🥊 Algocrat AI vs Bitcoin: Round 2 [Performance Analysis]

Due to Algocrat AI’s pause in trading over the past two weeks, many people have started questioning the algorithms.

While it’s true that high volatility is detrimental to momentum trading, it’s frustrating to see Bitcoin jump 20-30% without any trades on the accounts, even if that was the right decision.

However, as Fyodor Dostoevsky, one of the world’s greatest novelists once said, "The big picture is seen from a distance".

This is even more applicable to trading, where the results of just a few months can often be misleading.

Let’s compare Algocrat’s performance to Bitcoin:

To make the comparison as unfavorable to Algocrat as possible, we’ll measure the performance of the two starting from Bitcoin’s lowest point in 2022 — at the peak of the FTX collapse.

Imagine we were oracles with perfect foresight and decided to buy Bitcoin at its low.

Fast forward a little over two years and Bitcoin would have become one of the world’s best liquid investments, delivering a 388% return to date.

How did the Algocrat portfolio perform over the same period?

As you can verify yourself here, it achieved three times that amount on Pepperstone, an astonishing return of 1,031%.

Even buying Bitcoin at the very bottom of a bear market couldn’t come close to matching Algocrat’s performance.

Of course, we are comparing Bitcoin to the high-risk performance of Algocrat. After all, just two years ago, Bitcoin was in a 77% drawdown, and before that, it experienced a drawdown of more than 80%.

It’s only fair to use a comparable risk level when evaluating Algocrat.

Naturally, any investment can underperform Bitcoin during certain periods.

However, Algocrat consistently outperforms Bitcoin in the long run, even during bull market phases. And these are not just words, you can easily check all the numbers.

It's also worth mentioning that there is zero correlation between Algocrat and Bitcoin, making it an excellent choice for one's investment portfolio.

If you're ready to incorporate Algocrat AI to our investment portfolio, then take action and join us right now:

🔗 Apply Now and Secure Your Spot

Best Regards,
The Algocrat AI Team

P.S. If we make a "fairer" comparison of Algocrat over the entire lifetime of this account, the return would be over 1,600% compared to Bitcoin’s 135%. This is "fairer" because we are certainly not at the market’s low point right now, making it impossible to capture the same kind of bottom as in the earlier example.

🔎 Beyond Bitcoin: Why Algocrat AI Thrives Regardless of Market Trends [Strategy Analysis]

After the last post, a few clients asked us to elaborate further on the correlation aspect.

How can it be that there is zero correlation between Algocrat AI results and Bitcoin dynamics?

After all, Algocrat seems to trade trends, right? It should have some correlation - for instance, performing better during an uptrend dynamic, making the overall correlation at least slightly positive.

Well, not quite.. let's dive deeper into this topic.

The first misconception about Algocrat is that it’s a trend-following system.

What is trend-following in simple terms?

It's buying when the price is moving up significantly and selling when it goes down.

This means staying in the market most of the time, going either long or short depending on the prevailing trend. Such systems perform well during trending market periods and on trending instruments, such as Bitcoin.

Our team has developed similar systems and observed their results from other developers. Practice shows that while these systems can outperform Bitcoin over the long term, they fail to outperform Algocrat.

More importantly, they depend heavily on the overall market trend. If there is no significant trend in either direction, they tend to lose money. These periods of sideways movement can last for months.

For instance, we recently had over six months of sideways movement, from mid-March until November’s Trump rally.

Algocrat AI achieved a +150% gain during these months, even though the market wasn’t trending. Such results would be impossible for any trend-following system in the absence of a trend

What's Algocrat AI's strategy?

It’s a diversified portfolio of (mostly) intraday trading systems that capture short-term market dynamics.

We do not rely on sustained trending movements. Instead, we exploit short-lived momentum market inefficiencies when there is a high probability of capturing them.

This means we do not stay in the market all the time. This short-term approach is more sophisticated and tricky than typical trend-following systems.

To remain consistently profitable in the long run, we must be precise with our entries, whereas trend-following focuses more on staying in the market during trends.

The advantage of this short-term approach (apart from being more profitable for deposits under a billion dollars) is that we can generate returns even when the market is stagnant, thanks to these intraday movements.

What's the downside?

Limited scalability.

This approach can manage a few dozen million dollars but not hundreds of millions or billions.

Conversely, trend-following on a liquid pair like Bitcoin can handle significantly larger sums, even in the billions

Since our focus is on maximizing profitability for relatively small amounts, up to a few dozen million dollars, it makes sense to stick with this short-term approach.

Scalability then is irrelevant to us because we are not managing billions of dollars.

On the other hand, trend-following has a major downside: its performance is tied to the “fate” of the instrument being traded.

While the instrument trends, trend-following systems perform well, but during non-trending periods, they lose money.

This creates a significant correlation and coefficient of determination (R^2) between the system and the underlying asset, such as Bitcoin. While correlation is well-known, R^2 is less familiar to the general audience.

Simply put, R^2 explains the percentage of a trading system’s returns that can be attributed to the underlying asset’s dynamics.

For example, an R^2 of 0.5 means that 50% of all returns are explained by Bitcoin’s market behavior.

Trend-following systems often have R^2 values of 0.5 or higher.

In contrast, short-term intraday systems are not dependent on overall market dynamics, so they typically exhibit R^2 values close to zero.