The Finance Camp| Grasp API Quantitative Skills in 30 Days for Green Hands (III)

“Unlike a stock market, the cryptocurrency market is a 24*7 market. Day by day, currencies traded every day and exchanges aggrandise in scale and number. In such a weak-form market, fundamental analysis mostly turns out futile while technical analysis stands out. “

Quantitative investment is an investment process that constructs probably profitable investment strategies by utilising developer tools, analysing history data rather than resorting to individuals’ subjective judgment. If you are yearning to become a quantitative investor, you need to extract token types, market conditions and prices by calling API for history data, and record them for investment strategy analysis, retrospective test, execution and improvement.

When it comes to commonly seen investment strategies, we have interpreted these strategies, including triangle and risk-free arbitrages, in the chapter The Finance Camp| Grasp API Quantitative Skills in 30 days for Green hands (II). Today we’ll move on to the next steps: the future-cash arbitrage, the statistical arbitrage and trend tracing.

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The price of futures is, in essence, the future’s price of the commodities while the current commodity price is how much a product is priced at the current stage. According to Keynesian’s interest-rate parity theory, the spread between the future’s price and the commodity’s current price should equal the cost of hold this commodity. In concise, the base rate = the current commodity price — the future’s price. The future-cash arbitrage is an available arbitrage when a substantial base rate surge between the future market and the current commodity market, to the extent that buying at the low price and selling at a high price can coincide. The future-cash arbitrage, in specific, has two subcategories: cash-and-carry arbitrage and reverse cash-and-carry arbitrage.

Cash-and-Carry Arbitrage: when the current commodity price goes underestimated while the future’s contract goes overvalued, it is profitable to create a spread position by selling out a certain quantity of future contract while buying in the equivalent value of commodities. When the prices of the future’s contract and product clear out, investors may close the position to gain the profits.

Inverse Cash-and-Carry Arbitrage: contradictory to a cash-and-carry arbitrage, it becomes a profitable option when the current commodity goes overvalued while the future contract goes undervalued. In this situation, investors may gain profits by creating another type of spread condition — — buying in the future’s contract and selling out the commodities at the same quantity. When the prices of the future’s contract and product clear out, investors may close the position to gain the profits.

Here generates the Space of Arbitrage.

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Unlike risk-free arbitrages, statistical arbitrage is a type of risk arbitrage employing taking advantage of commodities’ statistical history and drawing a general rule. This arbitrage approach may hold but remains obscure — — it is uncertain whether such a history-data based rule will prevail.

The underlying logic of statistical arbitrage entails adopting tools of statistical analysis, searching out the correlation between a pair of interrelated commodities’ price, and checking on the probability distribution of such a correlation. To proceed, investors need to conduct a hypothesis test on the probability distribution and ascertaining the interval of rejection. As the market price will finally come to an equilibrium, there will be a more significant probability of a successful price arbitrage once the cluster of the real market prices turns out in the interval of rejection.

Presume Coinsuper’s ETH unit bid price and Coinbase’s ETH unit ask price goes at a stable equilibrium, say the average spread is 1 USD, then:

When the spread goes up and hits a certain level (2.5 USD), then it would be recommended to buy it in on Coinbase while selling it out on Coinsuper. Investors may action a reverse position closing when the spread falls back to 1 USD. Having no transaction fee deducted, arbitraging on 1 ETH means a profit of 1.5 USD.

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Trend tracing is to make an investment decision according to a particular asset’s momentum. Colloquially speaking, Buying in a surge, and selling in a plummet.

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For instance, randomly select a trading pair BTC/USD on Coinsuper. Click on “indicator” and call the MACD indicator. The red line stands for MACD line, a line which is shaped by the spot spreads = the past 26 days’ average price — the past 12 days average price. Meanwhile, the blue represents the signal line, showing the results of the average MACD in the past nine days.

Owing to the average MACD’s fundamental role, the signal line goes steeper than the MACD line. Therefore, we may conclude that:

A buy-in signal lights up when the red MACD line pierces through the blue signal line from bottom to top.

When the red MACD line pierces through the blue line, a sell-out signal lights up.

In recent decades, owing to the crypto market’s development, trend tracking is no longer a matter of visual signals. Nowadays, crypto amateurs and professionals, one group following another, broadly share the hobby of trend tracing. They unanimously stare at the on-going news!

Trend tracing can be a versatile approach, the popularity of which shows the greed and dread, FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty and Doubt) rooted in humankind’s mind — — pedestrians are triggered to come in when they fear a miss-out. However, what turns out more essential is the apprehension of basic knowledge, which constitutes a data-based mindset rather than an impetuous one.

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Hint: all the articles may contribute to your investment as a reference at most, which cannot be treated as an investment suggestion or strategy.

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Coinsuper is a cryptocurrency trading platform, support USD/Cryptocurrency trading pairs,help you to buy or sell cryptocurrency quickly and briefly.