Automatic trading using deep learning and machine learning, Time series prediction using LSTM LSTM (Long Short-Term Memory) is a method to predict the time series data of Bitcoin.

In recent years, Bitcoin has emerged as the most notable asset in the cryptocurrency market, with many investors leveraging it to seek profits. However, predicting the price of Bitcoin is quite challenging due to its high volatility. This article will discuss how to predict Bitcoin’s time series data using a deep learning method known as LSTM (Long Short-Term Memory) network.

1. What is Time Series Data?

Time series data is a dataset that records the values of each variable at specific times, generally collected over time. In other words, data such as Bitcoin’s price and trading volume change over time, allowing for predictions and analysis based on this information. Examples of time series data include stock prices, weather information, and sales data.

2. What is an LSTM Network?

The LSTM (Long Short-Term Memory) network is a type of RNN (Recurrent Neural Network) developed to address the long-term dependency problem inherent in recurrent neural networks. LSTM has memory cells that allow it to store information for extended periods and uses three main gates to regulate information.

  • Input Gate: Decides what information to add to the cell state based on the current input and previous output information.
  • Forget Gate: Determines what information to discard from the previous cell state.
  • Output Gate: Decides what information to output from the cell state.

3. Building a Bitcoin Prediction Model Using LSTM

This section will explain how to predict Bitcoin’s future prices using LSTM. Below are the steps necessary to carry out this process.

3.1 Data Collection

There are several APIs available for collecting Bitcoin price data. Generally, CryptoCompare, Binance, and CoinGecko can be used. In this example, we will demonstrate how to collect and process data using Pandas and NumPy.

Example Code: Data Collection


import pandas as pd
import numpy as np

# Example of data collection using Binance API
def fetch_data(symbol='BTCUSDT', interval='1d', limit=1000):
    url = f'https://api.binance.com/api/v3/klines?symbol={symbol}&interval={interval}&limit={limit}'
    df = pd.read_json(url)
    df = df[[0, 4]].rename(columns={0: 'timestamp', 4: 'close_price'})
    df['timestamp'] = pd.to_datetime(df['timestamp'], unit='ms')
    return df

# Download data
df = fetch_data()
print(df.head())
    

3.2 Data Preprocessing

The collected data needs to be processed to be suitable for model training. Generally, what we need is ‘normalization’. The LSTM model performs better when input values are within a small range, so we will use the Min-Max normalization method.

Example Code: Data Preprocessing


from sklearn.preprocessing import MinMaxScaler

# Data normalization
scaler = MinMaxScaler(feature_range=(0, 1))
df['scaled_close'] = scaler.fit_transform(df['close_price'].values.reshape(-1, 1))

# Data splitting
train_size = int(len(df) * 0.8)
train_data = df['scaled_close'][:train_size]
test_data = df['scaled_close'][train_size:]

# Sequence generation
def create_dataset(data, time_step=1):
    X, Y = [], []
    for i in range(len(data) - time_step - 1):
        X.append(data[i:(i + time_step)])
        Y.append(data[i + time_step])
    return np.array(X), np.array(Y)

time_step = 10
X_train, y_train = create_dataset(train_data.values, time_step)
X_test, y_test = create_dataset(test_data.values, time_step)

# Reshape input data dimensions
X_train = X_train.reshape(X_train.shape[0], X_train.shape[1], 1)
X_test = X_test.reshape(X_test.shape[0], X_test.shape[1], 1)
    

3.3 Building and Training the LSTM Model

Now, we build and train the LSTM model. You can configure the LSTM model using the Keras library.

