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[😇 Follow Captions to learn more 😇] hello everyone I'm Ritvik Dashora and I'm
back with a new video and some new learnings in this video i'm gonna show you the key to
creating a profitable bitcoin trading bot and i bet you you are going to love this key concept
that i'm going to show in this video. Bitcoin, you can see although it's not a big difference the
spread or the alpha is just 0.08 percent but still it has some alpha but something of my more
interest is that the sharp ratio of our bot is more than the sharp ratio of the bitcoin buy and
hold strategy we have created something great here in this video, we will make a bitcoin paper
trading bot using binance WebSocket in python also being a finance professional I will keep my
focus more towards the implementation of a trading strategy in the bitcoin trading bot then just
like making a very hard to understand algorithm and guys we don't need to open an account in the
binance platform to make this trading bot we are not spending any money today because we
are we will create a paper trading simulator to make this bot if we are success successful
then yes we can trade in binance as well like we can synchronize it with the binance
api as well so before we get into that if you are new around here hey I'm Ritvik and on this
channel I turn you into a successful financial programmer, here I upload videos on trading bots
highly valuable finance APIs implementation of ai in finance etc etc so that's something of your
interest then smash the subscribe button and hit on the bell icon also watch this video till
the end and there is an amazing gift for all my lovely subscribers also shout out to part-time
larry as I got the motivation to make a video on bitcoin trading board from him let's make the
strategy and a prototype of the model this is going to be a long video so sit back relaxed grab
a coffee and enjoy this video I bet you this is gonna be one of your best time investment of your
life for our trading bot we will use a very simple safe and cost-effective strategy which is known
as core-satellite approach and this is basically a strategy which is used a lot by portfolio managers
and the concept behind this is that we invest a significant amount of money into a benchmark or I
would say in passive investment and then remaining amount in actively managed investment so what we
do is we follow a particular benchmark through passive management and then we try to
grab the alpha or I would say the extra return additional return through the actively managed
portfolio and actually I have dropped a link of a cfa blog which explains what is the
core-satellite methodology if you want to know more then you can just click on that
and read it so what is the core in our strategy what we will be doing is we will invest 80
percent of our portfolio into bitcoin directly and then we will play with the remaining
20 % in order to reduce the volatility of our portfolio now what I am focusing is into
reducing the risk as much as possible because we all know that cryptocurrencies are
highly volatile and I'm more interested to get a higher risk-adjusted return, not just a higher
absolute return so this is my main focus behind making the trading strategy so again 80 directly
in bitcoin and 20 will be actively managed in this slide you can see that if we have a
positive outlook if the bot has a positive outlook then we will have the overall exposure
of 80 percent which is passively managed and 20 which is actively managed so the 100 of our
portfolio will be into bitcoin if the bot predicts that we will have a negative outlook then 80
percent is still in passive management and 20 is short so we have negative minus actually 20
percent which comes up to 60 exposure into bitcoin so all in all the trading exposure on BTC which
is bitcoin will be ranging from 60 to 100. 60 if the bot predicts that the bitcoin will go down 100
percent if the bot predicts that the bitcoin price will go up to keep this video easy to understand
I will use a very famous technical indicator AROON in order to predict the outlook of bitcoin
price now what is aroon how to use it I will explain each and everything in this video now
in order to do the technical analysis, we will install this library called talib this library is
specifically made for technical analysis of any particular security very soon I'll be uploading
a video just focusing on talib there are many implementation and there are like many ways to
install and to use this particular library that's amazing library I will cover a lot of things
in that video as well now let's see what is aroon technical indicator so the word aroon is
Sanskrit for dawn's early light the arron indicator attempts to show when a new trend is dawning the
indicator consists of two lines up and down that measure how long it has been since the highest
high lowest low has occurred within an n period range and this is the formula that is used for
calculating the aroon up and aroon down what we will be doing is we will be using its oscillator
let me just write it here aroon oscillator it's here by the way the link of this website
will be in the description box so you can read the description of this technical
indicator and there are many more as well so you can refer this at this link for the description
so aroon oscillator this this is the indicator that we'll be using the aroon oscillator is
calculated by subtracting the aroon down from aroon up now this is a very important
line which is the resultant number will oscillate between 100 and minus 100 so it
is range-bound between 100 and minus 100 aroon oscillator will be high when the aroon up
is high and the aroon down is low indicating a strong upward trend the aroon oscillator will
be low when the aroon down is high and aroon up is low indicating a strong downward
trend so it means that if we have the aroon oscillator which is close to 100 then there
is a very high possibility of an upward trend if the number is close to minus 100 then the
very then there is a very high possibility of a strong downward trend this is the
concept that we will be using for this trading strategy and this is the concept that
we'll be implementing in our trading the automated trades so the final thing to see
before writing the code the parameters the trade interval in our case will be just one minute so
you're gonna see a lot of trades you can put 15 or 30 minutes or even one day in your case
but in this trading bot, it will be just one minute our aroon time period is 14 intervals if you
