Investment strategies used in Trading Bot
24 November 2022
How our Trading Bot works
The operations performed by the bot are based on predicting the future average rate of BTC (avg) using data from the Sentistocks model. Changes in the average rate are the basis for setting sell or buy prices. Sell or buy operations depend on the bot’s current position and the predicted trend of the future average BTC price. The bot invests the entire capital. It has a built-in mechanism to protect against large losses, the level depends on the strategy adopted. The bot as a tool doesn’t have a mechanism – a “typical” short (that is, “borrowing” BTC to sell with the need to buy it back). The bot’s action uses the classic mechanisms of the foreign exchange market – that is, entering a short position on BTC before the expected fall in the price and entering a long position on BTC before the expected rise in the price. In this way, it also realizes a play on a drop in the exchange rate, saving the exchange commissions associated with shorting.
Two basic strategies for Trading Bot
We have developed two basic strategies. We tested them in historical studies starting January 1, 2021.
- DYNAMIC strategy – acted best when there is a long-term uptrend, possibly interrupted by relatively short periods of decline or following a sideways trend. A backtest preview of the strategy can be found here.
- CONSERVATIVE strategy – is successful in a downtrend (protected from significant losses), also records positive results in an uptrend and is passive in a sideways trend, waiting for a clear signal to sell or buy. Backtest preview of the strategy can be found at this link.
Strategy results in 2021
The year 2021 was characterized by a long-term upward trend for BTC. Hence, the use of the Dynamic strategy would yield significantly higher profits (+606%) than if the Conservative strategy was used (+176%). But even with the latter strategy, the achievable gains would still be significantly higher than with a typical HODL (+59%). Importantly, the values quoted are net returns, after deducting stock market service costs.
Which strategy works in 2022 (through November 20)
The year 2022, in contrast to the previous year, is a year of long-term, deep collapse in the value of BTC. For such a market, it would be a mistake to use the Dynamic strategy, although the results of this strategy (-15%) compared to HODL (-64%) are more favorable anyway. For such a situation as currently prevails in the market, it is clearly advantageous to use the Conservative strategy. Thanks to it, not only is the invested capital protected, but it is even possible to generate profits (+39%).
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