Example Code: Building and Training the LSTM Model


from keras.models import Sequential
from keras.layers import Dense, LSTM, Dropout

# Building the LSTM model
model = Sequential()
model.add(LSTM(units=50, return_sequences=True, input_shape=(X_train.shape[1], 1)))
model.add(Dropout(0.2))
model.add(LSTM(units=50, return_sequences=False))
model.add(Dropout(0.2))
model.add(Dense(units=1))  # Output layer

# Compile the model
model.compile(optimizer='adam', loss='mean_squared_error')

# Train the model
model.fit(X_train, y_train, epochs=50, batch_size=32)
    

3.4 Prediction and Result Visualization

Once the model is trained, predictions can be made using the test data, and the results can be visualized.

Example Code: Prediction and Visualization


import matplotlib.pyplot as plt

# Perform predictions
train_predict = model.predict(X_train)
test_predict = model.predict(X_test)

# Reverse data scaling
train_predict = scaler.inverse_transform(train_predict)
test_predict = scaler.inverse_transform(test_predict)

# Visualization
plt.figure(figsize=(14, 5))
plt.plot(df['timestamp'][:train_size], scaler.inverse_transform(train_data.values[time_step:-1]), label='Train Data', color='blue')
plt.plot(df['timestamp'][train_size + time_step:-1], scaler.inverse_transform(test_data.values[time_step:-1]), label='Test Data', color='orange')
plt.plot(df['timestamp'][time_step:train_size], train_predict, label='Train Predict', color='red')
plt.plot(df['timestamp'][train_size + time_step:], test_predict, label='Test Predict', color='green')
plt.legend()
plt.show()
    

4. Model Evaluation and Improvement

Evaluating the model is essential for improving prediction accuracy and making necessary improvements. The RMSE (Root Mean Squared Error) can be used to calculate the differences between predicted data and actual data from the model.

Example Code: Calculating RMSE


from sklearn.metrics import mean_squared_error

# Calculate RMSE
train_rmse = np.sqrt(mean_squared_error(scaler.inverse_transform(train_predict), scaler.inverse_transform(train_data.values[time_step:-1])))
test_rmse = np.sqrt(mean_squared_error(scaler.inverse_transform(test_predict), scaler.inverse_transform(test_data.values[time_step:-1])))
print(f'Train RMSE: {train_rmse}, Test RMSE: {test_rmse}')
    

5. Additional Considerations

After building the model, further considerations are necessary. Performance can vary based on various hyperparameter adjustments, model complexity management, and data collection methods according to the nature of the data. Here are some tips.

  • Data Augmentation: It is advisable to collect more data and provide more features to the model by using various cycles.
  • Hyperparameter Tuning: Adjusting hyperparameters such as the number of units in LSTM and learning rate is important to find the optimal combination.
  • Batch Normalization: Adding batch normalization before LSTM layers can increase the learning speed.
  • Ensemble Learning: Combining multiple models can enhance the reliability of predictions.

6. Conclusion

This article discussed how to predict Bitcoin’s time series data using LSTM. LSTM is a powerful tool that can improve the accuracy of time series data prediction by addressing long-term dependency issues. However, it is crucial to design the model well and improve it appropriately. Further research and experimentation can yield even better performance.

More advanced strategies for automated Bitcoin trading involve combining various algorithms beyond LSTM. For instance, you can consider using CNN (Convolutional Neural Network) to recognize price patterns or reinforcement learning (RL) to find the optimal trading timing. Given the complexity of time series data, these various approaches can provide even more advantages.

References

Automated trading using deep learning and machine learning, trading strategy using K-Nearest Neighbors (KNN) to make trading decisions based on similar past data.

Automated Trading Using Deep Learning and Machine Learning: Trading Strategy Utilizing K-Nearest Neighbors (KNN)

Today, automated trading systems in financial markets play a significant role in learning complex market patterns using technologies such as data science, deep learning, and machine learning to make trading decisions based on this knowledge. Especially in cryptocurrency markets such as Bitcoin, where volatility is high and sudden price changes are common, these technologies are even more crucial. In this course, we will explore how to design a Bitcoin trading strategy by analyzing similar past data using the K-Nearest Neighbors (KNN) algorithm.

