Hi!

In this week's edition, I'll share one of my favorite crypto buy and sell indicators I haven't shared before.

It’s incredibly useful, free, and much better than the $ 4,000 indicators that other influencers are selling.

Enjoy!

Kierin | Onchain_Edge

Here's a snapshot of what we'll cover:

→ LDC Buy And Sell TradingView Indicator: Learn about this extremely useful tool that uses physics concepts for smarter stock & crypto market predictions.

→ Step-by-Step Guide to Trading Crypto with LDC: Find out how to customize the Lorentzian Distance Classifier to suit your unique trading approach.

→ Developing Smart Trading Strategies: Learn strategies for using LDC in various trading scenarios, including Bitcoin, and understand key risk management practices.

Before diving into the “Step-by-Step Guide to Trading Crypto with LDC” section, I want to start with some theory on the LDC indicator and how it works.

If you want to start using the indicator, skip to the guide section, but I highly recommend that you bookmark this article for future reference.

What is the Lorentzian Distance Classifier (LDC)?

The LDC machine-learning tool uses historical stock market data to predict future price movements.

TradingView user jdehorty developed and shared this indicator for free. Read its description here.

The LDC stands out from other tools because of its use of Lorentzian distance - a method derived from physics that is particularly effective in processing complex data, especially when major events impact the market.

Lorentzian distance comes from physics, which describes the universe's shape in Einstein's theory.

When unusual events occur in the market, trading helps to understand how market data behaves, similar to how massive objects change the shape of space in physics.

Lorentzian vs. Euclidean in Trading

In trading, Lorentzian distance is better than the more common Euclidean distance.

This is because Lorentzian distance is better at handling how big events, like important meetings or unexpected incidents, can distort market data.

Lorentzian distance considers these big events and helps the machine learning model in LDC to understand how these events change the market.

This means the predictions made by LDC are more reliable, especially during times when the market is affected by these big events.

How Does LDC Work For Trading?

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In simple terms, the LDC calculates the Lorentzian distance between these trading indicators:

The Indicators LDC Uses

1. RSI (Relative Strength Index):

   • Imagine RSI as a speedometer for a stock's price movement. When it goes too high (above 70), it's like a car speeding too fast, suggesting it might need to slow down (or the stock price might drop). When it goes too low (below 30), it's like a car moving too slowly, suggesting it might speed up soon (or the stock price might rise).

2. WT (Williams Percent Range):

   • Think of WT as a way to measure how excited or scared people are about a stock. If the value is very high, people might be too excited (overbought), and the price might fall soon. If it's very low, people might be too scared (oversold), and the price might rise.

3. CCI (Commodity Channel Index):

   • CCI is like a weather vane for the stock market. It tells you if the stock price is moving in a strong wind (trend) or just breezing along (normal conditions). If the CCI is very high or very low, it signals that the price might soon change direction.

4. ADX (Average Directional Index):

   • ADX helps you understand how strong a stock's price trend is. A high ADX means there's a strong trend (either up or down), while a low ADX suggests the trend is weak and the price might not move much.

Let's explore how the LDC Machine Learning Script determines when to buy or sell.

How does LDC Calculate When It’s A good time to buy and sell?

1. Collecting Data from Indicators:

   • LDC first gathers data from each indicator. For example, it looks at the RSI to understand if the stock is overbought or oversold, examines the WT for market momentum, checks the CCI for price trends, and uses the ADX to gauge the strength of these trends.

2. Analyzing Historical Patterns:

   • The tool then compares current market conditions with historical data. It uses machine learning to search through past market scenarios that are similar to the present, considering the indicators' readings at those times.

3. Applying the Lorentzian Distance:

   • It is unique to LDC and uses the Lorentzian distance (a concept from physics) rather than the more common Euclidean distance. This method effectively handles the market's 'warping' effects caused by significant events, like major economic announcements or sudden market shifts.

4. Predicting Future Movements:

   • Based on this analysis, the LDC predicts future price movements. If the current conditions closely resemble past scenarios where the price increased, LDC might suggest a 'buy'. Conversely, if it resembles scenarios that led to a price decrease, it might suggest a 'sell'.

