040 - Pavel Kycek - Generating Insane Returns with Quant Crypto Trading
A Smart Portfolio of Trend Following, Mean Reversion & Hedging Strategies
Crypto trading might seem intimidating at first due to some of the outsized risks, not to mention the volatility and limited historical data, but as my recent conversation with Pavel highlighted, there's a clear pathway to "insane returns" if you know how to play your cards right. Pavel, the CEO at Robuxio, shared his nuanced approach for navigating this highly volatile but rewarding asset class.
Getting Started: Beyond Buy-and-Hold
One of the first questions I asked Pavel was how passive crypto investors could evolve into more active, strategic traders. His advice was blunt: "crypto asset class is really for trading," not just buying and holding. While long-term investments like Bitcoin or Ethereum might still be viable, Pavel stresses crypto's volatility and inefficiencies are far better suited to active trading strategies.
For newcomers, Pavel recommended a straightforward approach—trend-following strategies focused exclusively on the top 10-20 coins by market cap to capture longer-term movements without being swept up in pump-and-dump volatility common in smaller altcoins.
Understanding the Crypto Ecosystem
Diving deeper into crypto trading means grasping basics like wallets, crypto transfers, and understanding some of the big picture risks in the space (not only can a coin go to zero, but an exchange can collapse overnight). Pavel simplified this by recommending crypto futures trading due to significantly higher liquidity (3 to 10 times greater than spot markets) and lower trading costs. He also emphasized maintaining multiple accounts across exchanges to mitigate platform risks, a crucial insight following events like the FTX collapse.
Tackling Data Scarcity
Historical data scarcity in crypto poses challenges for quantitative model-building. Pavel underscored the importance of sourcing survivorship-bias-free data, typically from major exchanges like Binance, Bybit, and OKX. His team meticulously cleans this data, ensuring delisted coins remain included to preserve the integrity of the backtests. There are some other data sources around, a couple that come to mind include Brave New Coin, CoinAPI.io, Polygon.io and there are even free sources.
Given the limited data, Pavel recommends cross-validation with strategies developed from commodities and stock markets, particularly referencing the tech stock volatility of the late 1990s and early 2000s as analogous historical periods useful for crypto modelling.
Robust Strategy Design
Pavel’s approach to strategy creation focuses on simplicity and robustness, limiting conditions to two to four per strategy. Each model is built initially for traditional assets and then adapted minimally for crypto by adjusting primarily the exit conditions, catering to crypto’s unique volatility.
His trading stack is comprehensive, utilizing around 15-20 models running simultaneously, each targeting different market dynamics, from short-term momentum to longer-term trends, and from mean reversion to strategic hedging positions.
Combining Models for Hedging
Combining these different strategy types, such as mean reversion and momentum, can substantially enhance portfolio robustness. Short-term mean reversion shorts complement long-term momentum longs to reduce drawdowns, effectively balancing exposure across market cycles. Then there are models which seek to capture pull-backs, but ride them. Pavel describes this interplay of mean reversion and trend following as capturing the "best of both worlds."
Managing Risks
Risk management emerged as a key discussion point. Pavel & I both have learned hard lessons from the volatility of crypto, particularly the catastrophic declines seen in coins like Luna. To handle this, Pavel maintains very small position sizes (0.5-3% per position), spreading exposure across numerous strategies and exchanges.
Additionally, Pavel avoids hard stop-losses due to crypto’s erratic price action, instead managing risks through portfolio diversification and strategic hedging.
Tech Stack & Infrastructure
Behind Pavel’s strategies lies sophisticated infrastructure. Running multiple models 24/7 requires comprehensive automation—cloud-based trading platforms, continuous monitoring, and robust API integrations with exchanges. That said, it's not difficult to get started with a simple stack, contact me if you want to know more about the options, but there are tools out there that will handle it. The key however is that if you want to take full advantage of crypto, with the lowest possible risk, you're going to want to trade algorithmically and automate: so that you can handle a larger number of strategies and assets, keeping exposures low and alphas diversified.
If you're ready to embrace the volatility, the crypto market holds enormous potential, provided you manage your risks meticulously and combine strategies intelligently - as the outstanding performance at Robuxio evidences all too well!
Trade well and prosper!
Simon
Get in touch with Pavel