1. Overview of K-Nearest Neighbors (KNN) Algorithm

KNN is one of the unsupervised learning techniques in machine learning, used to find similar data based on given data and make predictions. The core idea of KNN is that when a new data point is given, it identifies the K closest neighbor data points and determines the result based on the majority class among them. While KNN is mainly used for classification problems, it can also be applied to regression problems.

2. Principles of KNN

The KNN algorithm operates in the following steps:

  1. Calculate the distance between all points in the dataset.
  2. Select the K nearest neighbors to the given point.
  3. Return the most frequently occurring class or average value for prediction.

A significant advantage of KNN is its simplicity in implementation and ease of understanding. However, a drawback is that as the amount of data increases, the computational cost rises, and it is sensitive to the curse of dimensionality.

3. Designing an Automated Trading System

To design a Bitcoin automated trading system, the following steps should be taken:

  1. Data Collection: Collect historical price data of Bitcoin.
  2. Data Preprocessing: Organize the collected data and convert it into a format suitable for the KNN model.
  3. Model Training: Use the KNN algorithm to train the model based on past data.
  4. Establish Trading Strategy: Design an algorithm to make trading decisions based on the predicted results.

4. Data Collection

Various data provider APIs can be used to collect Bitcoin price data. Here, we will introduce how to fetch data from the CoinGecko API using Python. The code below is an example of collecting daily price data for Bitcoin:

import requests
import pandas as pd
from datetime import datetime

# API Call
url = 'https://api.coingecko.com/api/v3/coins/bitcoin/market_chart'
params = {
    'vs_currency': 'usd',
    'days': '30',  # Last 30 days of data
    'interval': 'daily'
}
response = requests.get(url, params=params)
data = response.json()

# Create DataFrame
prices = data['prices']
df = pd.DataFrame(prices, columns=['timestamp', 'price'])

# Convert Timestamp
df['timestamp'] = pd.to_datetime(df['timestamp'], unit='ms')

# Display Data
print(df.head())

5. Data Preprocessing

The collected data must be transformed into a suitable format for the model by removing outliers, handling missing values, and performing feature engineering. For example, technical indicators can be added based on price data. Commonly used technical indicators include Moving Average (MA), Relative Strength Index (RSI), and MACD. The code below is an example of adding a moving average:

# Adding Moving Averages
df['MA_10'] = df['price'].rolling(window=10).mean()
df['MA_50'] = df['price'].rolling(window=50).mean()
df.dropna(inplace=True)

6. Training the KNN Model

Once the data is prepared, the KNN model can be trained. The sklearn library can be used for this purpose, and the K value can be optimized through experimentation. Below is the code for training the KNN model and making predictions:

from sklearn.model_selection import train_test_split
from sklearn.neighbors import KNeighborsClassifier
from sklearn.metrics import classification_report

# Separating Features and Labels
X = df[['MA_10', 'MA_50']].values
y = (df['price'].shift(-1) > df['price']).astype(int)  # If the next day's price increases, 1; if decreases, 0

# Split into Training and Test Sets
X_train, X_test, y_train, y_test = train_test_split(X, y, test_size=0.2, random_state=42)

# Train KNN Model
knn = KNeighborsClassifier(n_neighbors=5)
knn.fit(X_train, y_train)

# Prediction and Evaluation
y_pred = knn.predict(X_test)
print(classification_report(y_test, y_pred))

7. Implementing Trading Strategy

An algorithm can be implemented to make trading decisions based on the model’s prediction results. For example, if the model predicts that the price of Bitcoin will rise, a buy order can be placed, and if it predicts that it will fall, a sell order can be executed:

def trading_signal(prediction):
    if prediction == 1:
        return 'Buy'  # Predicted to rise
    else:
        return 'Sell'  # Predicted to fall

# Generate Signal for Last Data
last_prediction = knn.predict(X[-1].reshape(1, -1))
signal = trading_signal(last_prediction[0])
print(f"Trading Signal: {signal}")

