@myoungho, thanks so much for note about the openness. That’s a value I’m really pushing more than anything. Both crypto and trading systems have tough reputations to overcome…I want us to be leaders in changing that perception and we can only do it by being open. I think as we grow, we can become more and more open, even ultimately exposing our systems.
In terms of reacting, that’s actually a keen observation. Let me give this explanation-
Our system ingests a large set of data. In the case of ETH, it then runs that data through 1,617 lines of ML-generated code, each of which represents a scenario it has encountered before. It does this rapidly and continuously.
Its goal is to predict large price changes about 24 hours before they happen.
As it turns out, one of the first things it considers in all of that processing is recent price change. It effectively wants to “ride the wave.” That means it figures the best approach is to hop on to existing movements. It senses a swell and tries to surf it.
This is opposed to trying to find reversal points. Instead of riding the wave, it could trade based off of reversal patterns (in traditional technical analysis, this would be overbought and oversold). For a while, our Litecoin model was doing this. It behaved differently than the others.
It turns out, “reversal trading” is a risky approach in crypto trading. In the 2017 run up, indicators like RSI were screaming “overbought” way early. If you listened, you would have sold and missed out big time. On the way down, they were saying “oversold” but the markets kept crashing. If you tried to buy in then, you’d get burned.
We have a post on this here: https://crypto-ml.com/is-rsi-a-good-technical-indicator-for-bitcoin/
The point is, our models do react. But they *ideally* capture most of the move up and avoid most of the move down. Over time, this appears to be the optimal approach. I got most of the 2017 rise and missed most of the following drop…invaluable.
In terms of comparing to DCA, you could do some quick spreadsheet math, but you have the same problem as HODL. When do you start DCA? When do you stop and take profit? Neither DCA nor HODL have an answer for that.
With trading, on the other hand, you should be able to start and stop at any time. You don’t have to try to time the market. You just start trading when you’re ready and stop when you want to move on to something else. Hopefully, you make good money in between. That doesn’t work with DCA or HODL.
@martyf thanks so much for sharing your perspective and experience. Your “hem and haw” statement concisely summarizes my many years of trading. 🙂
And not quite black magic, but ML is a black box for sure. Not being able to know the exact mechanics creates a layer of separation that you don’t have when it comes to technical or fundamental analysis.
Great discussion guys.