At the moment, there is a debate that most people are not aware of: whether or not big data should be used in cryptocurrency trading. The question is: can it be beneficial for individuals to use data analysis software in their day-to-day cryptocurrency trading? We will try to figure it out.
Introduction to Big Data and Cryptocurrencies
Before we start, you must learn what "big data" is. In simple terms, big data refers to different types of high-volume data that can be analyzed to reveal trends and information that otherwise would have been non-existent. This kind of analysis was not possible in the past due to a lack of technological capacity. However, with the advent of technology like Hadoop, it has become simpler for people to use big data analysis tools. Today, we will discuss how you can specifically utilize Hadoop and its sister software to analyze cryptocurrency trading data.
Data Collection and Analysis
When using big data analysis for cryptocurrency trading, the first step is to collect data from the biggest exchanges. This means that you will need to connect to API access points of some of the significant cryptocurrency exchanges to pull down information. Things like: market capitalization, daily volume, bid prices, ask prices, and market depth can all be pulled using an API feed. You will also want to get information like: coin rank and volume trends, a buy-sell spread, total active users, and trading pair information. By collecting all of this data, you can then take it over to your Hadoop cluster to analyze.
Analyzing Cryptocurrency Pairs and Volume
In the past, many cryptocurrency traders used complex strategies that required them to manually decide on what pairs they should use (i.e., USD/BTC vs. USD/ETH). However, using big data analytics in Hadoop, you can automate this process with some simple visualizations. By pulling information from the coinmarketcap API and plotting it in a visualization tool like Tableau, you can see a lot of different insights.
For example, if you want to know the biggest volume days in the past month for any given cryptocurrency, you can simply produce a chart that shows this by plotting total volume overtime for every trading pair on a graph. You will then quickly determine which cryptocurrency pairs can benefit from high volumes. Using the same techniques and visualizations, you can quickly tell which cryptocurrencies have high trading volumes but low prices (i.e., cheap) or vice-versa (i.e., expensive). This can be done by plotting price over time and showing a moving average or price as a line chart. You can then perform some simple calculations such as: "The break-even price for a coin is..." or "...is trading below its 50-day moving average..."
Using big data analysis in cryptocurrency trading
As a general rule, big data analysis is not always the best way to go for cryptocurrency trading. The reason is that big data processing software like Hadoop can introduce a lot of false positives when it comes to analyzing the cryptocurrency market. This is because you can have many different things affecting the price of cryptocurrencies over time, such as changes in the news about certain coins or how much volume there is for a particular coin. While these factors are essential, they are not affecting final prices. Because of this, big data analysis can give you a high number of false positives, which can be a problem if you are not educated about what you are looking for.
However, big data analysis software can be highly beneficial to people with high number-based skills and experience in statistics and computer science.
If you have the right background and understand the big data analysis information, it will benefit your trading strategy.
Because price changes that happen on a day-to-day basis due to events like news about specific coins or changes in trading volumes are propagated through traditional forms of market analysis (i.e., technical analysis), it can be said that big data analysis has a vital role to play.
Disadvantages of using big data in cryptocurrency trading
- In our opinion, the biggest downside of using big data analytics for cryptocurrency trading is that it can give you a lot of false positives. This can be frustrating to traders who are not experienced in interpreting the results. While this benefits from providing more information than any other form of market analysis, it does come with the cost of having false positives infect your strategies. The false positives could make you think that a particular cryptocurrency pair is good when it isn't (i.e., high volumes with low prices). This is not a problem in a traditional market. Still, it can be tough to tell if you're getting false positives or if the cryptocurrency has finally found its bottom when you are trading cryptocurrency.
- Another disadvantage of using big data analysis is that the analysis takes a lot of time to process. This is because big data processing software like Hadoop could take days to process on a single machine. If you want to do all kinds of analysis for all cryptocurrencies at once, it will be challenging as your cluster only has so much processing power. This means you need enough processing power on your cluster to reflect the cryptocurrency market and its actual trends accurately. This can be very expensive and hard to do, making it hard for some people to use this software in their cryptocurrency trading.
Fortunately, there are ways around this problem. One of the most popular ways to do this is by using this digital securities trading solution, which uses proprietary algorithms to process trades at higher speeds. This way, you can get the information you need and not waste resources slowly processing the data, keeping your cluster efficient.
While cryptocurrency trading can be a profitable way to invest in the crypto space, it is not for everyone. If you have no idea how the cryptocurrency market works, it could take a lot of time and resources to set up with this type of trading. There are many prevalent solutions to this problem. Still, big data analytics software like Hadoop has some unique benefits that make it one of the best solutions out there for cryptocurrency traders.
We at INX hope that this article has been helpful. Please feel free to comment below and let us know if you want us to answer any questions about big data analytics in cryptocurrency trading!
Published by Samantha Brown