8. Performance Evaluation

The performance of the trading strategy can be evaluated through various metrics. Return, Sharpe ratio, and maximum drawdown can be considered, and the effectiveness of the strategy can be validated through experimental backtesting methods. The following code example simulates trading results based on past data:

initial_balance = 1000  # Initial Investment
balance = initial_balance

for i in range(len(X_test)):
    if y_pred[i] == 1:  # Buy
        balance *= (1 + (df['price'].iloc[i+len(X_train)] - df['price'].iloc[i+len(X_train)-1]) / df['price'].iloc[i+len(X_train)-1])
    else:  # Sell
        balance *= (1 - (df['price'].iloc[i+len(X_train)] - df['price'].iloc[i+len(X_train)-1]) / df['price'].iloc[i+len(X_train)-1])

final_balance = balance
profit = final_balance - initial_balance
print(f"Initial Balance: {initial_balance}, Final Balance: {final_balance}, Profit: {profit}")

9. Conclusion

KNN is a simple yet effective machine learning algorithm, which can be a useful tool for establishing automated trading strategies for Bitcoin. In this course, we have learned how to build an automated trading system and establish trading strategies using KNN. However, since KNN may have limitations by itself, it is recommended to develop more sophisticated strategies by combining it with other algorithms or using ensemble techniques. Continuously validating and adjusting existing trading strategies is also important.

If you seek more information and strategies on Bitcoin automated trading, please refer to related literature and research materials to expand your in-depth knowledge.

All code used in this course is provided for guidance purposes, and thorough review and analysis are needed before actual investment. All investment decisions should be made at your own risk.

Automated Trading Using Deep Learning and Machine Learning, Hyperparameter Tuning Method for Improving the Performance of Deep Learning Models.

In this course, we will explore the process of building an automated trading system for Bitcoin using deep learning and machine learning. In particular, we will explain in detail the importance of hyperparameter tuning for maximizing performance and the methods to achieve this. We will provide an introduction to the data and machine learning models we will use, along with practical code examples of hyperparameter tuning techniques.

1. Overview of the Bitcoin Automated Trading System

An automated trading system is an algorithm used to trade assets such as stocks and cryptocurrencies. These systems make decisions through data analysis, pattern recognition, and predictive modeling. Because Bitcoin is particularly volatile, machine learning and deep learning models can effectively automate trading.

2. Importance of Hyperparameter Tuning

Hyperparameters are parameters that must be set during the training process of machine learning models. These include learning rate, batch size, regularization coefficient, and more, and the model’s performance can vary significantly based on these values. Finding the appropriate hyperparameters is one of the most critical parts of improving a model.

3. Hyperparameter Tuning Techniques

There are several methods for hyperparameter tuning. Here, we will introduce two representative methods: Grid Search and Random Search.

3.1 Grid Search

Grid Search is a method that searches all combinations of predefined hyperparameter values to find the optimal combination. This method is straightforward but can be computationally expensive.

from sklearn.model_selection import GridSearchCV
from sklearn.ensemble import RandomForestClassifier

# Hyperparameter grid
param_grid = {
    'n_estimators': [10, 50, 100],
    'max_features': ['auto', 'sqrt', 'log2'],
    'max_depth': [None, 10, 20, 30],
}

grid_search = GridSearchCV(estimator=RandomForestClassifier(), param_grid=param_grid, cv=3)
grid_search.fit(X_train, y_train)
best_params = grid_search.best_params_

3.2 Random Search

Random Search is a method that selects random combinations from the hyperparameter space to evaluate performance. It can find the optimal combination faster than Grid Search, but there is no theoretical guarantee of finding the appropriate combinations.

from sklearn.model_selection import RandomizedSearchCV
from scipy.stats import randint

# Hyperparameter distribution
param_dist = {
    'n_estimators': randint(10, 200),
    'max_features': ['auto', 'sqrt', 'log2'],
    'max_depth': [None] + list(range(10, 31)),
}

random_search = RandomizedSearchCV(estimator=RandomForestClassifier(), param_distributions=param_dist, n_iter=100, cv=3)
random_search.fit(X_train, y_train)
best_params = random_search.best_params_

4. Building the Bitcoin Automated Trading Model

This time, we will collect Bitcoin price data and build a deep learning model for automated trading based on this data, along with an example of hyperparameter tuning.