remember I showed you the description of aroon technical indicators it requires a particular
number of time intervals in this case it's 14 amount that we are going to use for our trading
purpose is one thousand dollars this is paper trading simulation amount so you can make it a
million dollar a billion dollar it all depends on you in my case it's just one thousand dollars
the last thing is that there is no transaction cost although we can update the code easily if you
want to consider the transaction cost as well but in this case, there is no transaction cost so let's
start writing the code these are the steps that we will follow in the code we will install the
WebSocket client first then we will install talib then we will be providing all the required
parameters that we discussed in the last slide then we will create an amazing
paper trading simulation platform it will be an amazing thing I'm telling you then
after that, we'll be using WebSocket and binance to extract real-time crypto data in the end we will
be making and implementing our trading strategy and then we will run the code and then we will do
our final and I would say result analysis that is analysis of sharp ratio alpha etc to see the
adjusted I would say, risk-adjusted return guys I'm not moving forward if you're not liking
this video just take one minute one second of your time not even one minute to like this video
down below and then keep on watching this video I'm I guarantee you you will love this but i
just deserve at least one like from you so like this video and also subscribe if you don't want
to miss out on my future videos and just write in the comment box like nice video or keep it up
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youtube algorithm so please please please comment something like and subscribe please and then let's
watch this video it's amazing thing is coming so rub your hands and let's start writing the
code guys please come to google collab because installing talib in google cool lab is fairly
easy I'll tell you how to do it so I would highly recommend you to come to google collab and then
write code with me here the first thing we need to do here is pip install WebSocket-client now what
is websocket websocket is a two-way communication platform where we not only extract data but also
but can also push our desired data into any particular server now for people who are like me
who don't understand these tech buzz words then basically we will be using this library in order
to extract the real-time bitcoin pricing data from binance platform for detailed information
about WebSocket, I will very soon upload a video just specifically focusing on websocket
secondly we need to install talib guys for some reason pip installed talib does not work and there
is a different way to install talib in windows and mac and google collab so that's why for this
reason now I requested you guys to use google collab for this particular code in order to you in
order to install Talib in google collab there is a very good answer by someone on stack overflow
we need to use these lines and then paste it here and then just run this code run this
cell this will automatically install talib in google collab i have posted the link of this
this website in the description box you can just click over there and copy and paste it
here it will take I would say one or one and a half minutes to install but yeah eventually
it will install talib in google collab you can see that i just ran this cell and it is installing
talib it will take some time so let me just pause this video for a moment and then come back it
took me some time to install this talib library so let me import all these important libraries
that I'll be using here import websocket import talib import numpy as np what else
import json will be used here json will be used here so these are the parameters
that I provided as I already mentioned in the ppt slides our aroon time period is going to be
14 in this case the amount that I'll be using for trading purposes one thousand dollars core
trade amount which is the amount that will be used in passive investment in my case in actually
this trading bot's case we'll be using 80 directly into bitcoin investment and then the remaining
20 percent will be used for active management and I have provided trade amount is equal to
20 of the amount which is actively managed so you have installed web socket we installed talib providing
all the required parameters now we will create a paper trading simulation platform perfect so guys
we'll have to make two different functions for buying and selling in this paper trading
simulation let me just write it here paper trading simulation functions commented here so we would
require two different um functions def buy and let me just provide two inputs which are actually
the amount of money that we are buying say like 800 dollars of bitcoin to buy something like
this so amount so let me just write allocated money and then the price that will be used
to buy that that much amount of bitcoin so price so the quantity will be allocated amount
allocated money divided by price right because if for example, if I'm buying bitcoin worth of 800
and say the price is 100 it's not 100 but yes if the price is 100 then the quantity is 8. right
so yeah the quantity is equal to allocated price divided by allocated money divided by price and
this much money that is used to buy bitcoin should be subtracted from the account which is
this 1000 so let me just write it here money end is equal to amount for now and
then I'll have to subtract this much amount from the money end so
money end it will be subtracted it will be quantity multiplied by price
also I need to I should have mentioned portfolio here because we will be spending money
and there will be there should be a portfolio which should represent the number of bitcoin that
we own so initially it's say zero and in this case when we buy some amount of money then this
portfolio should be increased should be plus is equal to and then by quantity now in order to
track all the trades what I should do here is let me think yeah I should provide an empty
investment empty list here and then I should append all the trades in that in this particular
list such that I can refer it in future to see all the trades that have been executed
like either it's buy or sell so for buy I'll have to put investment dot up actually you know one
thing I'll have to see if whether this list is empty or not any in the starting if if investment
is equal to empty list then investment dot append and then just append this much which is
