Predictive Strength
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Predictive Strength
Measures the ratio of positive to negative mentions on Reddit.
Crypto markets exhibit stronger reflexivity than traditional assets due to retail dominance and transparent blockchain data. Bullish Reddit sentiment → increased visibility → FOMO buying → price appreciation → reinforced sentiment. This self-reinforcing cycle creates momentum that technical analysis alone might miss.
Reddit sentiment data is sourced through automated scraping of posts/comments from specified subreddits, followed by preprocessing and analysis via machine learning models. The raw sentiment scores are then normalized against historical averages to create a relative index.
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To understand a predictive factors predictive power, we create a simple long/short strategy and simulate its past performance (with daily rebalancing):
The strategy is rebalanced daily, on a continuous basis. There are 0.5% transaction costs applied on each position adjustment.
Get started by validating the historical performance of the strategy with our transparent code snippets.
Copy and paste the code snippets below into your Python environment or download the files below.