4.1 Data Collection

Bitcoin price data can be collected through various data service providers via APIs. For example, data can be obtained through the Binance API.

import pandas as pd
import requests

def get_bitcoin_data():
    url = 'https://api.binance.com/api/v3/klines?symbol=BTCUSDT&interval=1d&limit=100'
    response = requests.get(url)
    data = response.json()
    df = pd.DataFrame(data, columns=['Open time', 'Open', 'High', 'Low', 'Close', 'Volume', 'Close time', 'Quote asset volume', 'Number of trades', 'Taker buy base asset volume', 'Taker buy quote asset volume', 'Ignore'])
    df['Close'] = df['Close'].astype(float)
    df['Open time'] = pd.to_datetime(df['Open time'], unit='ms')
    return df[['Open time', 'Close']]

bitcoin_data = get_bitcoin_data()

4.2 Data Preprocessing

Preprocessing is required for the collected data. This includes handling missing values, scaling, and splitting the data into training and testing sets.

from sklearn.preprocessing import MinMaxScaler
from sklearn.model_selection import train_test_split

# Data preprocessing
scaler = MinMaxScaler()
bitcoin_data['Close'] = scaler.fit_transform(bitcoin_data['Close'].values.reshape(-1, 1))

X = bitcoin_data['Close'].shift(1).dropna().values.reshape(-1, 1)
y = bitcoin_data['Close'].iloc[1:].values

X_train, X_test, y_train, y_test = train_test_split(X, y, test_size=0.2, random_state=42)

4.3 Model Building

We will use an LSTM (Long Short-Term Memory) deep learning model to build a Bitcoin price prediction model.

from keras.models import Sequential
from keras.layers import LSTM, Dense, Dropout

model = Sequential()
model.add(LSTM(units=50, return_sequences=True, input_shape=(1, 1)))
model.add(Dropout(0.2))
model.add(LSTM(units=50))
model.add(Dropout(0.2))
model.add(Dense(units=1))

model.compile(optimizer='adam', loss='mean_squared_error')

4.4 Model Training

Hyperparameter tuning is necessary to train the model. The following is an example of adjusting the learning rate and batch size.

from keras.callbacks import EarlyStopping

early_stopping = EarlyStopping(monitor='loss', patience=3)

model.fit(X_train.reshape((X_train.shape[0], 1, 1)), y_train, epochs=100, batch_size=1, callbacks=[early_stopping])

4.5 Prediction and Evaluation

We perform predictions on the test data using the trained model and evaluate them.

import numpy as np

predicted_prices = model.predict(X_test.reshape((X_test.shape[0], 1, 1)))
predicted_prices = scaler.inverse_transform(predicted_prices)

# Model evaluation
from sklearn.metrics import mean_squared_error

mse = mean_squared_error(y_test, predicted_prices)
print('Mean Squared Error:', mse)

5. Conclusion

In this article, we have explored the process of building a Bitcoin automated trading system using deep learning and machine learning, detailing the importance of hyperparameter tuning and the methods to achieve it. By tuning hyperparameters, we can enhance the model’s performance, significantly increasing the efficiency of the Bitcoin automated trading system.

6. Additional Resources

For more information and resources on hyperparameter tuning, please refer to the following links:

Automated trading using deep learning and machine learning, Feature Engineering Extracting features such as trading volume, moving averages, RSI, and applying them to machine learning models.