quantity now actually I can do it allocated money else again investment dot append allocated
money but one more thing is that let's add all the new investment in like let's add all
the new investment with the last one so that we will have an idea of what is the total amount
that is being that that has currently been invested so this list will not track all the transactions
but it will track all the invested amount right so what I'm saying is like in investment
and then minus 1 plus is equal to investment minus 2. so what I'm doing here is say I have
invested 800 dollars in bitcoin so what and then there's one more trade that buy 100 dollars of
bitcoin again in that case what I'll be what this function will be doing is that it will add 100
with 800 that is already been executed so the new investment amount the last element of this list
will be 800 plus 100 which is 900 right so this is what I'm making it will be more clearer when I
will be executing the trade so now let's write the because I have mentioned money end it will be it
will be getting subtracted by this much and then portfolio will be increase and then investment
this list will be made according to the number of transaction that we are having now
let's write a similar sell function which is def sell again the same thing allocated
money comma price so for selling also I'll be required to mention the amount that is being
sold so similar to this one to buy I'll have to mention quantity is equal to allocated money
divided by price now money and in this case, will be added because I am selling so it will be added
quantity multiplied by price and then portfolio will be subtracted minus is equal to quantity now
in investment what we need to do here is you know investment dot append and then we'll have
to append this allocated money now because we are selling this much amount of bitcoin will
have to subtract yeah we'll have to subtract this allocated money and then just add investment minus
1 plus is equal to investment minus two like as we did in in the case of buying so what I'm doing
here is I have let me just check it again I have calculated the quantity which is easy
allocated money divided by price money end is increased by price into quantity portfolio is
decreased by quantity because I'm selling then append minus allocated money so for example if I'm
selling 100 dollars of bitcoin so it will be -100 will be the last element and then I'm adding
the second last element with this one so minus hundred and whatever the last element so exactly
so it will be the remaining investment after selling that particular amount of bitcoin perfect
even there is one more thing actually I should write it here because I am changing investment and
no actually I am because I am changing money to I'm sorry money end and portfolio I should provide
here global because these are global parameters these are not local parameters so global money and
portfolio and then in the investment similarly for this one global money and portfolio
and investment perfect let me run this code yeah it's running so I think everything is right I
hope we have not made any mistakes here so let me check these functions if the price is equal to 100 and
if I run this function which is allocated money and then price so if the allocated money is 300
and price is price but running it I should have investment of 300 perfect because I have
bought 300 worth of the security portfolio is 3 which is 300 divided by 100
which is perfect and then what else money end money and is 700 perfect because
we have used 300 of our 1000 amount of portfolio perfect so this is this is
the thing now if price is equal to say 70 and then I am buying 500 of the security
let's see what happens investment is 300 and then why it's 800 yeah it's it should be 800
only perfect because we bought 500 here we have already bought 300 so the net investment
should be 800 which is perfect and the portfolio should be 3 plus something which is 500 divided
by 70 if I write 500 divided by 70 let's see 500 divided by 70 then it's 7 point something so
it should be 10 plus 7.14 which is 10.7.14 this is also perfect and then money end
should be let me just think it before running this so it was 700 before
it should be 200 now so money end it's 200 perfect it's it's
working perfectly now let's see sell we already have 800 of our investment
and suppose the price is now gone up to 150 so we are gonna make profit and we are selling 400
of this on this price so in this case let's see what should be the investment investment should be
300 800 minus 400 should be there's there should be one more element which should be 400 here which
is exactly as I thought it's 400 now portfolio should be 10 and then because we are actually
selling let me just write it here 400 divided by 150 this much amount of uh the security
is being sold so it should be around eight point something like seven point something
so let's see the remaining portfolio is seven point one four seven exactly money
end should be let me just think it before running it it was 200 before and I and
now I sold 400 so it should be 600 now it's 600 so yeah it's working perfectly perfectly
like the way I thought it's exactly the same so now what we'll be doing here is we will
be having different prices on the basis of the real-time prices that we are extracting
from WebSocket, you'll get to know about that and on the basis of those prices, we will
we will execute these paper trades and like have a track record of investment
list and portfolio and everything perfect so yeah this is exactly what I wanted
the next step is to use the WebSocket in the binance platform to extract real-time crypto
data perfect just three steps remaining for the trading bot so guys this is the WebSocket
documentation so let's start making it I'll be using this ctrl c and then let me add some
lines here perfect so yeah I'll be requiring this I need on open actually I don't
need it on_open as well because it's not necessary our message is important I'll
tell you each and everything what all these things mean so we need on message and
then on close is equal to close then we would require a socket here so let
me just start writing it here like this I should provide it here socket is equal to there would be a link here right
which I will refer it here socket and then what link to use it here in socket because in this
case if you can see that echo dot web socket is used in our case what we will be requiring is
we will be using binance link so this is the binance documentation again the link will be in
