Important Letter From Dan, The System Administrator. Do you want to get rich quickly with cryptocurrency?
Warning ⚠ You might not want to hear this.
I wanted to get rich quickly.
The pandemic had just hit and I had some stimulus money burning a hole in my pocket.
After a few month of boring HODLing, I discovered the high leverage futures markets. (Uh oh).
For some reason, it was easy at first!
I was up 5 grand in a day. I thought I could become a millionaire within a month.
Boy was I wrong.
The short version of the story is that I LOST IT ALL. One bad trade after another. Higher and higher leverage until finally, my account was completely liquidated.
This made me so angry at myself... and sad at the same time. How could I be so foolish when if I had just HODL'd... I'd be so much further along. That's when I started making a plan to even the odds.
I learned that trading strategies are useless without discipline and risk management. I knew that if I was going to trade again, I would need a clear system and to stick with it. Even with a good system, there is always the temptation to increase leverage, lower your stop loss further, etc.
In other words, even if I knew exactly which coins would go to the moon tomorrow, I could still lose! Either by holding the trade too long, not holding long enough, or getting greedy.
There are many reasons why most traders fail. Greed, emotion, lack of discpline, risk management. It doesn't matter how good the strategy is. You could have the perfect startegy and STILL LOSE. Keep that in mind because I'm not here to sell you a golden goose.
This is my personal research and if you're interested in what I'm doing, I'd be happy to show it to you. I cannot promise any financial success.
Last year, I started developing my algorithms.
After studying candlestick patterns for a while, I decided to analyze social media using Twitter's API and CoinGecko's API. That's when things started changing.
New algorithms based on technical analysis, predictive analysis and social media.
Coins I had never heard of were popping out of the woodwork.
Opportunities were appearing in front of me once again.
Next, I learned about correlation analysis. Now I was getting somewhere.
Does bitcoin always lead the price action? Think about it. If bitcoin falls, all the altcoins fall too! That's correlation.
Is bitcoin following the stock market? Yes! That's what I started understanding with correlation analysis. It's always changing - but one signal is often leading while the others follow with a delay.
What about social media? If more people are talking about a coin, does it go up in price? Is there a delay between social volume and price? ;)
If we could measure this and catch the delay... we could place a trade and come out on top.
I kept working on my new computer programs.
A few months later I had several tools at my disposal:
- Lagging correlation analysis of Binance spot vs futures prices
- Lagging correlation analysis of social volume vs price
- Social media intelligence
The truth is that some days there is nothing to trade. Those are the days when I have to sit back and read a book or do something else and just wait for the next opportunity.
I can't promise any specific results with these tools... but I have decided to make them public for the first time since I started all this.
How does quantitative analysis work? Correlation of social volume and price
When social media volumes increase for a particular coin or token, does this necessarily lead to an increase in price? If it does, this is known as a positive correlation between social media volumes and price.
A lagging correlation is when the price moves after the social media volume.
A lagging correlation occurs when one asset or signal follows another with a delay (lag). With social media volumes, we are looking social volumes that lead the price. That way, when we have a high lagging correlation we can predict that the price will go up the next day after social volume increases. Conversly, if the correlation is negative we can expect the price to dump following an increase in social volume.
Lagging correlation is what the system looks for and will generate a coefficient between -1 and 1. A correlation coeffient of 0.5 or greater may indicate a good chance that the price will go up the next day. A negative correlation is the opposite, it means the price is more likely to go down.
For example, if you see a correlation coefficient of -0.5, there is a good chance that the price will drop the next day, even though the social media volme has increased.
0 to 0.5 means a weak positive lagging correlation
0.5 to 1 means a strong positive lagging correlation
-0.1 to -0.5 means a weak negative lagging correlation
-0.5 to -1 means a strong negative lagging correlation