Feature Engineering: Extracting features such as trading volume, moving averages, and RSI to apply to machine learning models

In recent years, the cryptocurrency market has grown rapidly, with Bitcoin being the most well-known digital asset. Automated trading of such assets has become an attractive choice for many investors. This article will explain how to extract various features that can be used for Bitcoin trading using machine learning and deep learning, and how to build and evaluate models based on them.

1. Understanding Bitcoin Data

The first step for automated trading is data collection. To collect data from the Bitcoin market, several factors should be included:

  • Open Price
  • Close Price
  • High Price
  • Low Price
  • Volume

This data changes over time, so it should be stored in a time-ordered format.

2. Importance of Feature Engineering

Feature Engineering is a crucial process that determines the performance of model training. It is essential to extract useful information from time series data like Bitcoin and prepare it for the learning model. Here, we will look at how to extract features using indicators such as trading volume, moving averages, and Relative Strength Index (RSI).

2.1 Trading Volume

Trading volume is an indicator of market activity, with high volume possibly indicating strong buying or selling pressure. Therefore, adding volume as a feature can enhance the predictive power of the model.

2.2 Moving Average

Moving averages calculate the average price over a given period, smoothing out price movements. Commonly used moving averages include short-term and long-term moving averages. For example, calculating the 5-day and 20-day moving averages and analyzing their crossover can generate trading signals.

2.3 Relative Strength Index (RSI)

RSI calculates the ratio of price increases to decreases over a given period, represented as a value between 0 and 100. Values above 70 are interpreted as overbought, while values below 30 are interpreted as oversold, making them useful for trading signals.

3. Data Collection and Feature Engineering Using Python

Now we will actually collect Bitcoin data and extract features using the indicators mentioned above. The following code demonstrates how to process Bitcoin data using the pandas and numpy libraries in Python.


import pandas as pd
import numpy as np
import pandas_datareader.data as web
import datetime

# Data collection
start = datetime.datetime(2020, 1, 1)
end = datetime.datetime.now()

btc_data = web.DataReader('BTC-USD', 'yahoo', start, end)

# Calculate moving averages
btc_data['MA5'] = btc_data['Close'].rolling(window=5).mean()
btc_data['MA20'] = btc_data['Close'].rolling(window=20).mean()

# Calculate RSI
def compute_rsi(data, window):
    delta = data['Close'].diff(1)
    gain = (delta.where(delta > 0, 0)).rolling(window=window).mean()
    loss = (-delta.where(delta < 0, 0)).rolling(window=window).mean()
    rs = gain / loss
    rsi = 100 - (100 / (1 + rs))
    return rsi

btc_data['RSI'] = compute_rsi(btc_data, 14)

# Add volume
btc_data['Volume'] = btc_data['Volume']

# Final data check
print(btc_data.tail())
    

4. Building and Predicting with Machine Learning Models

Once the features are prepared, we can build a machine learning model to predict whether the price of Bitcoin will rise or fall. Below is an example code using the scikit-learn library.


from sklearn.model_selection import train_test_split
from sklearn.ensemble import RandomForestClassifier
from sklearn.metrics import classification_report, accuracy_score

# Handle missing values
btc_data.dropna(inplace=True)

# Define features and labels
features = btc_data[['MA5', 'MA20', 'RSI', 'Volume']]
labels = (btc_data['Close'].shift(-1) > btc_data['Close']).astype(int)  # Whether the next day's close price rises

# Split into training and test datasets
X_train, X_test, y_train, y_test = train_test_split(features, labels, test_size=0.2, random_state=42)

# Train the model
model = RandomForestClassifier(n_estimators=100, random_state=42)
model.fit(X_train, y_train)

# Predict and evaluate
predictions = model.predict(X_test)
print(classification_report(y_test, predictions))
print('Accuracy:', accuracy_score(y_test, predictions))
    

5. Additional Considerations

To operate an automated trading system, several additional considerations are needed:

  • Risk management: You should set investment amounts and loss limits to manage risk.
  • Data accessibility: The quality and quantity of data greatly affect the performance of the model, so reliable data sources must be secured.
  • Continuous model improvement: It is necessary to periodically retrain the model with new data to improve performance.