the description for you to refer you can see that the web this the base endpoint for binance is this
so we will require exactly like this copy it paste it here and socket then after that we need slash
ws slash stream name let me write it like this slash ws and then slash stream actually
stream should be the exchange let me just go a bit down I'm referring to this stream
name of k line which represents actually to the candlesticks and it is actually this
one let me copy it here and then paste it here here each symbol should be BTCUSD yeah it
should be btc usd for trading purpose okay perfect so let me just write it here btc usd t and then
interval should be in in this case in our case it's one minute you can make your own interval as
well so one minute and let me just make it more user friendly so it will be cc is equal to
btc usd and then interval is equal to one minute and let's convert it into f string cc
and this one to interval perfect I think that's it so this will be the socket
that will be used here ws websocket and then all these things so if I if i write
it here like def on_close and then ws just print a message say close and then again
def on message if it's on message and then this print message if I run this and then ws dot
run forever I should be receiving messages this message message message and then if I close it i
should get the message close perfect now what is what are these messages these are actually the
messages these are actually the prices all these things that we have seen here these things are
here so if I print message here it will be giving me all the messages let me just run it
here so yeah so these are the candlesticks of btc usd this is the real-time data that I
am getting it's like second wise second data although I mentioned one-minute interval
it is showing me it is providing me second per second data but the thing here is that if I
go here in the end and all this x there will be a true here you can see there's a true here so
this true represents the the closing of one minute so at this moment, the this candle was closed
this one minute interval was close so we will be using this particular candle in order to make our
strategies and all this other data is not useful let me just stop this code for now so in this
output you can see that there's a dictionary and then there's one more dictionary
inside that dictionary which is k and then inside k we have all
the information such as interval the close open price bitcoin is trading at
around 57 right now 57 000 high low volume etc and this x is important here so we need to do
some data engineering here so let me just you know what I'll what I have to what i should
do here is I should make it in the json format so json message json message is equal to json dot
loads and then message now if there's no need of this now the candlestick which is cs um it is
actually json message and then this one which is k so k perfect now another thing is that uh that
we are interested in is this x thing if this x is where is it if this x is false uh then
the candle is not closed if the x is true then on that particular moment that that
interval is closed and at this moment this candle actually got closer you can see that after just
after this candle all the highs and the lows are changed because there's a different candle
now after that so we are just focused on this record which is this one so uh x is very important
we'll have to check whether it's true or false so let me just write a variable which is
candle closed is equal to and then inside cs I am interested in x right now let me take
out all this close high and lows as well because these are also important volume
is not important in our case because our aroon technical indicator it incorporates
only high low and close so I can write here as well so closes and close high and then
low these are cs close as let me just check c high is cs and then inside this h and low is
cs and then inside this low perfect now let's do one thing let's just print everything so
print cs i don't need cs right now because cs k i am just interested to print candle
closed candle closed print close print high print low let's see what do we have so
yeah the first is not closed and then this is close this is high this is this low and
then on every second it is taking the data right let me just wait for the close sorry the the
true data so yeah after some time i got this true so this is this one is actually
very important let me just pause stop this cell and let me just go to this
one true where is it yeah so true so this data is the most important data that i'll be
required that i'll be using for making the trading strategy and the closing price is this one the
high is this one and the low is this one for this entire one minute interval so this is what i'm
interested in i am not concerned about all these data perfect let me go back to this code again
so what we need to do here is now is we will make a list of all these things close high low
as we get the new data right so similar to the investment thing like we are we were
appending the the transaction the amount the amount of transaction that we did in
this investment list which was empty before and similarly, we will be making
many empty sorry many lists for closes highs and lows so let me just go here and
let me provide here close, highs and lows one two and three and if I let me run this
cell and come back here so so if candle if candle closed is equal to true then in that
case I would append closes dot append what will happen uh I'll append this close this close and
let me the float of the close similarly for highs and lows, I'll be making this
list of highs and this one is lows and here high in here no so only if the candle is closed
then in that case I'll start making this candle sorry this list which is close, highs and
lows so we comment all these things and then print all these things so close this trend highs print
lows let's see what do we get I'll have to wait a bit in order to get the result let's see here
um i after some time the first output has come if the candle is closed in that case uh
the the closing price is here the highs is here and the low is here whenever the candle
is close at all all those times it will append you can see that the second one is here so the second
minute ended i would say output is the first one is the first close is this one the second close
is this one the first high is this one the second high is this one the first low is this one second
low is this one and so on so this is how with all the minutes it will be making this particular
