Quantitative Trading Five-Year Backtest: How the MACD Strategy Is Beaten by Funding Rates

A deep backtest study based on five years of historical data reveals a painful truth: the root of losses for most active traders is not strategy design, but misjudging market cycles and neglecting implicit costs such as funding rates. In stark contrast, simple long-term holding strategies are hard to beat—unless you find the right trading cycle and strictly control the impact of leverage and funding rates.

Benchmark: The reference level every strategy must beat

Before evaluating quantitative strategies like MACD, we need to clearly understand what “doing nothing” can yield. Based on the spot holding data from the past five years:

• BTC long-term holding: total return +48.86%
• ETH long-term holding: total return +53.00%

This number is crucial. It means that if you bought and held for five years, even through multiple market cycles, you could have gained nearly 50%. This is the “passing line” that any active trading strategy must beat—in other words, if your strategy’s returns are below this level, your operations are effectively negatively optimized.

The truth about short-term trading: why high-frequency trading inevitably loses

On short cycles like 15 minutes, 30 minutes, and 1 hour, MACD strategies perform dismally. Not only do they fail to generate excess returns, but they also significantly underperform the benchmark due to overtrading.

The predicament of BTC on the 1-hour cycle is a typical example: unleveraged returns are only +6%, far below the simple holding return of +48.86%. This means that after five years of frequent trades switching between MACD golden and death crosses, the final profit is less than one-eighth of the buy-and-hold strategy.

The reasons are harsh but realistic:

• Market noise: Short-term price fluctuations are mostly random walks, not meaningful trend signals
• Trading costs erosion: Every opening and closing incurs fees; high-frequency traders’ accumulated costs can wipe out most profits
• Psychological pressure: Frequent stop-loss triggers distort operations, often forcing exits at the worst moments

Even more disheartening is the performance on 15-minute and 30-minute cycles—almost all are in loss or liquidation. These ultra-short-term trades have essentially become pure gambling, more akin to “donations” to exchanges via funding rates and fees than quant strategies.

Four-hour cycle: the only bright spot for MACD strategies

Quantitative trading’s value isn’t entirely nonexistent; it is strictly limited to a specific time dimension: the four-hour cycle.

In this cycle, MACD strategies show the ability to outperform the buy-and-hold benchmark:

• BTC 4-hour, no leverage: approximately +96% return, about double the benchmark
• ETH 4-hour, no leverage: approximately +205% return, nearly four times the +53% buy-and-hold return

The logic behind this is that the four-hour cycle is long enough to filter out market noise but short enough to capture medium-term trend changes. In this cycle, MACD’s golden and death cross signals can more accurately help traders avoid deep bear markets (like the significant drop in 2022), while not overly cutting into bull runs.

For ETH, the effect is especially pronounced. ETH’s stronger trend and higher volatility mean that holders enjoy upward trends but must also endure drawdowns of up to -80%. MACD’s timing allows for avoiding full exposure during bear markets and holding during bull markets, achieving returns far superior to simple holding.

Leverage: a double-edged sword—how funding rates become an invisible killer of returns

Introducing leverage complicates the story. Leverage can amplify gains but also risks—specifically, funding rates.

Optimal leverage (2-3x):

With 2-3x leverage, the strategy performs at its best. Especially on ETH with a 3x leverage on the 4-hour cycle, returns can reach +552%—the highest efficiency achievable in quant trading.

Why not 5x leverage? The key lies in balancing funding costs and volatility. Excessive leverage means constantly paying funding rates. During market fluctuations, these costs act like termites, gradually eroding your principal. Even with correct strategy direction, high leverage’s funding costs can severely diminish final returns.

The trap of over-leverage (5x and above):

This is the dimension most traders overlook. At first glance, 5x leverage seems to further amplify gains, but data shows that ETH on the 4-hour cycle with 5x leverage yields only +167%—far below the +552% with 3x leverage.

This “reverse” phenomenon occurs because:

• Higher leverage increases the risk of liquidation
• Continuous funding rate payments and slippage during high volatility eat into profits
• Frequent stop-outs to prevent catastrophic losses, especially in extreme moves, reduce overall gains

In other words, you take on higher risk but get lower returns—a classic unprofitable trade.

Real returns under different configurations

Combining these data into a comparison table clarifies the advantages and disadvantages of various strategies:

In this table, “Excellent” and “Optimal” are concentrated around the 4-hour cycle. It’s clear that increasing leverage beyond 3x, especially in high-volatility assets like ETH, introduces diminishing returns due to funding costs and risk of liquidation.

Rational decision-making framework

Based on the above analysis, we can recommend strategies tailored to different risk profiles:

Conservative investors (prioritize stability):

• Recommended: MACD on 4-hour cycle with no leverage, or simply holding
• Expected return: 50%-100%
• Advantages: Stable mindset, no liquidation risk, no need to monitor funding rates

Balanced investors (seek reasonable risk-reward):

• Recommended: MACD on 4-hour cycle with 1.5-2x leverage
• Expected return: 150%-250%
• Key points: Strict management of funding costs and stop-loss levels; trade only stable assets like BTC

Aggressive investors (willing to accept high risk for high returns):

• Recommended: MACD on 4-hour cycle with 2-3x leverage, limited to ETH
• Expected return: 400%-550%
• Warning: This is the optimal zone for quant strategies but also the highest risk. Strictly control funding costs and regularly check liquidation risk

Gambler-style traders (short cycles, very high leverage):

• Strategy: 15 min / 30 min + 5x or more leverage
• Expected outcome: Very high probability of zeroing out
• Reality: Historical data proves such configurations cannot outperform any benchmark; liquidation is the most likely outcome

Conclusion: Time dimension determines everything

Five years of backtest data reveal a simple but profound truth: optimizing in the wrong time dimension is destroying value.

Quant trading and MACD strategies do have value, but this value is limited to the specific 4-hour cycle. In this cycle, combining 2-3x leverage with strict control of funding costs can theoretically achieve returns far exceeding long-term holding.

However, deviating from this “golden zone”—whether by switching to shorter cycles or increasing leverage beyond 3x—means battling the market and your own psychology, with the market punishing such attempts through funding rates, liquidations, and mental breakdowns.

In short, if you cannot precisely control leverage and funding costs on the 4-hour cycle, the smartest choice is to do nothing—holding for five years with +50% may be safer than trying to actively trade and risking everything.

(Disclaimer: This analysis is based on historical backtesting and for reference only. It does not predict future returns. Cryptocurrency markets are highly risky, and leverage trading is especially dangerous. Before any investment, fully understand risks such as funding rates and liquidation mechanisms.)