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Strategy Deep Dive: Patache Digital


Patache Digital’s strategies are built on a proprietary quantitative algorithm as a base and combined with layers of risk analysis. The team’s research and products emphasize principal protection and steady, consistent returns while pursuing occasional “home runs”.

The Steady Strategy for either BTC or ETH perfectly exhibits these qualities. It’s expected to capture the majority of any positive price breakouts while limiting losses through trailing stops.

At the highest level, the Steady Strategy comprises two components: a work horse and a racehorse. The point of the workhorse is to nullify risk, capture a small profit/cover transaction cost and the point of the racehorse is to pursue a larger payoff opportunity.

The strategy uses the breakout trading approach, which looks for price levels or areas that a token has been unable to move beyond and makes trades increasing exposure when the token moves past these thresholds. Due to the nature of the strategy, it is designed for the participant to remain committed over a medium to long term time frame (6 months to a year). In this time the benefits of being in the strategy are expected to emerge.

An example helps illustrate how it works:

BTC Long Trade - A long trade is triggered when the market reaches the directional entry level. Two positions on the long side are initiated by accumulating the BTC relative to USDC. Each position is immediately assigned a Target and a Stop (loss). If the market reaches the Target before the Stop, the workhorse BTC is sold for USDC, profit taken. Simultaneously, the racehorse Stop changes to a Trailing stop. At this point the economic risk is nullified, a small profit is locked in, and the racehorse is pursuing a larger payoff potential.

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The algorithm provides a trading edge by predicting large change in prices a day in advance. It will also generate corresponding entry thresholds preceding such a “price break out”. For trade action on the following day the algorithm will utilize the above-mentioned entry thresholds to initiate the “Workhorse” trade order and “Racehorse” trade order. Each trade order comes with a pre-defined trade risk of 1.25% which is used to determine the trade order quantity as follows:

Cellar Value x2.50% / 2x Risk per Trade ≅ Max. Order Qty

Each trade entry order has a defined activation period during which the algorithm will be working to fulfill the trade entry conditions. If the algorithm is unable to fulfill the trade entry conditions within the activation period, the trade entry opportunity will expire, and no positions will be taken. As soon as the trade entry is executed, the trade risk limit kicks in as a stop order and as stays on until the position exits. For the “Workhorse” trade order, a profit target is also assigned as soon as the trade entry is executed. For the “Racehorse” trade order, a trailing stop is used instead of a fixed stop. These strategies are analogous to a “Bracket Order with OCO” in conventional markets.

The above trade parameters and functions are captured in the smart contract supporting the cellar.

Backtesting Results

Disclaimers: Back test results, hypothetical performance, and historical performance is not necessarily indicative of future results.

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Additional Notes

  • Strategy execution through smart contracts may differ from back test assumptions and contribute to adverse performance.

  • While the initiation of the strategy will likely be during high volume liquid hours, profit targets or risk stops may be achieved during periods of illiquidity and contribute to adverse performance.

  • The algorithm is usually not very sensitive to execution speed but execution delays of 30 mins (1/2 hour) or more could contribute to adverse performance.

  • Transaction costs and Slippage can further contribute to adverse performance. A fixed transaction cost is assumed for back testing purposes, but no explicit slippage is assumed. Slippage can contribute either adversely or favorably to performance and will be unique to each trade environment.

  • Trade execution on an AMM exchange is fundamentally different from trade execution on a CLOB exchange. Conventional exchanges offer market controls through circuit breakers, limit lock up/lock down, temporary trading halts which are either absent or in relative infancy in DeFI exchanges.

  • Large inflows and outflows to the Cellar could contribute to adverse performance.

  • Cybersecurity risk may threaten loss of principal, realized and unrealized gains with no recourse.

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