Alexeyporubay wrote: ↑Fri Oct 27, 2017 9:39 am
marksmeets302 What do you mean you made a bot that earned you 3 years itself, did not understand, bot what? bot at the exchange?
The basic idea is very simple, and I suspect it will work in today's environment as well. It's after an idea of Claude Shannon and is also called Shannons daemon. You'll find a reference to it in Poundstone's Fortunes Formula. Let's say you've got some amount of money you're willing to risk. Use half that amount to buy bitcoins, keep the other half in cash. After a while the bitcoins will be worth more, or less. Let's say they went down. This means your bitcoin portfolio is now worth less than your cash portfolio. Buy an amount of bitcoins in such a way that the two are worth roughly the same amount. Now let's say the price of bitcoin goes up, to the original level. Sell bitcoins to make the two parts equal again. If you do the math, you'll see you made a little bit of money.
If you can repeat this rebalancing very often it will make you some nice profits. It works very well if there's a lot of volatility. I made a computer program that trades on this simple idea. Around 2012 or so the price of bitcoin often fluctuated by more than 10, sometimes 20% per day. It was very easy money. Unfortunately there's a huge tail risk: you have to keep your money and coins at an exchange because of the frequent trading. The exchange is the weak point here. You can make a lot of money steadily and then suddenly discover it's all gone. Another tail risk is that the price of bitcoin goes to zero; in this scenario you keep buying until all your cash is gone. If you know of ways to hedge against these risks, let me know.
You can extend Shannons daemon to multiple assets and do really marvelous things with it. For instance the permanent portfolio first introduced in the eighties by Harry Browne is based upon that same principle: you take a bunch of assets that are in itself highly volatile and keep them in equal proportions. The result is a portfolio that is very low risk but with a return that is comparable to a 100% stocks portfolio.