6. Conclusion

Building an automated trading system for Bitcoin using deep learning and machine learning starts with understanding the data and extracting useful indicators. This process maximizes trading efficiency and allows well-designed models to continuously evolve. I hope the processes presented in this article will help readers build their own automated trading systems.

In the future, I hope to develop a proactive automated trading system that responds to market changes using various techniques.

Automated trading using deep learning and machine learning, Trading strategy based on Ensemble Learning. Generate more accurate trading signals through ensemble learning that combines multiple models.

The market for cryptocurrencies like Bitcoin is highly volatile, and countless transactions occur every day. To generate profits in such a market environment, sophisticated trading strategies are necessary. Recently, with advancements in artificial intelligence (AI) technology, automated trading systems utilizing deep learning and machine learning have gained increasing attention. In this article, we will provide an in-depth explanation of a Bitcoin automated trading strategy based on ensemble learning and provide example code for it.

1. What is Ensemble Learning?

Ensemble Learning is a technique that combines multiple machine learning models to achieve better predictive performance. By combining the results of each model, which learns and predicts individually, we can reduce the errors that may occur in a single model and enhance generalization performance.

Major methods of ensemble learning include Bagging, Boosting, and Stacking.

1.1 Bagging

Bagging involves dividing the data into several subsets and independently training a model on each subset. The final prediction is determined by averaging the predictions of each model or by majority vote. Random Forest is a representative bagging algorithm.

1.2 Boosting

Boosting is a technique for training the next model to correct the errors of the previous model. Each model is trained sequentially, combining several weak learners to create a strong learner. AdaBoost and XGBoost are well-known boosting algorithms.

1.3 Stacking

Stacking involves training several models and then using a new model (meta-model) to learn the predictions from each model to perform the final prediction. This allows for the creation of a model with stronger predictive power by aggregating the advantages of various models.

2. Designing a Bitcoin Automated Trading System

In this section, we will design an example system that combines CNN (Convolutional Neural Network) and LSTM (Long Short-Term Memory) models. This automated trading system will predict Bitcoin price fluctuations based on historical price data and generate trading signals based on the results.

2.1 Data Collection

Bitcoin price data can be collected through several APIs. In this example, we will use the yfinance library to fetch historical price data.

2.2 Data Preprocessing

The collected data needs to be preprocessed to fit the model. It is common to handle missing values and normalize the price data.

2.3 Model Training

The model to be trained will combine CNN and LSTM. CNN helps extract important features from time-series data, while LSTM is effective in learning sequence information and long-term dependencies in time-series data.

2.4 Generating Trading Signals

Using the trained model, predictions are made, and buy or sell signals are generated based on specific thresholds. For example, if the predicted price is higher than the current price, a buy signal can be generated; if lower, a sell signal can be sent.

3. Example Code

Now let’s implement the above explanations through an actual code example.

    
import numpy as np
import pandas as pd
import yfinance as yf
import matplotlib.pyplot as plt
from sklearn.model_selection import train_test_split
from sklearn.preprocessing import MinMaxScaler
from keras.models import Sequential
from keras.layers import LSTM, Conv1D, Dense, Flatten, Dropout

# Collecting Bitcoin data
data = yf.download('BTC-USD', start='2020-01-01', end='2023-10-01')
data = data['Close'].values

# Data preprocessing
scaler = MinMaxScaler(feature_range=(0, 1))
scaled_data = scaler.fit_transform(data.reshape(-1, 1))

# Function to create sequence data
def create_dataset(data, time_step=1):
    X, y = [], []
    for i in range(len(data) - time_step - 1):
        X.append(data[i:(i + time_step), 0])
        y.append(data[i + time_step, 0])
    return np.array(X), np.array(y)

time_step = 60
X, y = create_dataset(scaled_data, time_step)
X = X.reshape(X.shape[0], X.shape[1], 1)

