Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

MIT computer scientists can predict the price of Bitcoin

newsoffice.mit.edu

Post reply on HN
Print view View original

11–20 of 86 posts

Re: MIT computer scientists can predict the price of Bitcoin

#11

Post by sillysaurus3 »

I fixed the article's headline image: http://i.imgur.com/QVgcgNI.png

If everyone began using the paper's strategy, would the strategy still work?

Also, the strategy seems less effective than portrayed in the news article. If you look at the "results" section, it seems like the profit flatlined shortly after starting, then had success due to some major trading event, then eventually flatlined again: http://i.imgur.com/CBjEjgo.png

Wouldn't it be more accurate to say "this strategy is effective under some very specific circumstances"?

Also, does anyone know how equation 4 was derived? http://i.imgur.com/vkx8ZEC.png

It seems like the key insight of the paper, but there's no mention of where it originated from. Is it a common equation in statistical modeling? I'd like to learn more about it. Does anyone have any suggested reading or coursework I should study?

Re: MIT computer scientists can predict the price of Bitcoin

#12

Post by ISL »

Can a HFT-knowledgeable commenter chime in on the viability of the Sharpe ratio here?

From a physics perspective, it appears that the Sharpe ratio of 4.1 is roughly equivalent to a 4.1-sigma claim that their algorithm is better than random trading. I can't check easily, but I'd guess that the movement of Bitcoin prices isn't normally-distributed (looking at the paper's time series suggests that there's more low-frequency power there). If so, I'd guess that a more robust measure of the claim's significance would show it to be less significant.

Put differently, I'd guess more than 1 in 15,000 random sets of 2872 trades (their number of trades) would yield comparable profit. Furthermore, a simple buy-and-hold would've yielded a 20+% return over the same period.

Re: MIT computer scientists can predict the price of Bitcoin

#13

Post by arno_v »

api wrote: post #9
barisser wrote: post #4

This seems like massive historical overfit, which can lead to arbitrarily precise fit, but no predictive capability. Any model, if given enough parameters, can be made to match historical data to an arbitrary degree. I also run several Bitcoin bots. I can tell you that slippage is not insignificant. If you make transactions every ~10 seconds and incur 0.1% fees each time, this is an extremely significant effect in ag…

"Any model, if given enough parameters, can be made to match historical data to an arbitrary degree." I've known this forever but for some reason haven't heard this precise statement of it. Thanks. Reductio ad absurdium: imagine a model where the number of parameters equals the number of data points. Obviously that model will have perfect fit. Predicting the future is hard. Predicting the future without a causal unde…

This picture shows quite nicely what might happen when having too many parameters (or too little data):

http://machinelearningac.files.wordpress.com/2011/10/polynom...

Re: MIT computer scientists can predict the price of Bitcoin

#14

Post by chollida1 »

Animats wrote: post #10

This is short-term trading. "Every two seconds they predicted the average price movement (on OKcoin) over the following 10 seconds. If the price movement was higher than a certain threshold, they bought a Bitcoin; if it was lower than the opposite threshold, they sold one; and if it was in-between, they did nothing." I don't see them allowing for commissions and fees. OKcoin, at peak, had a trading volume so high tha…

> What this group at MIT may have done is reverse-engineered the fake trade generation algorithm.

Just to be clear, there is nothing wrong with this. Infact, sitting around and reverse engineering what other traders are doing is what many funds do. I'm in this group so I"m happy to answer questions if anyone has any.

> Every two seconds they predicted the average price movement (on OKcoin) over the following 10 seconds. If the price movement was higher than a certain threshold, they bought a Bitcoin; if it was lower than the opposite threshold, they sold one; and if it was in-between, they did nothing.

To be clear, this is the core of what most HFT systems do these days. Consume many different factors, give each factor a decay factor to tell the system when the signal goes stale and distill them all into a value that says, but or sell or stay.

It's worked well for Renaissance Technologies:)

http://en.wikipedia.org/wiki/Renaissance_Technologies

Re: MIT computer scientists can predict the price of Bitcoin

#17

Post by princeb »

HockeyPlayer wrote: post #7

They didn't include any discussion of: 1) execution (are they expecting to buy on the bid and sell the offer?). 2) commissions. They only made 3,362 yuan on 2,872 trades. A yuan is about 12 cents, so they are making 15 cents USD per trade. A .1% commission would cost them roughly 5 yuan per trade, but they are only making 1.17 yuan/trade.

OKcoin (the exchange they relied on in the paper for data) claims 0% commissions and a bid-ask spread of just 0.04 RMB. how real is that, I have no idea. but if you relied on this information you could believe that you can still take a few additional spreads worth of slippage (in addition to crossing) to compensate for execution latency and still come out very far ahead

Re: MIT computer scientists can predict the price of Bitcoin

#18

Post by joosters »

rdmcfee wrote: post #8

This kind of innovation is cool, but it's a zero sum game. The bitcoin markets are already driven by competing bots. Their profits will be reduced as other bots iterate on their algorithms.

Pleas don't spout out 'zero sum' like you think it means something insightful here. Any marketplace is 'zero sum' if you think about it. There's a buyer and seller. So what?

Re: MIT computer scientists can predict the price of Bitcoin

#19

Post by mattfrommars »

api wrote: post #3

... for the next 15 minutes. When you predict the future of a market, you change the future of that market. People start investing on the basis of your predictions and whatever opportunity for profit you found is closed. This is why HFT people iterate constantly and also why they put their servers as physically close to the market as possible.

> This is why HFT people iterate constantly and also why they put their servers as physically close to the market as possible.

Do you happen to have read this :-

http://www.nytimes.com/2014/04/06/magazine/flash-boys-michae...

Re: MIT computer scientists can predict the price of Bitcoin

#20

Post by andrea_s »

How many of the people who are bashing the paper in this discussion are machine learning experts? Especially the overfitting crowd - looks like emotional attachment to one's favorite topics is not really impacted by said person's overall education and expertise.
Post reply on HN