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Algo trading digital assets

johnmathews.eu

41–50 of 56 posts

Re: Algo trading digital assets

#41

I'm building a trading bot (ruby) that uses a collection of signals to trade. I have been working on the backtesting to do validation of different strategies across different pairs and intervals. The highest i've gotten it so far is 120X from start of LTC/BTC, but thats also on a fairly aggressive setting (and obviously idealistic); SMA can work, but it can also bite you. I think using only 1 technical indicator is a…

> The highest i've gotten it so far is 120X from start of LTC/BTC

120x sounds impressive (and overfitted), but if you compare this to a simple buy-and-hold strategy it is a rather depressing result.

Re: Algo trading digital assets

#42
post #9

Although simulations will predict good profits, you will probably lose your money doing this due to counterparty risk. Counterparty risk is the risk that, between the time you click the 'sell' button and the time you actually get the money deposited in your bank account a few days later, the exchange goes insolvent. When a given coin trades at different prices on two exchanges (which is what these arbitrage algorithm…

I don't think this analysis is about cross-exchange arbitrage

Re: Algo trading digital assets

#43

I'm building a trading bot (ruby) that uses a collection of signals to trade. I have been working on the backtesting to do validation of different strategies across different pairs and intervals. The highest i've gotten it so far is 120X from start of LTC/BTC, but thats also on a fairly aggressive setting (and obviously idealistic); SMA can work, but it can also bite you. I think using only 1 technical indicator is a…

> The highest i've gotten it so far is 120X from start of LTC/BTC 120x sounds impressive (and overfitted), but if you compare this to a simple buy-and-hold strategy it is a rather depressing result.

Indeed; for crypto trading, your unit of account matters a lot. I'd recommend using BTC as the unit of account, so you aren't counting 100x+ USD increases.

Re: Algo trading digital assets

#44
post #9

Although simulations will predict good profits, you will probably lose your money doing this due to counterparty risk. Counterparty risk is the risk that, between the time you click the 'sell' button and the time you actually get the money deposited in your bank account a few days later, the exchange goes insolvent. When a given coin trades at different prices on two exchanges (which is what these arbitrage algorithm…

You are correct re: exchange arb and gox, but it worked the other way around. Gox dollars were illiquid but BTC was liquid (until BTC withdrawals started failing just before collapse). So Gox had a higher BTC price than anywhere else.

Problem was, if you thought you were selling BTC -> USD you were wrong, you were selling for GOX-USD which were known to be worth much less than USD. In fact, they turned out to be worthless.

Re: Algo trading digital assets

#45
Since the history of markets there have been people who believed they could define a set of rules that would allow them to win more than they lose (reliably enough to make it worth the gamble).

There are many reasons why this is a fool's belief, at least with one strategy over a long term. As many people pointed out already, properly calculating risk is the usual failure. But even if you properly calculate risk, there are still possibilities (which you may deem unreasonably small to consider) which can happen. This is was the final straw that caused the 2007/8 failures. Any possibility greater than zero can happen. It doesn't matter what your models prepare you for. If that "virtually impossible" scenario occurs, you lose.

The more commonly successful approach to algo trading is to identify an inefficiency in the market and capitalize on that. But that is a limited time opportunity. You either eat up all the inefficiency yourself (if you're lucky), or other people catch on and help you make the market properly efficient. Then you're on to the next game. And in many cases, the inefficiency you are capitalizing on is due to a lack of capability of your broker(s). And brokers don't like when you cost them money repeatedly. Eventually they catch on, and they shut you down. So you trade your time for money by way of constantly searching for new brokers and gaining access to a market only so you can profit your way right out of that market.

Summary: create value to win. Any other method of profit is an eventual failure.

Re: Algo trading digital assets

#46
post #34

Earlier quoted context omitted.

I'm not exactly sure what you're asking. What's the goal of building a trading system? As someone who's worked on trading systems in a professional setting I'll give some thoughts. First and foremost the goal is to make money. I guess some people build these systems for fun/hobby or for the challenge/educational value. But huge amounts of money are spent on trading systems, with the goal that they increase profitabil…

HFT strategies are of course secret but aren't they really taking advantage of: 1. Faster speed to market. Basically, front running 2. Extremely low transaction costs. Not available to the retail trader or even electronic mkt makers. 3. Extremely low time in each trade - when you dispense with bell curve predicting - risk becomes only the time you are not flat. These are NOT prediction of future price. HFT don't make…

1 - being faster isn't front running. Nobody can hop in front of orders that are already visible on the lit market.

2 - The electronic market makers ARE mostly hft and generally get the best transaction costs and other privileges excluding taker-maker exchanges. Take NYSE parity or CME mass quotes for example

3 - Somewhat true but not in general. Becomes a murkier quality when hft is combined with longer term signals

> These are NOT prediction of future price. HFT don't make money 'predicting' the market - they are too sophisticated as traders to believe that's reliably possible. It is to some extent, but its very hard and theirs is a better play.

This is completely wrong. Plenty of HFTs do prediction to varying degrees, one of the biggest HFTs almost exclusively trades on price prediction. Other don't very much but hedge in very sophisticated manners. The smallest group is those who just use speed and fee structure to make money. There are certainly benefits to speed however (fill rate at the very least) and the market leaders are both intelligent AND fast.

Re: Algo trading digital assets

#47
During this summer I performed a similar analysis with SMA and variations from it. My initial explorations looked very promising so I started saving market data and build a Python back-tester to test it. Once I applied exchange fees, slippage and simulated over longer periods things changed. I was no longer able to create a profitable strategy that performed well in longer time-frames over multiple markets. However its something I still want to work with.

Re: Algo trading digital assets

#48
post #14
post #9

Although simulations will predict good profits, you will probably lose your money doing this due to counterparty risk. Counterparty risk is the risk that, between the time you click the 'sell' button and the time you actually get the money deposited in your bank account a few days later, the exchange goes insolvent. When a given coin trades at different prices on two exchanges (which is what these arbitrage algorithm…

This comment is almost like a copy-paste every time some kind of crypto trading article is submitted. I might have missed something in the article / code but this isn't an arb strat? It is just using some moving averages to try to follow a perceived trend in different trading pairs on a single exchange. Counterparty risk definitely still exists, but it is getting better very quickly with the growth of regulated US-ba…

Is there arbitration in cryptocurrencies? Arent transactions really slow though?

Re: Algo trading digital assets

#49
post #34

Earlier quoted context omitted.

HFT strategies are of course secret but aren't they really taking advantage of: 1. Faster speed to market. Basically, front running 2. Extremely low transaction costs. Not available to the retail trader or even electronic mkt makers. 3. Extremely low time in each trade - when you dispense with bell curve predicting - risk becomes only the time you are not flat. These are NOT prediction of future price. HFT don't make…

1 - being faster isn't front running. Nobody can hop in front of orders that are already visible on the lit market. 2 - The electronic market makers ARE mostly hft and generally get the best transaction costs and other privileges excluding taker-maker exchanges. Take NYSE parity or CME mass quotes for example 3 - Somewhat true but not in general. Becomes a murkier quality when hft is combined with longer term signals…

1) yes, if a large order has to be fulfilled across multiple exchanges then there’s a race which HF can win
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