Gauss strategy

In our “Age of Discoverers” series, we continue to explore algorithmic trading through the lens of great minds. Like Galileo looked for stars, Newton for laws, and Hillary for summits, the Gauss strategy, inspired by the “king of mathematicians” Carl Gauss (1777-1855), uses his error theory to tame market chaos. Indicators in this strategy are tools similar to Gauss's astronomical instruments that cut out the “noise” and reveal precise signals for entering and exiting trades.

Error Theory

Gauss was famous for his ability to find order in the chaos of data. His error theory, developed for astronomy, minimized random errors. In the Gauss strategy, the indicators - Bollinger Bands, Williams %R, CMO, ROC and Balance of Power - work as filters, highlighting meaningful market movements and filtering out noise so traders can catch key moments.

Normal distribution

Bollinger Bands (30 minutes) are the core of the strategy, a reflection of the Gaussian normal distribution. They show how price fluctuates around the mean, highlighting anomalies. A price move beyond the upper or lower band signals a reversal or trend, helping traders find order in market chaos.

Three Sigma Anomalies

Williams %R (15 minutes, below -80) captures extreme oversold conditions, similar to the Gaussian rule of three sigma, where 99.7% of the data is normal and the rest is anomalous. Values below -80 indicate a potential reversal, allowing traders to catch moments when the market returns to equilibrium.

Movement momentum

The Chande Momentum Oscillator (CMO, 5 minutes, below -50) measures the strength of price momentum by filtering out small fluctuations. Like Gauss analyzed deviations in stellar data, the CMO detects a slowing or strengthening trend, signaling entry points.

Rate of Change

Rate of Change (ROC, 1 minute, below -1.5) captures the rate of change in price. Similar to Gaussian trajectory calculations, ROC picks up sharp drops, indicating panic selling or trend exhaustion, giving traders short-term opportunities.

Market Balance

The Balance of Power (1 minute) evaluates the struggle between buyers and sellers, confirming the signals of other indicators. Just as Gauss looked for equilibrium in data, this indicator helps determine when the market direction changes.

Accuracy and stability

Exit trades in the Gauss strategy use a combination of two indicators to smooth out market noise and accurately capture profits. The Hull Moving Average (HMA, 5 minutes) tracks the short-term trend, reacting to changes faster than regular moving averages, which is ideal for volatile crypto markets. When price crosses the HMA in the opposite direction, it signals a potential exit. The second indicator, Williams %R (1 minute), confirms the signal if it leaves the overbought (above -20) or oversold (below -80) zone. This combination, like a Gaussian error filtering approach, minimizes false signals by providing an accurate exit.

Gauss strategy on different assets

We tested the Gauss strategy on three high volatility memcoins - BONK, PEPE and RATS - to show its effectiveness in extreme market dynamics.

• BONK: The high volatility of BONK is ideal for the Gauss strategy. The Bollinger Bands and Williams %R accurately catch reversals after sharp moves:
  
  📐 BYBIT BONK GAUSS 2.5
  
  
• PEPE: The asset, with its rapid ups and downs, requires quick reactions. ROC and Balance of Power effectively capture short-term momentum:
  
  📐 BYBIT PEPE GAUSS 2.5
  
  
• RATS: This asset has shown how CMO and Bollinger Bands work in extreme conditions.
  
  📐 BYBIT RATS GAUSS 2.5
  
  

Order in Chaos

The Gauss strategy is the epitome of Carl Gauss' mathematical precision, finding order in market chaos. Like other strategies of the “Age of Discoverers”, it combines the philosophy of a great mind with practical tools. Bollinger Bands, Williams %R, CMO, ROC, Balance of Power and HMA exits create a system that filters out noise and identifies opportunities. Consider Gauss on the Veles platform and discover your pioneering era where every signal is a step toward success.