Algorithmic Trading Comes to Crypto

Oleg Seydak, CEO at Blackmoon

When it comes to financial investments, most people have the same goal – maximizing the profit.

Most of us want to make money, and in this sense, the more, the better.

People employ numerous investment strategies to try and achieve the maximum profit possible from their investments. Unfortunately, these efforts are often counterproductive to the investor’s goal. For instance, people spend hours pouring over market reports, watching for market movements, or following their favorite gurus on social media. They make critical decisions based on this information, and all too frequently, those decisions are to the detriment of the ultimate goal – maximum profit.

Unfortunately, the problem isn’t the information. It’s ourselves.

There are hundreds of cognitive biases that impact people’s ability to make the best determination in any given situation – including their investment decisions. As a result of these, investors unwittingly integrate emotion and personal preference into decisions that should be dominated by logic and intentionality.

Bias Impacts Our Financial Decisions

While there are hundreds of biases that affect our decisions, Deloitte identifies three biases that primarily hinder decision making – especially when finances are involved. In a detailed report released in conjunction with The Wall Street Journal, Deloitte recognizes optimism bias, expert bias, and narrow framing as three of the most harmful prejudices afflicting our investment decisions.

Optimism Bias

Optimism is an endearing quality in relationships, but it can be utterly destructive to wise investment decisions. As Deloitte notes, “Optimism, while not categorically bad, is often closely tied to overconfidence.”

In a cited study, CFOs were asked to provide a confidence interval for predetermined stock market index funds. Only 33% of their selections actually performed as expected. The study found that these CFOs were equally as bad at predicting their own company’s market performance.

Most people, even C-suite executives are frequently wrong, but it’s difficult to recognize optimism before it’s too late. In other words, people tend to be unabashedly optimistic until the negative results roll in, which, unfortunately, they frequently do.

Expert Bias

Optimism bias is frequently fueled by expert bias. Investors tend to have a select group of “experts” that they follow and listen to. This closed circuit of advice creates an echo chamber that falsely feeds optimism.

Many experts are really nothing more than pundits, and as the report notes: “Just because someone was the most accurate in the past does not mean we should only rely on his or her opinions going forward.”

Narrow Framing

Both optimism and expert bias coalesce in narrow framing, the compartmentalization of wholistic decisions into individual choices. For instance, investors frequently focus on one data point or indicator rather than making holistic choices using complete information.

When considered together, it’s evident that, despite our abounding confidence, people are definitely not as good at making decisions as we think we are.

You Haven’t Seen Anything Yet

Cognitive bias undoubtedly plays an integral part in sidetracking our investment decisions, and its influence is amplified when investors enter crypto markets. In fact, crypto markets can be so tumultuous that investors use an acronym, FUD, to express that fear, uncertainty, and doubt are prodigious among crypto enthusiasts.

Unlike traditional investments, cryptocurrencies trade 24/7. The market never closes, which means that it is always active, and that activity can be uncomfortably aggressive. Double-digit daily price increases or decreases are not uncommon, and this invites investors to make knee-jerk decisions based on relatively limited information.

Moreover, the crypto community is dominated by “to the moon” expectations, and FOMO, another crypto-centric acronym referring to the “Fear of Missing Out”, becomes a viable investment model for too many people.

In short, crypto investors have their work cut out for them.

Fortunately, they don’t have to navigate crypto markets alone.

Crypto markets are currently experiencing a prolonged downturn, but there are plenty of opportunities to profit. However, those opportunities are unlikely to be discovered using our own intuition, research, or decision making. Our cognitive biases make it improbable that we will succeed.

However, while people are inherently bad at making rational decisions, computers are designed to only make rational decisions. When coupled with the power of AI and machine learning, these strategies provide a compelling, computer-driven method for capitalizing on crypto markets.

Disclaimer:

Investment in cryptocurrencies carries high degree of risk and volatility and is not suitable for every investor; therefore, you should not risk the capital you cannot afford to lose. Please consult an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Regional restrictions and suitability checks apply.