5. Using Approximate Nearest Neighbors (ANN) Algorithm:

   • The LDC employs the ANN algorithm, which quickly identifies the 'nearest' historical scenarios to the current market state based on Lorentzian distance. This helps in making rapid and accurate predictions.

6. Adjusting for User Preferences:

   • Traders can customize the LDC settings, like the number of neighbors to consider or which features to focus on (like RSI or ADX), allowing the tool to align more closely with their trading style.

7. Providing Real-Time Feedback:

   • The tool offers real-time feedback on its predictions, which traders can use to make informed decisions. However, it's important to note that these are statistical predictions, not guarantees.

With all that theory out of the way, let’s get to the practical section of this tutorial, where I’ll show you how to set everything up in tradingview to get you started.

Step-by-Step Guide to Trading Crypto with LDC

Installing LDC on Tradingview

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Click on the indicators icon and type “Lorentzian” in the search bar.

You will find jdehortys script right away.

When you add the LDC to your indicators, it will look like the chart below.

Here’s a reference image of what all the data means.

Important Settings Explained

• Feature Engineering: This lets you fine-tune the LDC to work better for different timeframes and market conditions.

• Filters Settings: Filters help you focus on specific market conditions, like volatility or market trends.

• Kernel Regression Settings: These settings help you make better decisions on when to buy or sell.

• Display Settings: You can change how information is displayed, making it easier to understand.

• Backtesting Settings: This allows you to test how well the LDC's settings would have worked in the past.

Personally, I like to have the “Show Bar Prediction Values” unchecked, as it makes the chart a lot cleaner.

Here’s what it looks like now.

Monitor Trade Stats: Monitor the 'Trade Stats' to understand the tool's performance over time. A high win rate and WL ratio are indicators of successful predictions.

Developing a Trading Strategy

1. Identify Entry Points: Use LDC's predictions to identify potential entry points. For example, it could be a good time to enter a long position when the LDC indicates a strong buy signal based on its analysis. I, personally, prefer to buy a spot.

2. Set Exit Strategies: Decide in advance when to exit your trades. Use the LDC's exit threshold settings and kernel regression to determine when a trade might no longer be profitable.

3. Incorporate Additional Indicators: While LDC provides robust analysis, combining it with other indicators like moving averages or Bollinger Bands can offer a more comprehensive view. I like to use this in combination with the VLC indicator: “The Indicator Every Trader Needs for Spotting Breakouts”

Tips and Tricks for using the LDC Indicator

Buying on Predicted Upward Trends: If LDC predicts a strong upward trend based on its analysis of past similar situations, you might consider buying BTC. Monitor the trend's strength using the LDC's kernel regression and plan your exit accordingly.

Selling on Predicted Downward Trends: If LDC indicates a potential downward trend for BTC, it could be a signal to sell or short sell, especially if other indicators confirm this trend.

Even though I can use the LDC indicator to get sell signals, I never use it because I feel like the sell signals happen too late. I have better indicators and strategies to exit the market.

Using Filters for Volatility: Given Bitcoin's volatile nature, use LDC's volatility filters to avoid false signals. This can help in focusing on more reliable trading opportunities.

Based on my experience, I have found that this indicator is most effective for confirming trends on higher timeframes.

It cannot guarantee buying at the absolute lowest point or selling at the highest, but it can prevent missing out on a significant price surge and avoid being left out of the market.

Backtesting Your Strategy

Before implementing your strategy in live trading, back test it using historical Bitcoin data. This helps understand how effective your LDC settings and overall strategy would have been in past market conditions.

You can see the trade stats window in the uppupper-righter right corner of tradingview.

If it’s not there, you need to toggle it on.

Conclusion

One of my go-to tools for identifying market breakouts is the Lorentzian Classification Machine Learning TradingView Indicator. I find it highly effective when used with the VMC indicator, which I shared a tutorial on a few weeks ago. If you're interested, you can read the tutorial here: “The Indicator Every Trader Needs for Spotting Breakouts“.

Cheers,

Kierin