The Volatility Reduction Group (Market Makers)

[prof7bit]

Just run this:
http://guthub.com/yrral86/rubybot

gem install bundle
bundle install
edit settings.rb
bundle exec ruby bot.rb

It does what you want, without the risk of emotion inherent in manual control of trading.

I'm having trouble finding the documentation, and the code doesn't seem to contain any comments.  Where is the documentation?

You can also run the balancer bot (everybody could do it) its here in the trading disussion forum and its well documented. Its less agressive, orders are much smaller (and therefore its also less dangerous and it will never run out of money) but the effect is the same, it will harvest volatility (and therefore make "them" harvest less and also make it harder to pump) by placing limit orders above and below current price. Using a bot without emotions removes the "panic" component from your trading and it also makes you immune to all other forms of psychological manipulation that could result in irrational trading decisions.

[Odalv]

Just run this:
http://guthub.com/yrral86/rubybot

gem install bundle
bundle install
edit settings.rb
bundle exec ruby bot.rb

It does what you want, without the risk of emotion inherent in manual control of trading.

I'm having trouble finding the documentation, and the code doesn't seem to contain any comments.  Where is the documentation?

You can also run the balancer bot (everybody could do it) its here in the trading disussion forum and its well documented. Its less agressive, orders are much smaller (and therefore its also less dangerous and it will never run out of money) but the effect is the same, it will harvest volatility (and therefore make "them" harvest less and also make it harder to pump) by placing limit orders above and below current price. Using a bot without emotions removes the "panic" component from your trading and it also makes you immune to all other forms of psychological manipulation that could result in irrational trading decisions.

URL ?

[Rampion]

There are already big players who actively try to limit volatility.

Thanks for your answer.  You've given me a lot to think about.  This was the kind of conversation I hoped to start.

Sometimes, looking at the walls, it does seem like there are major players trying to limit volatility, but I have to wonder why they are so unsuccessful!  They let the price go stratospheric, then crash by 80%!  The result was a slew of bad press.  Was that their goal?  I cannot see how this can be good for Bitcoin in the long term.

They don't even seem to be able to stop the micro flash crashes.  Today around 12:50:00 we saw prices go from 134 to 131 to 139.88 to 135 in a 10-minute period.  That's not very stable.

On a slightly larger scale, in the past week the price went from 110 to 166 to 120.  Very unstable.

Is the problem that they don't have enough money to counter the actions of the manipulators?  If so, then perhaps they need to recruit more people to help, which is the point of my proposed group.

Is the problem that the manipulators made the stabilizers ineffective through DDoS?  If so, then are they planning to make better use of limit orders from now on?  Are they considering taking action in the future to stabilize prices on the other exchanges when Mt.Gox goes down?

Perhaps we need more discussion about how best to stabilize the market, because they are not succeeding using their current methods.

This happens because market depth is ridiculous. Just check the order book charts, nowadays we have aprox. $20M sitting on the bid side and BTC140k on the ask side. Volumes are low, this is penny stock market, a peanut in economic terms... And thus crazy, fun and unstable as hell

[notme]

Just run this:
http://guthub.com/yrral86/rubybot

gem install bundle
bundle install
edit settings.rb
bundle exec ruby bot.rb

It does what you want, without the risk of emotion inherent in manual control of trading.

I'm having trouble finding the documentation, and the code doesn't seem to contain any comments.  Where is the documentation?

Pending....  2 weeks left in the semester then I'll put some time into cleaning it up and documenting it.  Pull requests are always welcome if you want to do some reading and add a few comments.  The code is pretty straightforward if you can read ruby.

[jzcjca00]

I don't think market makers are a solution to the problem you see. Market making might reduce some liquidity spikes, but it wont stop the big price swings. First of all, the function of a market maker is to provide liquidity and reduce the bid/ask spread. Second, a market maker has to be nimble. A market maker that tries to block price swings by putting up big walls is just going to lose a lot of money.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

[BTC Books]

There are already big players who actively try to limit volatility.