Oleg Seydak, CEO at Blackmoon

When it comes to financial investments, most people have the same goal – maximizing the profit.

Most of us want to make money, and in this sense, the more, the better.

People employ numerous investment strategies to try and achieve the maximum profit possible from their investments. Unfortunately, these efforts are often counterproductive to the investor’s goal. For instance, people spend hours pouring over market reports, watching for market movements, or following their favorite gurus on social media. They make critical decisions based on this information, and all too frequently, those decisions are to the detriment of the ultimate goal – maximum profit.

Unfortunately, the problem isn’t the information. It’s ourselves.

There are hundreds of cognitive biases that impact people’s ability to make the best determination in any given situation – including their investment decisions. As a result of these, investors unwittingly integrate emotion and personal preference into decisions that should be dominated by logic and intentionality.

Bias Impacts Our Financial Decisions

While there are hundreds of biases that affect our decisions, Deloitte identifies three biases that primarily hinder decision making – especially when finances are involved. In a detailed report released in conjunction with The Wall Street Journal, Deloitte recognizes optimism bias, expert bias, and narrow framing as three of the most harmful prejudices afflicting our investment decisions.

Optimism Bias

Optimism is an endearing quality in relationships, but it can be utterly destructive to wise investment decisions. As Deloitte notes, “Optimism, while not categorically bad, is often closely tied to overconfidence.”

In a cited study, CFOs were asked to provide a confidence interval for predetermined stock market index funds. Only 33% of their selections actually performed as expected. The study found that these CFOs were equally as bad at predicting their own company’s market performance.

Most people, even C-suite executives are frequently wrong, but it’s difficult to recognize optimism before it’s too late. In other words, people tend to be unabashedly optimistic until the negative results roll in, which, unfortunately, they frequently do.

Expert Bias

Optimism bias is frequently fueled by expert bias. Investors tend to have a select group of “experts” that they follow and listen to. This closed circuit of advice creates an echo chamber that falsely feeds optimism.

Many experts are really nothing more than pundits, and as the report notes: “Just because someone was the most accurate in the past does not mean we should only rely on his or her opinions going forward.”

Narrow Framing

Both optimism and expert bias coalesce in narrow framing, the compartmentalization of wholistic decisions into individual choices. For instance, investors frequently focus on one data point or indicator rather than making holistic choices using complete information.

When considered together, it’s evident that, despite our abounding confidence, people are definitely not as good at making decisions as we think we are.

You Haven’t Seen Anything Yet

Cognitive bias undoubtedly plays an integral part in sidetracking our investment decisions, and its influence is amplified when investors enter crypto markets. In fact, crypto markets can be so tumultuous that investors use an acronym, FUD, to express that fear, uncertainty, and doubt are prodigious among crypto enthusiasts.

Unlike traditional investments, cryptocurrencies trade 24/7. The market never closes, which means that it is always active, and that activity can be uncomfortably aggressive. Double-digit daily price increases or decreases are not uncommon, and this invites investors to make knee-jerk decisions based on relatively limited information.

Moreover, the crypto community is dominated by “to the moon” expectations, and FOMO, another crypto-centric acronym referring to the “Fear of Missing Out”, becomes a viable investment model for too many people.

In short, crypto investors have their work cut out for them.

Fortunately, they don’t have to navigate crypto markets alone.

Crypto markets are currently experiencing a prolonged downturn, but there are plenty of opportunities to profit. However, those opportunities are unlikely to be discovered using our own intuition, research, or decision making. Our cognitive biases make it improbable that we will succeed.

However, while people are inherently bad at making rational decisions, computers are designed to only make rational decisions. When coupled with the power of AI and machine learning, these strategies provide a compelling, computer-driven method for capitalizing on crypto markets.

Disclaimer:

Investment in cryptocurrencies carries high degree of risk and volatility and is not suitable for every investor; therefore, you should not risk the capital you cannot afford to lose. Please consult an independent professional financial or legal advisor to ensure the product meets your objectives before you decide to invest. Regional restrictions and suitability checks apply.