Using Sentiment Analysis, Trader Makes 29% ROI Trading Bitcoin

  • Analyst Marc Howard developed a trading algorithm that employs Google Trends to measure market sentiment
  • Using his algorithm, he produced a 29% ROI trading Bitcoin over the past 90 days.

As reported on HackerNoon, cryptocurrency investor Marc Howard has created a unique, but highly profitable, Bitcoin trading algorithm that uses “Sentiment Analysis.”

Sentiment Analysis, across all markets, is a tool to judge where the market is going. Many traders can get useful insights on the market’s “temperature” by talking with traders and seeing how they feel about a certain asset.

Now that it’s 2018, traders don’t have to talk to other traders to measure sentiment - they can go to the internet. Specifically, Google Trends.

Google Trends is a website that tracks how often a term is searched on Google. For example, here’s the Google Trends result for “bitcoin” for the past 12 months:

bitcoingoogletrends.png

The chart above looks oddly similar to the Bitcoin price chart.

Using this knowledge, investor Marc Howard decided to see if he could create an algorithm that would trade based on changes in Google Trends.

The results are great: over 90 days, the algorithm produced a 29% return on investment. For a $100,000 model portfolio, that’s $28,839 in profit (minus trading fees).

Specifically, here’s how Marc designed his algorithm.

First, he searched Google Trends for “BTC USD” and “Buy Bitcoin” over 90 days. Both of these searches measure interest in Bitcoin, but when there’s more people interested in buying, Marc suggests the price will go up.

Next, Marc created a ratio of “BTC USD” to “Buy Bitcoin”. He found that if “Buy Bitcoin” divided by “BTC USD” was greater than 35%, more people were interested in buying. If it was lower, then buying interest was not rising.

To further refine the algorithm, Marc monitored daily price differentials.

Next I tested when the BTC price difference closes more than $80 above the prior day’s close price, this makes the pattern more consistent.

Marc began testing his algorithm, starting on July 6th, 2018. The results were strong. Even in a bear market, Marc was able to gain a 28% ROI. This hints that sentiment analysis could be a useful tool in playing the market.

Despite his early success, Marc admits there could be improvements. Marc’s buy/sell signals (35% ratio and $80 difference) were arbitrary numbers, and there were no tests performed to determine the best signals.

In addition, the market ranged from $6,000 to $8,000. These sentiment analysis tools might not work during a raging bull market, when everyone and their mom is looking to buy Bitcoin

Tim Draper Reveals He Owns Cryptocurrencies Other Than Bitcoin

Michael LaVere
  • American venture capitalist Tim Draper revealed owning more crypto-assets than just bitcoin.
  • Draper expects the value of bitcoin to increase as a result of the Federal Reserve's money-printing tactics. 

American venture capitalist and bitcoin bull Tim Draper claims to own “a lot of other cryptocurrencies” in addition to BTC. 

Speaking in a recent interview with British entrepreneur Rob Moore, Draper claimed that his diversified portfolio in crypto-assets had led to him being “surprisingly up” despite the economic impact of the coronavirus. 

He said, 

You know, when I played Monopoly, I never showed anybody how much money I had so so that you're not gonna get an up or down.

Draper also criticized the U.S. Federal Reserve’s money-printing response to the COVID-19 pandemic, which he said would lead to the dollar crashing in value. He claimed the impact of the falling dollar would drive more value into bitcoin. 

He said, 

There are only 21 million of them and they are going to be more and more valuable as you see governments have less and less.

Draper continued, saying his experience working as a venture capitalist and interviewing entrepreneurs has given him a “pretty good view” of what the future is going to look like. He expects governments to move towards decentralization in a competition for their own citizens. 

Featured Image Credit: Photo via Pixabay.com