Quest 4

Backtest your first strategy — RSI mean reversion

Buy when RSI(14) crosses below 30, sell when it crosses above 70. Let's see if it actually works.

Lesson

The strategy

Buy when RSI(14) drops below 30 (oversold)
Sell when RSI(14) rises above 70 (overbought)

How the backtester works

We load BTC daily bars and call your strategy(bar, state) function on each bar. It must return one of:

'buy' — go long with all available cash
'sell' — close the position
None — do nothing

Use the state dict to stash data across bars (like a rolling window of closes).

At the end you get a summary: final equity, trades, win rate, max drawdown.

The objective

Make money — or at least show a real trade pattern. Your strategy must:

Take at least 3 trades
Any non-catastrophic PnL is fine to pass (we're teaching the loop, not optimal parameters)

backtestEdit below, click Run tests

def rsi(closes, period=14):
    if len(closes) < period + 1:
        return None
    gains, losses = [], []
    for i in range(1, period + 1):
        d = closes[i] - closes[i-1]
        gains.append(max(0, d))
        losses.append(max(0, -d))
    avg_gain = sum(gains) / period
    avg_loss = sum(losses) / period
    for i in range(period + 1, len(closes)):
        d = closes[i] - closes[i-1]
        avg_gain = (avg_gain * (period - 1) + max(0, d)) / period
        avg_loss = (avg_loss * (period - 1) + max(0, -d)) / period
    if avg_loss == 0: return 100.0
    rs = avg_gain / avg_loss
    return 100 - 100 / (1 + rs)

def strategy(bar, state):
    # Maintain rolling close history in state
    state.setdefault("closes", [])
    state["closes"].append(bar["close"])
    if len(state["closes"]) < 16:
        return None

r = rsi(state["closes"][-30:], 14)
    prev_rsi = state.get("prev_rsi")
    state["prev_rsi"] = r

if r is None or prev_rsi is None:
        return None

in_pos = state.get("in_pos", False)
    # Cross below 30 -> buy
    if not in_pos and prev_rsi >= 30 and r < 30:
        state["in_pos"] = True
        return "buy"
    # Cross above 70 -> sell
    if in_pos and prev_rsi <= 70 and r > 70:
        state["in_pos"] = False
        return "sell"
    return None

# The auto-grader will call run_backtest(strategy, "BTC_DAILY_2024") and check trade count + PnL.

Algorithmic Trading