Introduction to bitcoin and the automated trading robot 5
That's because when it comes to stock trading, even microseconds could make trades go wrong — such as your bot falling victim of a faster bot's bait offer. And guess who owns the faster servers and bots? With cryptocurrencies however, these small time increments are not nearly as important. Although I believe it's the golden age to be in the Bitcoin market because it's imperfect , I quickly abandoned the idea maybe too quickly?
Without boring you with technical details any longer, the solid trading APIs were mostly based on REST, which is not fast enough for what I was aiming for. For proprietary reasons I will abstain from publicly discussing a lot of details about the technical implementation. Although I get many requests to open-source the project, I believe that disclosing deep details of the models or prediction approach would hurt the advantages that this solutions has over the other existing bots.
However, for anyone willing to learn more about that, I would be more than happy to discuss in private, to some extent. Long story short, I ultimately ended up going for the stock market, but not into high frequency trading in its real meaning. My bot holds a single position from seconds to minutes sometimes even hours , which makes it more of an automated trader than a high frequency trader.
The reason behind this is that being an individual trader makes it extremely hard to compete with the big guys, as you're lacking perks such as very powerful hardware, advance trained software, and great locations for your servers. The closer to the stock exchange you are, the faster you receive the information. Large investment servers are literally paying millions to get their servers a few miles closer to the exchanges.
Their limitation is 3 requests per second, and this was more than enough for my new strategy. Getting solid historical financial data isn't cheap, and with so many people hitting the providers to scrape and download data, I don't blame them for limiting the offered information. Intrinio is a good provider for real-time stock quotes at very inexpensive prices. However, getting access to more in-depth data would always yield better results. I built the first prototype in a little under a month.
I was working late hours, trying to find time around my daily job as a freelancer. At this point the bot wasn't very smart. It took me about 2 more weeks to feed it with data until my error rate was satisfactory, and another 2 weeks to test it before putting it in production. Summed up, the technical implementation of the current version took about 4 months, with some more improvements along the way.
Since I publicly announced it , I've been receiving dozens of offers from trading companies. At the moment the system gives me an edge over other traders. If I sold it, I'd be giving this advantage to other traders and, subsequently, losing my lead. Although I do not exclude a future buyout, I am presently focusing on improving the product and trying to scale it. One of the things that I plan on doing soon is increasing the capital and therefore putting the bot through more trading volume.
There are tons of improvements I have in mind, especially on adjusting the position-holding time span, as well as solutions to make it more lightweight, facilitating larger volumes. I wasted way too much time trying to apply high frequency trading in Bitcoin. At first the idea sounded great, but I was soon facing a lot of technical issues trying to scale the amount of requests.
However, I am not yet convinced that it's impossible to achieve true HFT with cryptocurrencies, so it might be something I come back to in the future. After drifting away from the idea of HFT due to the technical limitations, I looked into a more analytical approach in automated trading. Most of those concepts couldn't be applied in the Bitcoin market, as it's highly unpredictable, making it hard to shape the models around it. That's when I decided to stick to the stock market.
Another big mistake in the beginning was relying too heavily on models. Instead of trying different approaches in analyzing the data I had, I relied solely on the models for identifying profitable patterns without investing time into other more direct solutions.
Models are only simple real world abstractions, and my common sense has saved me more than once. Now this is not by any means a reliable metric, and there are many factors that affect it.
The bot has not been tested enough to guarantee that this isn't just a fluke it might as well be. Large investment management companies would do anything to achieve those statistics, and I'm sure I won't keep up that amount of success in upcoming trades.
The success so far was also greatly impacted by the favorable market conditions, chosen stocks, and the fact that the bot was running intermittently. I learned this the painful way. Not too long ago the market went pretty crazy, and I'd be lying if I said that I wasn't expecting some major crashes of the stocks I was trading. Although my stop-loss saved me from some brutal losses, had I not stepped in at the right time, the bot would've ruined all the profit from the past months.
That event really got me thinking, and I decided to stop it running for a few days until I fixed that loophole. This was also a great learning experience for me, and I believe that without going through those ups and downs, I would've never managed to get the algorithm to where it is today. I have no regrets losing time on Bitcoin, as it gave me a deeper understanding of how cryptocurrency trading works, which might prove useful some day.
Probably my biggest single advantage is being a starry-eyed young dreamer. To some extent, this allows me to believe enough to put effort into ideas in that others wouldn't. That's what motivated me to persevere in finding those "backdoors" in the market.
While many people believe individual traders don't stand much of a chance against the well-equipped companies, I am here to prove that with the right implementation there still is plenty of space in the market. Another immensely helpful resource were the public research papers available online. In fact, I got tremendous help from papers published back in All cryptocurrency movements are based on domain specific media and conversations between traders.
Bitcoin traders, it can be said, are now akin to the jolly colonists selling stocks under buttonwood tree. That is all coming and at that point the market will harden itself against panics and booms. Until then we enjoy rises and dips and volatility that puts most bitcoin dilettantes off their lunch.
Ultimately new and old users are testing the limits of a system that, for a decade, has been untested. The futures market will be a big driver in growth and bust over the next few months as institutional investors begin using the currency. Yes, to those who are betting big on BTC. Again, I cannot tell you whether to buy or sell but the common expectation is that bitcoin raises to a set point and then fluctuates between a high and a low until the next run up.
Many expect foul play. Now that Bitcoin futures are available it is easy to buy into futures market first and then create a massive number of buys or sells of Bitcoin to ensure the price swings in favour of your futures contract.
Is this a bubble? Many are disappointed in the moves, believing the rise is happening because of market manipulation.