...
Sometimes, looking at the walls, it does seem like there are major players trying to limit volatility, but I have to wonder why they are so unsuccessful!  They let the price go stratospheric, then crash by 80%!  The result was a slew of bad press.  Was that their goal?  I cannot see how this can be good for Bitcoin in the long term.
...

Unsuccessful compared to what?

This latest spike and crash we only lost 80% of the exchange rate (from $266 > $50ish).  And that, only for a very brief period.

In the June '11 monster, we lost roughly 95% of the exchange rate, and it lasted forfuckingever.

Re-examine the basis for your assumption.

[notme]

I don't think market makers are a solution to the problem you see. Market making might reduce some liquidity spikes, but it wont stop the big price swings. First of all, the function of a market maker is to provide liquidity and reduce the bid/ask spread. Second, a market maker has to be nimble. A market maker that tries to block price swings by putting up big walls is just going to lose a lot of money.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

[prof7bit]

balancer

URL ?

https://bitcointalk.org/index.php?topic=181584.0

[jzcjca00]

I don't think market makers are a solution to the problem you see. Market making might reduce some liquidity spikes, but it wont stop the big price swings. First of all, the function of a market maker is to provide liquidity and reduce the bid/ask spread. Second, a market maker has to be nimble. A market maker that tries to block price swings by putting up big walls is just going to lose a lot of money.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

"A whale would eat them?"  What does that mean?  Please explain.

I had to limit the trading range because I have a limited number of bitcoins.  When the price goes above $200, all my assets dedicated to this system are tied up in fiat.  Then I must simply wait for the next crash to buy back in.

I know there are risks to my system:
1.  The price of Bitcoin could go below my trading range and stay there forever.  I'm left fully invested in bitcoins that have little value.  This is the same risk as "buy and hold."
2.  The price of Bitcoin could go above my trading range and never crash back down.  I don't actually lose anything, as I still have the fiat.  This is the same risk as not investing, except that my reserve stash of coins goes up in value.
3.  The exchange could fold and not return my fiat and/or bitcoins.

I choose this method because I believe Bitcoin is most likely to continue to show extreme volatility around an aggressive uptrend.  The best predictor of future behavior is relevant past behavior.  I was interrupted while writing this post by a flash crash, from $146 to $137.5 to $142.8 in 9 minutes.  I'm still testing my algorithm with manual trading at this point.  I closed out 7 open trade pairs and opened 3 new ones.  It's good to know that my assumptions are still valid.

I also choose it because price stability is good for Bitcoin.  If lots of people start taking advantage of the volatility, we can make Bitcoin much more viable.

[im3w1l]

Tried to do this. Price increased. Permanently. I think the trend is comparatively strong compared to the noise.

[jzcjca00]

I believe a small group of people with millions of dollars in resources is manipulating the Bitcoin market, artificially injecting extreme volatility and reaping huge profits.

Do you have any data under your tin foil hat to support this claim?

I don't have proof, but there are signs.

I forgot one other obvious sign.  The market will go for many hours with volumes of less than 100 bitcoins per minute.  Then, out of the blue, 5,000 or 10,000 bitcoins get sold all at once.  Are you suggesting that this is just random coincidence, that 1,000 people just decided to sell 10 BTC at the exact same instant?  This happens fairly frequently.  It sounds much more like deliberate market manipulation to me!

I've provided the data you requested.  Are you going to take back the "tin foil hat" comment?

[zeroday]

DEALER NETWORK = Volatility Reduction Group.

It will be the main topic at Bitcoin Supernode Summit on May 9-12



Read more at https://bitcointalk.org/index.php?topic=192008

[notme]

I don't think market makers are a solution to the problem you see. Market making might reduce some liquidity spikes, but it wont stop the big price swings. First of all, the function of a market maker is to provide liquidity and reduce the bid/ask spread. Second, a market maker has to be nimble. A market maker that tries to block price swings by putting up big walls is just going to lose a lot of money.

