful when considering it for long-term investment.
Litecoin trading strategy backtest – does it work?
Let’s backtest three Litecoin trading strategies with complete trading rules and proper settings:
Litecoin short-term trend following strategy
We make the following trading rules:
- Buy at the close if the close breaks above the 20-day simple moving average.
- Sell at the close if the close breaks below the 20-day simple moving average.
Does it get any simpler than that?
Even though the strategy is simple, the strategy has outperformed buy and hold with a wide margin because of the powerful and trending moves. The equity curve looks like this:
The 156 trades made an average gain of 8.4% per trade, which resulted in an annual return of 114%!
For comparison, the buy and hold strategy returned 40% annually.
Litecoin long-term trend following strategy
Our second strategy has the following trading rules:
- Construct two simple moving averages: one short average of 100 days and one long average of 250 days.
- When the short moving average closes above the long moving average, go long at the close.
- When the short moving average closes below the long moving average, sell at the close.
This is also a simple (and naive?) strategy, but it has performed reasonably well. Let’s look at the equity curve, statistics, and performance metrics:
The strategy spends considerably more time in the market than strategy number one, and thus there are few trades: 7 trades and annual returns of 66%.
Litecoin momentum strategy
Our last strategy has the following trading rules in plain English:
- If the close is higher than the close 25 days ago, go long at the close.
- If the close is lower than the close 25 days ago, sell at the close.
Again, our third strategy is a simple momentum strategy. Has it worked? Let’s look at the equity curve:
The 129 trades made an average gain per trade of 9.6%, and the annual returns were 70%.
Let’s sum up all three strategies:
We suspect the crypto market will change and revert more often to the mean as it matures (trading more like the stock market), and thus we believe the three strategies provided here will deteriorate. This is the nature of the game.
List of trading strategies
We have written over 1000 articles on this blog since we started in 2012. Many articles contain specific trading rules that can be backtested for profitability and performance metrics.
The code for the backtested Litecoin trading strategy is included in the package.
The trading rules are compiled into a package where you can purchase all of them (recommended) or just a few of your choice. We have hundreds of trading ideas in the compilation.
The strategies are taken from our source of what are the different types of trading strategies. The strategies are an excellent resource to get some trading ideas.
The strategies also come with logic in plain English (plain English is for Python traders).
For a list of the strategies we have made please click on the green banner:
These strategies must not be misunderstood for the premium strategies that we charge a fee for:
Relevant crypto articles
We have written many articles that contain specific trading strategies and trading rules. Please have a look at our “library”:
- Cryptocurrency Trading Strategy — What Is It? (Backtest)
- Bitcoin Crash Trading Strategy — What Is It? (Backtest)
- End of month effect in Bitcoin – does it exist? (Turn of the month)
- Trend following and momentum strategies on bitcoin (crypto) – capturing the trend (free bitcoin trading strategies)
- Bitcoin Cash Trading Strategy — What Is It? (Backtest)
- Does RSI work on crypto or Bitcoin trading? Is RSI good for crypto?
- Dogecoin Trading Strategy — What Is It? (Backtest)
- Cardano Trading Strategy (Backtest)
- Day Trading Cryptocurrency Strategy (Backtest)
- Does market timing work on Bitcoin? (Is it a good idea?)
FAQ Litecoin trading strategy
Let’s end the article with a few frequently asked questions:
How do you make money trading Litecoin?
Unfortunately, there are no easy ways to make money trading – no matter the asset. However, we believe the methods and principles mentioned in this article are the best way to make money trading: make strict trading rules, quantify them, and backtest the strategy. If it works, trade it in a demo account for many months. If it still works, then you can use real money on the strategy. Backtesting is the only way to determine if your strategy has a positive statistical expectancy.
Is Litecoin good for day trading?
You can day trade Litecoin, but the principles described in the previous FAQ apply. If the strategy isn’t backtested, then don’t trade it.
Litecoin is liquid and thus has the potential of being day traded.
Where will Litecoin be in 10 years?
Who knows! We have no crystal ball, and we won’t make any speculations. The crypto market is still young.
Is Litecoin a good long-term investment?
It depends on many factors. But please understand that Litecoin has no productive value like, for example, stocks. Please read our article Is Bitcoin a better investment than stocks?
Where can I trade Litecoin?
You can buy Litecoin on a crypto exchange or own it in a cold wallet to keep it offline.
As you might have read in the news, many crypto exchanges have become frauds. Be careful!
Is it a good idea to trade Litecoin?
It depends. If you have a profitable backtested strategy, then yes. But you also have to understand how it performs together with your other trading strategies.
Is LTH better than ETH?
Again, that is hard to tell, we guess only history will teach us. This is still a market in its infancy.
Which crypto is best for day trading?
Our opinion is that there is no best or worst in trading. If it’s part of a rational, backtested plan and shows a statistically positive expectancy, then, by all means, go for it.
One dollar (!) made in Litecoin is worth just as much as one dollar in Bitcoin.