Building an Automated Trading Strategy with Intrinsic Time

Intrinsic time is one of the biggest discoveries in finance and will completely change how you approach building trading strategies!

Intrinsic time is different from physical time because it “ticks” when there is market activity.

Central to the concept of intrinsic time are so-called “directional changes” and “overshoots”.

The “directional change” happens when the price does a trend reversal of a certain % - then the intrinsic time ticks.

The directional change is then followed by the price “overshoot” until the next trend reversal (i.e. directional change) happens.

A long overshoot means there is a lack of liquidity, like in a market crisis when prices move a lot.

Benoit Mandelbrot was the first use to the idea of analyzing the price under different time clocks and he introduced the fractal theory & “scaling law” patterns in the analysis of prices.

The key to building a successful automated trading strategy is “scaling law" patterns.

You can use Intrinsic Time to build a counter-trending trading model algorithm that provides liquidity by opening a position when markets overshoot, and manages the position during the evolution of prices.

The building blocks of the trading model are:

1. Intrinsic time decomposes the price curve into directional changes and overshoots;

2. Scaling laws patterns provide a rule between price overshoots and directional change reversals;

3. Intelligent trading agents operate at intrinsic events, defined by the scaling law patterns;

4. Liquidity indicator based on size of overshoots that determines the sizing of positions;

5. Skewing & introduction of asymmetric directional change and overshoot threshold to manage periods of market trend. I invite you to take what I outlined here and try out this automated trading strategy.

Richard Olsen, the founder Lykke - a ZERO fee crypto exchange, has created a tool called ATTMO, where you can predict the crypto markets with the “scaling law” patterns from Intrinsic Time.

Head over to ATTMO's website (link in comments) and check out the patterns! I also posted in the comments a research paper that explains in more detail the automated trading strategy.

#intrinsictime #attmo #lykke #quantitativetrading #crypto #hedgefund