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

No, with 10k as many bitcoins, their actions would add enough liquidity that a whale would eat them and they would be royally fucked.

What you are doing is not without risk, as you acknowledge by restricting the range you are willing to trade.

"A whale would eat them?"  What does that mean?  Please explain.

I had to limit the trading range because I have a limited number of bitcoins.  When the price goes above $200, all my assets dedicated to this system are tied up in fiat.  Then I must simply wait for the next crash to buy back in.

I know there are risks to my system:
1.  The price of Bitcoin could go below my trading range and stay there forever.  I'm left fully invested in bitcoins that have little value.  This is the same risk as "buy and hold."
2.  The price of Bitcoin could go above my trading range and never crash back down.  I don't actually lose anything, as I still have the fiat.  This is the same risk as not investing, except that my reserve stash of coins goes up in value.
3.  The exchange could fold and not return my fiat and/or bitcoins.

I choose this method because I believe Bitcoin is most likely to continue to show extreme volatility around an aggressive uptrend.  The best predictor of future behavior is relevant past behavior.  I was interrupted while writing this post by a flash crash, from $146 to $137.5 to $142.8 in 9 minutes.  I'm still testing my algorithm with manual trading at this point.  I closed out 7 open trade pairs and opened 3 new ones.  It's good to know that my assumptions are still valid.

I also choose it because price stability is good for Bitcoin.  If lots of people start taking advantage of the volatility, we can make Bitcoin much more viable.

A whale is a large trader.  When a large trader wants to take a position, they wait for a large enough portion of what they want to be available on the order book.  This helps them to make their trade without creating the types of trading patterns that TA can pick up on.  If the TAs catch on to you before you trade a good chunk of what you want to move, they will move it against you.

I'm wasn't dishing on your methods.  In fact, it's essentially what I do with my bot.  I just don't believe the risk/reward ratio would stay low enough at the 10k BTC level for it to be worth it.

But, now that we're here, I'll warn you that you're competing with bots who can automatically set up the new bids and asks when an order is taken.  Without some type of automation, you'll be missing out on most of the profits to be had.

[dbru77]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

[jzcjca00]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

There is nothing wrong with peaceful assembly, as long as it does not involve initiation of force.  The banks use the power of the government to steal from us.  That's WAY different from a group of peaceful individuals freely working on a project together.  Can you not see the difference?

As for eliminating human instincts, you may have missed "rule" #2 of this system:

2.  No one needs to sacrifice profits to participate.  The goal of a market maker is to buy low and sell high, profiting from most trades.  As long as the market shows significant volatility, we can expect to do better than those who just buy and hold.

One thing that's awesome about trading volatility is that I had an awesome trading day today, even though we were overall way down, all these spikes and dips gave me 68 trades.  I increased my holdings by over 0.5% in a single day!  Compare that to a savings account that yields only 0.23% per year!

And I'm still experimenting with the algorithms.  I expect to do much better when I've honed the algorithm, gotten to a lower commission tier, and automated the trading.  As for eliminating human instincts, this group is all about greed!

You may be right about one thing.  This forum is insane, if by that you mean exhibiting behavior outside if the societal norm.  The normal person eats GMO corn and watches Fox News, and I'm sure no one here fits that mold!

[dbru77]

Obviously, I exaggerated a bit and maybe I did not read enough to really understand what you try to achieve.

Sorry for that "make fun of it" approach, congratulations for your trades.
Trying to use this extreme volatility for daytrading is way too hectic for me.

[Pteppic]

A market maker with a lot of bitcoins can MAKE a lot of money by putting up walls to prevent the price from changing too fast.  Consider what I'm doing with my meager stash of bitcoins, then imagine what would happen if someone with 1000 times as many bitcoins did similar.