# Split the data
X_train, X_test, y_train, y_test = train_test_split(X, y, test_size=0.2, random_state=42)

# Create LSTM model
model = Sequential()
model.add(Conv1D(filters=64, kernel_size=3, activation='relu', input_shape=(X_train.shape[1], 1)))
model.add(Dropout(0.2))
model.add(LSTM(50, return_sequences=True))
model.add(Dropout(0.2))
model.add(LSTM(50))
model.add(Dropout(0.2))
model.add(Dense(1))

# Compile the model
model.compile(optimizer='adam', loss='mean_squared_error')

# Train the model
model.fit(X_train, y_train, epochs=50, batch_size=32)

# Prediction
predicted_price = model.predict(X_test)
predicted_price = scaler.inverse_transform(predicted_price)

# Visualization of results
plt.figure(figsize=(10,6))
plt.plot(scaler.inverse_transform(y_test.reshape(-1, 1)), color='blue', label='Actual Price')
plt.plot(predicted_price, color='red', label='Predicted Price')
plt.title('Bitcoin Price Prediction')
plt.xlabel('Time')
plt.ylabel('Price')
plt.legend()
plt.show()
    
    

The above code is an example of a simple LSTM model implemented to predict Bitcoin prices. For it to become an actual trading system, additional logic is needed to generate trading signals.

4. Implementing Trading Strategy

After the model is trained, we move on to the stage of establishing a trading strategy based on the predicted prices. Here, we will generate trading signals based on the differences between predicted prices and actual prices as a simple strategy.

    
# Generate trading signals
def generate_signals(predicted_prices, actual_prices):
    signals = np.zeros(len(predicted_prices))
    for i in range(1, len(predicted_prices)):
        if predicted_prices[i] > actual_prices[i-1]:
            signals[i] = 1  # Buy signal
        elif predicted_prices[i] < actual_prices[i-1]:
            signals[i] = -1  # Sell signal
    return signals

signals = generate_signals(predicted_price.flatten(), scaler.inverse_transform(y_test.reshape(-1, 1)).flatten())
    
    

5. Performance Evaluation

Evaluating the performance of the completed trading system is crucial. Several metrics can indicate the success of the system. Metrics such as return, maximum drawdown, and Sharpe ratio can be used for evaluation.

    
# Performance evaluation
def evaluate_performance(signals, actual_prices):
    returns = np.zeros(len(signals))
    for i in range(len(signals)-1):
        if signals[i] == 1:  # Buy
            returns[i+1] = actual_prices[i+1] / actual_prices[i] - 1
        elif signals[i] == -1:  # Sell
            returns[i+1] = -1 * (actual_prices[i+1] / actual_prices[i] - 1)
    return np.cumprod(1 + returns) - 1

cumulative_returns = evaluate_performance(signals, scaler.inverse_transform(y_test.reshape(-1, 1)).flatten())

# Visualization of results
plt.figure(figsize=(10,6))
plt.plot(cumulative_returns, color='green', label='Cumulative Returns')
plt.title('Bitcoin Automated Trading System Performance')
plt.xlabel('Time')
plt.ylabel('Returns')
plt.legend()
plt.show()
    
    

6. Conclusion

In this post, we explored how to design and implement a Bitcoin automated trading system using deep learning and machine learning based on the principles of ensemble learning. Ensemble learning is a useful technique that combines the strengths of various models to enhance predictive performance. In actual trading environments, more precise trading strategies are needed, and various advanced algorithms and techniques can also be utilized.

It is essential to conduct more experiments and research to improve and advance the Bitcoin automated trading system. I encourage readers to develop their own trading strategies and experiment with them.

Moreover, the cryptocurrency market is extremely volatile and high-risk. Therefore, it is crucial to conduct thorough research and review before engaging in actual trading.