all these lists uh for closes highs and lows perfect now if you remember in our strategy
we were investing the entire like 80 of the entire money into bitcoin whenever we run
the code so we'll have to implement this first and the remaining 20 percent will be used for the
active management the core and satellite strategy so let me just delete all these lines also i
don't need to print these two things and it's always good to print the closes and provide
let me write some string as well so closes yes so yeah this is how we will have
all the closes now let's make the and the condition that if the core trade the
the first trade which is the core trade is not yet executed then we'll have to buy
the 80 of our portfolio into bitcoin right and if it is already executed then in that case
we'll have to skip that step right so if the trade is already executed I'll have to
provide one more variable there let me just think yeah I'll have to provide one more value variable
and then I will call it like this yeah so just go here and provide here core to trade
if the core is required like it's not yet traded if core to trade is true then in that
case I'll have to run this cell as well so if core to trade if it's true then
i will buy 80 in bitcoin right so i am 80 actually, I have already provided this also by
this much amount by this much amount so the price on which we'll be buying the 80 of this
would be the price of the last one which is the closest and the last one actually I should provide it
here as well the last price is equal to sorry like this and then minus one perfect so if core
go to trade is true then buy this much amount and then how much quantity will it buy
so core quantity let me just do one more thing let me provide a core quantity is equal
to zero actually i forgot one thing here i should make all these parameters global so in
this message sorry on on message global closes highs lows core to trade core quantity we are using
this function here and this function we already made these two parameters global and let me just
write it again so money end and then portfolio and investment right so cool yeah I'll come back
to this one core quantity is equal to actually i should add it because it's it was zero before core
quantity i'll add it which is core trade amount divided by closes and then minus one this will be
the quantity that will be added to that parameter which is called quantity and then in the end
it will make this core to trade equal to false so so the next time it will run these lines so core
to trade was true in the starting you can see it here and then in the end this core to trade will
become false so these lines will not get executed after the first execution so in the first place
only we will buy 80 of our amount in bitcoin and then we'll be remaining with the twenty
percent of this amounts amount I'll have to check it so let me just run this code and
let's run this code as well where the first the first can the first candle is
closed already and I've got this one let me just close it if i see investment perfect so I have bought 800 of bitcoin and the
like using these lines and if I see the portfolio it should be there portfolio is already this one
so this much bitcoin that's point zero one bitcoin has been bought using this 800 dollars and
money end should be equal to 200 now this gets perfect so the remaining 200 will be used for our
trading purpose this is great now let's move on to the next part of this code so guys our bot has
already implemented this 80 of our portfolio in bitcoin now the most important part which
is this 20 of this actively managed portfolio just to remind you again this 20 will be used
to reduce the volatility as much as possible such that we have the
overall volatility of our portfolio lower than the actual volatility of bitcoin and
I'm only interested in risk-adjusted return I'm only interested in sharpe ratio, not interested
in the absolute return because bitcoin as everyone knows it is very very volatile so yeah we have
already implemented this 80 percent of our trade 20 is remaining we will do the analysis of aroon
and then we will make our like some lines to make the trade so let's go on now I just added
this line which is a print core investment we bought dollars and then the amount which is
actually 800 if you remember we've already seen it like this worth of bitcoin yeah there's this
one more thing actually i forgot i should provide these as well in the global parameters because
these are the parameters that we are changing to so sorry not this one core quantity so core to
trade and code quantity in the global parameters now let's jump to the to the aroon analysis
so aroon is equal to talib dot yeah so it's aroon oscillator this one and then inside this i
need to provide high low and then time period so we have highs aroon like this and let me
just run this code as well I'll have to wait for a minute because let me pause this video
for a second as well when we run this cell it takes some time to make the candles because
whenever the candle closes you can see like this it provides that it at that time because if the
candle x the value of x is equal to x is equal to true then only it will make the candle and
then print it so closes there's the first close and then the core investment we bought 800 worth
of bitcoin and then print aroon it was nan why it's nan because the aroon time period is
14 and if you remember because it's 14 it will be nan for 13 periods and then
from the 14th one it will have some value which will be if you remember it will be between
100 and -100 let me pause let me stop this cell let's check again what is investment should be
800 portfolio should be something similar to that so this much amount of bitcoin has been bought
the money and should be 200 again perfect now what we need to do here is we will do some
further analysis first of all I'm only interested in the last aroon because whenever
I will be placing the trade at that time I will be considering the last aroon value not any
value which is before the last one so the last aroon and then the last one right it's
it's better to round it in two decimal points so like this so let's do one thing print
and then last sorry last aroon and in order to make it easy to understand let me
just provide this 3 that is that one period and the cell and this one as well and then print
last one so I'll have to wait for three minutes in order to see what is the first aroon
value so let me run this code again pause this video for a moment and let's see what
