BigData. Startups. Trading.
BigData. Startups. Trading.
This is more of a “How to build your own algotrading strategy – the Ethereum edition” and not a “make money rapid” blog postbode.
It is also a efectivo example with existente comes back (and auténtico production errors that cost mij money) where you can see how to identify opportunities, why algotrading is awesome and why risk management can save your booty.
I get this question almost on a daily poot. How can I find a good strategy? How can I built my own? Do I need to have a PhD ter mathematics? Statistics?
Newsflash: If I can write a strategy, anyone can write a strategy. Trust mij on that. The only trick is to look for a ordinary one.
Update: This postbode has bot rewritten “at least” five times (spil “The DAO schouwspel” escalated) and it is the flawless example of a strategy doing a total circle.
I embarked getting involved with Ethereum early on spil I indeed liked the “run your algorithms on the blockchain” thing. When TheDAO came out, I read everything about it and loved the idea. You don’t need to understand what Ethereum, theDAO, blockchain is at this point (I promise I will ramble on a another postbode). The same ideas apply to Forex, Stocks even Pokemon nut.
My four step – captain demonstrable – system
I personally, have a specific way that I work.
Step one : Identify an idea.
My idea te this case is that there are a duo of exchanges suggesting Ethereum and DAO tokens. What if there wasgoed an arbitrage inbetween those?
Step two : By hand test the idea.
If something “kinda works”, I am on to something. All I had to do is execute all the steps by hand and write down any fees, conditions or anything that should be documented.
Step three : Automate
This algorithm is not a high frequency trading algorithm. There is a considerable amount of time risk (which you can eliminate spil wij’ll see zometeen on) but what I did could be done by hand. The problem is that I would have to spend all time te vuurlijn of my pc, checking if there is an arbitrage condition and if there wasgoed, I had to act quick and without messing up. Oh and I had to recruit five of my friends to scale this up.
Long story brief, I spent Presidents’ Day writing a plain program that will replay all my manual steps. The program would crash and it wasgoed not more that 100 lines of code. This is the gegevens collection stage where I see if there is an advantage that algorithms can give mij. Advantages can be:
- Something that be automated and run 1000 of times vanaf seconds or 1000 times ter parallel
- Something that thinks quicker than I can
- Something that has no feelings to screw up my system
If there is at least one or more conditions met, I will commence building and rewriting the poco.
Step four : All ter
I am kidding and you’ll see te a bit why risk management is super significant te this business.
Let’s discuss a little bit about what this arbitrage wasgoed.
The idea is: “I wonder whether kraken and Shapeshift have different prices for the same assets”. This is a classic arbitrage case (kraken and Shapeshift are “exchanges”). I could exchange DAO for ETH on kraken, transfer ETH to Shapeshift, exchange ETH for DAO and send them back to Losbreken and due to price inconsintencies I would end up with more DAO than I originally began! Risk-free money, the best kleintje of money.
You can make money spil long spil ETHDAO from kraken * DAOETH from ShapeShift >, 1 (+ fees + gas). Very plain formula, right?
Every cycle, wasgoed a 2% to 10% come back of my renta. After a while, I began hitting the boundaries of Shapeshift and I had to make this run te parallel.
The question is what would you do if you had an algorithm that makes you 10% of your money every 20 minutes? The stupidest thing you could do is waterput tons of money into it.
If you are not común with the Greek word hybris, consider yourself fortunate. Hybris is when you think that you are invincible, better than gods. And this is the fattest NO NO you can do ter trading.
After a duo of weeks, theDAO wasgoed hacked. 160 million dollars were stolen (or should I say frozen?) and noone knew what wasgoed going to toebijten. For mij, this happened, Ten minutes before boarding a plane to fly to Fresh York. Hybris. Or spil people ter the US say: Fuck.
I wasgoed brainy(fortunate?) enough to have good risk management habits (thank you Forex). I never, everzwijn, everzwijn risk more that 2% of my caudal even if it seems the best zuigeling of overeenkomst.
Fortunately, the money were “restored” and I could withdraw/convert my DAO to Ethereum (but yes, I bought in-flight WiFi to keep up with what’s going on).
This entire practice is a reminder that there are always things that you cannot predict. Things that you cannot control. This wasgoed a systematic risk and there wasgoed no way I could have seen it coming. Pushing buttons and building algorithms is not enough. Decent risk management and knowing when you need to take a chill pill is what can keep you ter the spel.
On the next postbode, I will postbode the entire algorithm and go line by line. I also project to discuss a little bit more about theDAO and Ethereum. If you don’t want to miss any of thesis and get some more extra informatie, feel free to sign up to the newsletter where I talk about fintech, algorithms and the markets.
By the way, if you want to make your own cryptocurrency and learn more about Ethereum, I have a fine postbode with the code posted here.
Coming next: Diving into the ETHDAO algotrading program
If you have more terugkoppeling, ping mij at jonromero or signup to the newsletter.
Legítimo outro. This is an engineering tutorial on how to build an algotrading toneel for experimentation and Joy. Any suggestions here are not financial advices. If you lose any (or all) you money because you followed any trading advices or deployed this system te production, you cannot blame this random blog (and/or mij). Love at your own risk.