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Knowing when to buy or sell, double-down or cut your losses, hold ‘em or fold ‘em, is the science and art of trading. So when we finished back-testing one of our most hotly-anticipated projects recently, we were immensely proud of the results. The theory is confirmed and the techniques are working. Our Social Sentiment Indicator can sense upcoming trends in Bitcoin value to help investors time trades for a consistent, positive return.

When an SSI is top gear

Let’s wind this back a step or two – as you may not know how a trading indicator works. Thankfully, like car ‘indicators’ in UK-English, these blinking lights signal a movement in a given direction. So in the world of trading, where having any insight into the future direction of a trending price, any reliable indicator can be ‘gold-dust’.

Which way to the moon, Lambo?

In the example of our Bitcoin SSI, the indicator provides a highlight of current trends in its trading value. The theory is that if the sentiment is measured to change by a significant value, from positive to negative (or vice versa), this will frequently mean that prices will be changing with it.

Millions of potential market-makers

The technology behind the indicator is a development in several techniques including Natural Language Processing (NLP). This is the study and science of helping computers and learning-machines understand people’s use of words in natural communication. Unlike the speech-recognition NLP that Siri or Alexa would use, for our indicator it isn’t just the words being understood that matters. The context and sentiment of the social media post is key to the information we need to understand.

This way, a post by anyone, happy to share publicly, mentioning their views on Bitcoin, becomes a potential market influencer. If their post shows enough of a leaning towards a positive or negative view on Bitcoin, the post will be scored and then added to the other thousands of scores collected within the hour. The statistics are then processed through a function to remove exceptions, outliers and some of the ‘noise’ within the data. The end result being the Social Sentiment score – demonstrated on a simple gauge and supporting graph.

 

Results and Returns

The SSI has been back-tested over 11 months, with historical social-media data cross-referenced with the historical Bitcoin market price data. Following a basic strategy of buying and selling Bitcoin using prompts from the SSI, a return-on-investment (ROI) of around 150% was achieved. This is in theory of course – we don’t trade with company funds!

HTF?

As Pipster, we are not at liberty (by regulation) to provide direct trading ‘signals’ which dictate when you ‘should or shouldn’t’ trade. So how you employ the SSI must essentially be left to your own interpretation and theory. However, we can provide some supporting theory and suggest that when sentiment changes (or ‘flips’) from positive to negative (or vice versa). These can be the key times to expect a significant change in the trading price. But at times when sentiment is not very strong or ‘flipping’ is frequent, the understanding would be to wait for a stronger signal and potentially ‘hold’ your current position.

We’ve also seen early versions of our SSI being tested, used and reviewed on other platforms such as YouTube. In this video, a Bitcoin enthusiast who posts under the name of ‘Bitcoin Trading Challenge’, discusses why Pipster’s SSI is his favourite and how he gets the most out of it. There’s also a channel in our app dedicated to the SSI and how Pipster users are trading with it.

“Strong message here…”

What’s important to know, is that indicators, though incredibly useful in forming or reinforcing a strategy for investment, are not foolproof buying or selling signals. They should be used in conjunction with a considered and responsible approach. One which factors in other – less-statistical influences, such as current events and other ‘fundamental’ factors. For example: should there be a significant event in the world of Bitcoin, such as a scheduled fork or long downtime – such factors can easily influence values and should be taken in to account before trading.

Always in beta 😉

Our very own data-science team designed and developed the technology behind our SSI and collectively go by the name of Robota Intelligence. Although they’re constantly developing the SSI and aiming to improve its performance, other exciting tools are also in-the-making. Pipster users can look forward to the roll-out of our ‘Intelligent Trade Management System’. This further uses techniques in AI such as deep-learning and machine-learning to help users stay more up-to-date and in control of their positions. This function is scheduled for release later in the year. We’re also developing a potentially ‘global’ sentiment product with wide-ranging applications in new sectors, such as sports and retail markets. Watch this space!

The Bitcoin SSI is currently only available in Pipster – just head to Trade > BTC/USD > Social Sentiment to access. Use our new share button either on Twitter (tagging @getpipster) or via our Bitcoin SSI channel in the app. Please feel free to share your successes and failures, and ask any questions. We can’t wait to see how you use it. 

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