happens so we can see that after some time like after 3 intervals it
has provided a value of hundred so as per aroon indicator having just three
periods three time period three interval of time period it is predicting that hundred percent
of the exposure should be in bitcoin because it predicts that the next enter and the next I
would say close will be higher right this is what it means and then the next one was actually a bit
higher you can see it it is a bit higher but yeah so at this moment again it is recommending us
to have hundred percent exposure because it still predicts that it will be higher but in this
case it actually went down a bit and similarly this the bot also changed the exposure to 66.67
and then after that only zero percent exposure it can go negative as well yeah you can see that
the next one is negative so the bot is predicting that the next not the bot actually the aroon
indicator technical indicator as predicting that the next candle will be a downward trend and it
is predicting a 30 minus 33.33 percent exposure in that by saying exposure actually it's not exposure
it's a number between 100 and -100 and what I am assuming here what I'm considering here is that
if the number is 60 66.67 percent then I'll have 66.67 percent exposure into
bitcoin so what I'm doing is that twenty percent of investment remaining investment is just two
hundred dollars so of that two hundred dollars sixty six point six seven percent should be in
long position or 33.33 percent in short position position and so on so this is how I'll be making
this bot now why all these numbers are so straightforward like 100 166.670 and minus 33.33
and minus the 33.33 because the time period I've provided is just three just to have all these
numbers because I'll have otherwise I would have been required to wait for 15 minutes to
check all this solution so that's why i'll in the end i'll change this to 14 only but for now this
is just three so this is the interpretation what again repeating what I'm what I'll be doing
here is I'll be taking the last aroon and then on the basis of the last aroon value I'll be getting
the exposure of that remaining 20 percent of the portfolio this is our uh strategy for the
satellite I would say the active management let me pause let me stop this cell for now
so let's come back to the code let me delete this line again and the next
one would be amount so the amount is equal to last aroon and then and last multiplied
by trade amount divide by 100 so trade amount divided by hundred so what I'm doing here is if
the last one is for example in this case 66.67 so it will be multiplying 66.67 to the trade
amount which is 200 if you remember 200 is for the active management because 800 is always
already invested in bitcoin divided by 100 in order to get the exact amount that is required
I would say that the recommended exposure and then let's see the portfolio value if it
is already executed if some of the trades are already executed using this aroon methodology
i would i would say our own analysis then i should have a port value as well now this
port value is not the entire portfolio value this port value uh is referring to only that 200
dollars so I would say 20 of the portfolios value so this is this should be
portfolio multiplied by the last price what was that yeah it was last price only the
last price minus and then what was the quantity for the core investment which is code quantity
because here we have increased the core quantity and then so minus core quantity multiplied by
the last price so this is the net investment or I would say this is the net portfolio
value of that active investment so that's why I'm reducing I'm subtracting this one hence so
in order to check the actual trade amount and let me just write trade amt because trade amount
is already taken it should be amount minus port value so by saying it like this I mean that this
is the amount that will be required to trade to buy or to sell let me explain it again so if in
this case 66.7 or actually, in this case, 100 was the aroon value right so this this the amount
will be 100 multiplied by trade amount which is 200 divided by 100 so the entire 200 of
exposure this is the recommended exposure this amt is recommended exposure using the aroon technical
indicator so the entire 200 will be in the buy side so we will buy it how to do it I will put
this buy function here after some time and then the next one is 66.67 so in this case the
last aroon is 66.67 multiplied by trade amount which is 200 divided by 100 so this
will be different value and the recommended exposure has decreased because of this change
the portfolio value will be in this case i put the entire portfolio value multiply the last price
minus the core one and then the remaining the the trade amount will be this the recommended
exposure minus the actual portfolio value of the active management part which is the 20 of the
portfolio so this will be the amount so if this is negative then we'll have to sell if this
is positive then we'll have to buy more bitcoin I think like uh writing all this buy and sell
functions will make you like more clearer so let me write remaining lines which are actually
i should put this line as well which is print last aroon is last aroon and then recommended exposure
is empty as i already mentioned amt is recommended exposure trade amount is the amount that will be
required to trade whether it's buy or sell in this case if you remember we should have sold some
amount some like 33.33 percent of the actively managed which is 33.33 of 200 dollars in this case
so the recommended exposure and then our last aroon is this one and actually, I should write
the real-time portfolio value as well because this portfolio value is just off that the actively
managed portfolio value this which is the 200 not 200 actually 20% of the portfolio's value I should
have the entire portfolio value as well right so real-time portfolio value is equal to what will
be that it will be port value and then plus the the core value which is the core quantity
multiplied by last price and then also the money end also similar to and I think similar
to the closes highs lows and investment list we should have I would say a list for the
real-time portfolio value as well as that we track the portfolio value for with all the
trades or with all the intervals so i should provide a real-time portfolio list
here real-time portfolio value is equal to and then an empty list and similar to this
this closes highs and lows I will append this value sorry real-time portfolio value
