SPECIMEN 009 / STRATEGY AUTOPSYCRYPTO · OUT-OF-SAMPLE TESTED
The Stochastic Oscillator
%K under 20 is oversold, over 80 is overbought. Another buy-low-sell-high oscillator — and another one crypto eats alive.
Mean reversion
Spot · daily · Stochastic(14,3)
10 coins · out-of-sample
Failed out-of-sample
The claimUnder 20 you buy, over 80 you sell.
The realityBeat holding on only 1 of 10 coins, and mostly lost money doing it. Worse than nothing.
Cause of death Bought the knife
01 The seduction
The Stochastic swings between 0 and 100: under 20 you're “oversold” and due a bounce, over 80 you're “overbought” and due a drop. It sits on every beginner chart next to RSI, and inside a range it looks razor sharp.
The Stochastic Oscillator · BTC
+49%
$1,000 → $1,488 vs $6,438 holding
Beat buy & hold
1 / 10
almost never
Out-of-sample
5 / 10
faded out-of-sample
Simulated on real historical prices, fees included, and past results are not the future. See how we grade →
02 The one line that ends it
Failed
The Stochastic Oscillator vs. doing nothinglog scale
The strategyBuy & hold (doing nothing)
The Stochastic Oscillator beat holding on 1 of 10 majors — and 5 of 10 out-of-sample. Same money, same window, fees included — measured against simply buying Bitcoin once and never touching it.
03 The evidence
| Coin | Trades | Win % | Strategy | Buy & hold | Verdict |
|---|
| BTC | 62 | 69 | +49% | +544% | lost |
| ETH | 51 | 63 | +19% | +1124% | lost |
| BNB | 49 | 63 | −17% | +2699% | lost |
| SOL | 47 | 53 | −44% | +2473% | lost |
| XRP | 47 | 64 | −65% | +352% | lost |
| LINK | 54 | 61 | +114% | +179% | lost |
| LTC | 55 | 69 | +15% | −20% | beat |
| DOGE | 41 | 54 | −74% | +2116% | lost |
| ADA | 47 | 53 | −88% | +148% | lost |
| AVAX | 46 | 54 | −92% | +70% | lost |
Beat holding on 1 of 10 coins — and on 5 of 10 in the recent out-of-sample period (the honest test that separates a real edge from a bull-market coincidence).
04 The other direction — what if you also shorted?
The headline test sits in cash when it is not long. The fair question is whether trading both ways helps — so we ran the identical rule with the flat side flipped to a 1x short (still no leverage), same fees, same ten coins.
| View | BTC $1k→ | Median return | Median maxDD | Beat hold | Verdict |
|---|
| Long / flat · headline | $1,488 | +49% | 83% | 1/10 | Failed out-of-sample |
| Long / short 1x · illustrative | $89 | −91% | 100% | 0/10 | Failed out-of-sample |
Trading it both ways was worse on the headline test — median return −31% → −100%, worst drawdown 83% → 100%. And that is before funding: a short is not spot, it needs a derivative that pays borrow/funding (~10–30%/yr) this omits — add a realistic 20%/yr and the median return drops to −100%. Shorting a market that mostly went up is a wrecking ball, not a rescue.
Why the short side is illustrative
You cannot short on spot — it needs a derivative (a perpetual or margin), which is why the headline test is long/flat. These short figures are shown at 1x with no funding or borrow cost, so the real-world version is worse than what you see here, not better. The window is also net-bullish; the short side only pays in a sustained bear, and betting on that is a different strategy entirely.
05 Verdict
It lost money. Not underperformed — lost, outright, while buy-and-hold multiplied several times over. On a trending asset “oversold” just means early, and early enough, often enough, is a slow bleed to nothing.
Method — the headline test is long/flat spot, no leverage (the long/short view above is a 1x illustration, funding excluded) · a signal read at the daily close is filled at the NEXT close (a full bar of lag — no look-ahead) · 0.06% fee each side, buy-and-hold charged one entry fee too · each coin over its available Binance daily history with warm-up · out-of-sample = held-back most-recent ~45% of each coin's data (a recency holdout, not rolling walk-forward). Honest limits: the ten coins are today's majors (survivorship bias) and are correlated, so “beat on N of 10” is not N independent tests. Reproducible.
The honest other side
Same trap as RSI, just a different oscillator drawing it. A win rate over 60% that still loses money outright. It buys things that are cheap and getting cheaper, and marries them.
06 Your turn
That was the textbook version.
We tested it exactly as it's usually described. Yours is probably a little different — a tweak to the settings, an added filter, a different exit. You don't need to code any of it: just describe your version to Vera, our assistant, in plain English, and she builds it and runs it through this same honest test. Most don't survive. A few do — we've proven that. Worth knowing which yours is.
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