Since the beginning of February, we have been watching the outperformance of LTC versus the remainder of the top cryptocurrencies. We have been eyeing some spreads and think this recent rally of LTC presents an opportunity to employ a mean reversion trading strategy. This kind of strategy involves making a bet that prices will return back to the historical average price level. From the chart below, we can see how the recent rally in LTC started around February 7th, as the relative return on investment in percentage terms pulls away from the other top 5 coins. The laggard in this chart is Ripple. BTC and ETH remain close to unchanged.
A chart that really intrigues us is the LTC/ETH trading pair. This spread is currently trading ~0.437. In December 2017, this spread rallied from 0.20 to 0.50 in the matter of two weeks, only to slam right back off. This trading pair remained within a channel between 0.15 and 0.325 for the full year of 2018.
The 200-day exponential moving average is currently ~0.30 and the 50-day exponential moving average is ~0.38. It appears there is some resistance at current trading levels around 0.45, similar to what was seen in December of 2017. The LTC/ETH chart appears it may “turnover” as the purple curves depict in the chart. If this indeed occurs, you may see this trading pair price ‘mean revert’ back into this historical channel.