dot append then let me take just the float of rt portfolio value and then in the end let's
just print this as well so f and then inside that and then inside that the real-time portfolio
value is equal to dollars and then real-time portfolio value which is this one and then
this let me print the trade amount which is trade amt let me print port value as well
print port value I have I'm already printing this one and then real-time portfolio value
is also here so I can do it like this print and then real-time portfolio value let's see
let's see what happens so if i run this code I don't need this one so I'll delete one this
one and then let's run this code as well again I'll have to pause this video for some time and
then let's see what is the result so we've got the first candle so the closest this one the core
investment we bought 800 worth of bitcoin and then nan what is this nan okay the uh the trade
amount is nan and then it is because amount is nan because last aroon is nan in this
case also port value is equal to zero because we have not invested this remaining 200 anywhere
it's just 800 for now last aroon is nan the recommended exposure is also nan so there's no
problem with that the real-time portfolio value is still 1 000 because uh the 800 is invested in this
one and the remaining 200 is already present as oh yeah it's actually present in the account
only so yeah the second minute has gone and the okay where is it yeah the first close
is this one the second close is this one again nan because I'll have to wait for three
candles to pass for my first aroon value this should be zero the recommended the last aroon is
nan the recommended exposure is nan you can see that there is some increase in the in the
port in the real-time portfolio value why because bitcoin value has increased you can see from
this one 770 it has increased to 761. so this 800 worth of investment in bitcoin has increased a bit
which is like 0.572 and this is the one and then real-time portfolio value is also a list which
is which we are making which we are appending with uh new values so and the first one is one
thousand second one is one thousand point five seven to something let's wait for the third
one yeah so the third one has come 1 000 nan this one yeah so uh 5000 sorry 57
000 something then this one and then the bitcoin value is again increased again
our aroon value is nan it's zero the aroon last value is nan recommended exposure is nan for the
remaining actively managed portfolio uh real-time portfolio value is increased to one zero one point
of uh one zero one thousand one point nine one one eight four so we are making money now because we
have invested 800 dollars in bitcoin and the value of bitcoin is increasing with all these intervals
we can see that the real-time portfolio list is also increasing like we are adding
different elements with different candles let's wait for another candle and see what happens
so yeah the next candle has come and yes this one the first candle is this second third and then
this one so the bitcoin value has decreased a bit this is 200 why this is 200 because uh you
can see what is this 200 uh yeah trade amount trade amount is 200 and then portfolio value is
zero because we have not yet invested anything the last aroon is 100 and then recommended exposure
is 200. you can see that our bot is predicting that the next candle will be high like the
the price of the bitcoin will increase in the next candle that's why it is recommending us
to have the hundred percent exposure for that so what is the 100 exposure which is 200 because 800
is already invested in our core investment so we have bought we should buy this much amount
of money and then real portfolio value is again this one again in this case actually here I should
have written a buy function just to buy this much amount of money so let me just pause this sorry
stop this cell here in this case there has to be there should be a trade of 200 dollars of bitcoin
right and in this case we should sell some part of this actively managed portfolio because the
last aroon is 66.71 it is recommending a 66.71 which means a recommended exposure of 133.34
so the remaining amount should have been sold in this candle so let's that's absolutely fine
let's just put some of the values here let me just delete like I have checked this thing
so I don't need to print this again let me just delete this as well so in the last
one if you can see that if yeah this thing which what is this thing this was trade amount if
you remember so if the trade amount is positive right then we will buy this much amount of
money like we should we should have bought the amount of money which is trade
amount if it's negative then we will sell this much amount of money very simple so if
trade amount is greater than zero then buy which is this one buy how much uh trade amount
amt and what should be the price price is equal to the last price and similarly if the trade amount
is less than zero let me just fine trade amount is less than zero in this
case we will have to sell this much amount the absolute value of the trade amount which is
sell and then abs because it's a negative i'll have to provide minus trade amount and then
comma price is equal to last i just wrote all this thing the print we bought dollar then trade
amount this much amount of money worth of bitcoin these are just two empty lines and then similarly
for this one we sold a minus trade amount worth of bitcoin I think that's it for this one it should
run now so let me try from the starting run the cell run the cell and then this one
and then let's run this and let's wait for a couple of candles like four or five
candles to come and then we'll see that it is executing the orders or not the first one has come
you can see the closes uh this is the last closing price the core uh investment we bought 800 worth
of bitcoin that's fine and last our own is n a n why it's nan because that time period we provided
for our aroon analysis is three we'll have to wait for three candles recommended exposure is nan
the real-time portfolio value is 1 000 because we just invested 800 and bitcoin the remaining 200
is already present in our bank account so yes after some time we can see that the first one
was we bought 800 worth of bitcoin and the second one because there was no recommended exposure
because the aroon's value uh was zero sorry it was nan at that time we don't have any trades after
three candles the fourth one the last aroon value was minus hundred the recommended exposure is
minus 200 because the entire 100 percent is short in this recommendation and then you can see