The price around $145 as I write this.  I currently have buy orders for 0.5 bitcoins at every $1 increment from $100 to $141.  I have sell orders for 0.5 bitcoins at every $1 increment from $145 to $200.  Whenever one of my buy orders executes, I immediately place a sell order $3 higher.  Whenever a sell order executes, I immediately place a buy order $3 lower.  As long as the trading range stays between $100 and $200, I make $1.50 (after commissions) on every buy/sell pair.  If it goes outside of this range, I wait for it to return.  History says it will return.

I haven't been trading this method for long, but it looks like I could average at least $5 per day, or $1825 per year, on an investment currently worth about $7200.  That's 25% return on investment per year.  Might turn out to be more.

Now imagine the effect someone with 10,000 times as many bitcoins, putting 100 BTC buy and sell walls at every $1 increment from $10 to $1000.  They would probably not make nearly the same return, because their action would dramatically reduce the volatility.  That would ruin things for us day traders, but would make Bitcoin a viable alternative for housewives in Argentina, which is awesome because it makes my "buy and hold" stash MUCH more valuable!

You could benefit by having a more sophisticated strategy which allows you to make more money and also will not run out of BTC or fiat whatever the price does. If the anti-volatility group wants to be more effective, you could develop your own version of the aricie trading bot which was set up and made open source for the explicit purpose of reducing volatility. I don't know whether it is working at the moment, but the source code is available so it gives you a good starting point and an insight into more effective market making strategy.

The main pointer for your approach is to have smaller orders near the current market price and bigger orders further out. Actually, thinking about it, the aricie bot might be hamstrung by the new restriction of 6 orders per minute at gox. It is still worth looking at, though, to see an implementation of a market making alogrithm.

[Prattler]

Despite a lot of criticism, I think the original idea is extremely good!

Money is about trust. Money can only function if people trust it. If you trust bitcoin, then:

Buy low and sell high. By doing that, you earn profit for yourself and help bitcoin by decreasing volatility. Lower volatility makes merchants and new adopters more confident, which over time will make more people trust bitcoin.

Finally, this is completely decentralized! Jzcjca00 is not telling you what to do, Jzcjca00 is just asking that you make a speculation strategy and stick to it both through the euphoria and the tough times!

[crumbcake]

this is better than comedy :

"They" do this and "They" do that.."They" are evil and enemies of our beloved Bitcoin Utopia...

Solution:
"Let's group together and build a cartel! Hooray! Let's manipulate sorry regulate with our own rules!
Show "them" who are the better manipulators.
Let's group together to have more power in the market - of course only serving the higher purpose of Bitcoin itself  .
What we do is good for bitcoin! Our actions (manipulations) are justified because we are the guards of bitcoin
Any other manipulation is pure evil! We eliminated our human instincts (greed, abusing power) just to serve Bitcoin"

(at least that's how it sounds to me)

For real?    

Bitcoin propaganda: "Banks are evil, they are cartels, they have all the power, they are corrupt, they manipulate markets"
Now you want to build a cartel, to have more power, to manipulate the market if you think it is time to manipulate?

This forum is insane  

There is nothing wrong with peaceful assembly, as long as it does not involve initiation of force.  The banks use the power of the government to steal from us.  That's WAY different from a group of peaceful individuals freely working on a project together.  Can you not see the difference?

As for eliminating human instincts, you may have missed "rule" #2 of this system:

2.  No one needs to sacrifice profits to participate.  The goal of a market maker is to buy low and sell high, profiting from most trades.  As long as the market shows significant volatility, we can expect to do better than those who just buy and hold.

[...]

This is a variant on the "Maximize profits and do what's best for Bitcoin at the same time" argument, unless you see more than simply semantic difference between "maximizing profits" & "not sacrificing profits"?
If that's the case, why muddy your argument (unless you think there's an equally profitable strategy, but that's just ... sophistry)?  Don't be afraid of saying what you mean, use language that's simple but bold -- like this:

I have devised an optimal trading strategy guaranteed to always maximize your profits! [describe the mechanics here]

Terse.  Concise.  Guaranteed to stand on its own merits.  Laissez faire in action!  If Bitcoin benefits in the process, hey -- gravy!