BTC/SOL Spread Strategy

Spread Percentage Trading Strategy

A mean reversion strategy for highly correlated asset pairs (e.g., BTC/SOL) that trades based on price ratio divergence.

CORE CONCEPT

This strategy monitors the logarithmic spread between two correlated assets and generates trading signals when the spread deviates significantly from its historical mean. It only trades the second asset (S2) while using the first asset (S1) as a reference for spread calculation.

HOW IT WORKS

Spread Calculation:
- Computes log spread: log(S1) - log(S2)
- Calculates rolling Z-score of the spread
- Identifies overbought/oversold conditions

Entry Signals:
- Long S2: When spread Z-score crosses above entry threshold (S1 relatively overpriced)
- Short S2: When spread Z-score crosses below negative entry threshold (S2 relatively overpriced)

Exit Signals:
- Positions close when Z-score reverts to exit threshold levels

KEY PARAMETERS

- Window: Rolling period for mean and standard deviation calculation (default: 144)
- Entry Threshold: Z-score level to trigger new positions (default: 1.5)
- Exit Threshold: Z-score level to close positions (default: 0.3)

FEATURES

✓ Vectorized backtesting engine
✓ Built-in parameter optimization
✓ Comprehensive performance metrics
✓ Visual analysis tools
✓ Position sizing with leverage support

RISK WARNING

This strategy:
- Assumes mean-reverting behavior in price ratios
- Does not guarantee future performance
- Uses leverage which amplifies both gains and losses
- Does not include transaction costs in base implementation
- Requires monitoring of correlation breakdown

RECOMMENDED USE

Best suited for pairs with:
- High historical correlation (>0.8)
- Similar market dynamics
- Sufficient liquidity
- Stable volatility patterns

Always backtest with realistic transaction costs and implement proper risk management including stop-losses and position limits.

DISCLAIMER

For educational purposes only. Past performance does not guarantee future results. Trade at your