that the the real-time portfolio value is actually decreasing because the value of bitcoin is going
down in this case and this eight hundred dollars which we invested is going down ah so yeah in this
case we sold two hundred dollars worth of bitcoin so now that uh now the exposure is the overall
portfolio exposure is just 600 because we had 800 and now it's only 600 of this one actually
it's a bit less than 600 because the value of bitcoin actually went down a bit anyways so and
then the next candle as for the next candle the last aroon's value is six minus 66.67 uh it was
minus 100 before so we'll have to buy something yes we bought something the recommended exposure
has increased to minus 133 percent from minus 200 percent and the value of portfolio real time portfolio
is this one we are in loss right now uh we bought 66.88 in this case and then in the next candle
it is minus thirty three percent again we'll have to buy something and so on again the next candle
has come which is which is zero so we'll buy sixty six point six three uh dollars of this one so
yeah let's see what happens uh if we run the investment variable so we can see that we can
easily track all these things so investment was 800 in the first case in the second case it was
let me just wait for this thing so yeah it sold 200 of this one so it went down to 600 and
then it wanted us to buy this one this much amount of value now this is not the real-time
portfolio value this is the invested amount so that's why uh this is exactly 600 dollars now we
bought 66 so it is six six is six point something then we bought 66 again we bought 66 again so it
has come up back to around 800 dollars level again the portfolio should be yeah it is zero point
so right now after all these things we own point zero one three eight seven seven uh bitcoin
in our portfolio the money end should be around 200 yeah because it's this one this much
here and uh 1 000 minus this much is this one now there's a problem here because you can see
that in investment list uh in the end even after uh like stopping this cell we
have 800 worth of investment in bitcoin now what I need here is that whenever I stop this
bot uh by clicking here I should sell all the like all the investments that i have made
in bitcoin so in order to do that thing we need to write some lines in in this def on
close function okay so let's uh write it like this portfolio value is equal to portfolio
cross closes and then -1 if if portfolio value is greater than because it can be greater
than zero or less than zero then in that case sell everything like which is portfolio value and in
this case price is equal to closes and then minus 1 else buy if the portfolio value is negative
then in that case in that case buy negative of portfolio value and then price is equal to closes
minus one and in the end what we need to do here is we'll have to add it back to the money end
which is the value in the account after settling all the trades so money and plus is equal
to investment and then minus one that's it now let's just change it to all trades settled i think
that's it uh now let's uh run this code and let's see what is the outcome guys we have made an
amazing trading bot i'm telling you so i ran this code and i waited for a long time and then
you can see that this has made a lot of trades you can see the different exposures here right the
portfolio value is zero in the end the money is uh actually we started with one thousand dollars of
portfolio value if you remember it's actually one zero zero four we made some profit in this much
amount of time and if i just check the bitcoin uh return the benchmark return it's 0.35 or bot
has given us an extra return which is actually 0.43 percent and this small period of time you can
see that we have generated some alpha here so yes we have made something great but as i promised
you i'm not interested in the absolute return i'm interested in the risk adjusted return
yeah so you can see that the bitcoin risk is standard deviation of logarithmic return
of the of the benchmark which is the bitcoin and the standard deviation of our portfolio return
is the bot risk now the best way to check it is through sharp ratio uh i'm considering here the
risk-free rate is equal to zero because of this very low-interest rate environment the risk
rate is close to zero percent only so if you remember the shop ratio is actually portfolio
return minus the risk for rate divided by the standard deviation if risk rate is equal to
zero then it the sharp ratio will be equal to the portfolio return divided by the standard
deviation of that portfolio and then if you see the sharp ratio in this case is 2.445 and if you
calculate the sharp ratio of the bot then the sharp ratio part is similar to this one which is
bought return divided by bot risk and then this is the sharp ratio you can see that the sharp ratio
of our bot is more than the sharp ratio of of the of uh benchmark which is uh like buy and hold
bitcoin so we have made some alpha we have we have a higher sharp ratio because of the lower risk why
we have the lower risk because you can see that we didn't have the entire hundred uh or the entire
1000 dollars of exposure into the bitcoin all the time we had varying uh exposure and you can see
that because of this varying exposure in bitcoin of course it has decreased the volatility
but somehow it has generated more returns than the buying and holding bitcoin you can
see although it's not a big difference the spread or the alpha is just point zero eight
percent but still it has some alpha but uh uh something of my more interest is that
the sharp ratio of our bot is more than the sharp ratio of the bitcoin buy and hold
strategy we have created something great here i guess you have learned a lot with this trading
bot guys my next few videos will be on trading bots only and i'll be implementing many
strategies uh using the trading bots as i already mentioned you I'm a finance guy I'm not a
tech guy I just learned all this technology with time but my mindset is always finance oriented
so i will be implementing very uh core finance strategies using this uh trading bots this
is just a basic strategy using aroon technical indicators there can be a lot of things like uh
using fundamental analysis using sentiment trading and a lot more um and then there can be
some macroeconomic parameters as well like PMI etc so there's there can be a lot of things
which can be incorporated in this trading bot which I'll be using in my future videos so stay
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