Weekly Range Update: CBOE/CME is coming!

bitstampUSD 1 Day #1 2017-12-10 23_03_45.582
XBTUSD Daily Chart

XBT/USD weekly price range 11500$-19100$ | The resistance zone for this week is very wide but less than the previous week and ranges from 17500 to 19100 dollars, the support area around the 2nd deviation line, from 11500 to 11300 dollars.

Clearly, intraday volatility from tomorrow will increase due to the impact of CME and CBOE futures, so there may be very good buying opportunities if the price were to fall below $11500 for short periods of time. Given that the arrival of derivatives is not an unexpected news and I don’t expect any kind of impact on the current bullish trend, what we will see will only be an increase in intraday volatility as already proven in the past by academic studies.

Also this week to compensate for record volatility levels I refined again the coefficients to calculate the various VWAP deviation levels so as to have greater consistency with other indicators I use.

The RSI oscillator is always clearly overbought even if it has downloaded a little while keeping always above the threshold of 70; as long as there is this great force this oscillator will remain constantly above 70 and therefore it must always be contextualized the reading of RSI according to the condition of the market, today still in extreme force.

In the event of an unexpected catastrophic news, the support area on the weekly chart rises to 4100-5300 USD.

ITA Version here

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Offtopic: Quantitative Analysis of Altcoins, part II

In part I, I did a quick analysis of altcoins compared to XBT, this time i’m going to check their performance using all available data of each altcoin since inception date using daily data instead of weekly to improve the granularity of the analysis because, the finer the granularity of the analysis, the better the insights for understanding the characteristic of the asset.

ALTCOIN Gain (G) Volatility (RMS)
Ethereum      0.998               0.072
Monero      0.996               0.073
Next      0.995               0.074
Dash      0.993               0.111
Litecoin      0.991               0.115
Ethereum Classic      0.990               0.084
Stellar Lumens      0.987               0.135
Eos      0.981               0.126
Iota      0.979               0.117
Bitcoin Cash      0.977               0.161
Ripple      0.975               0.187
Zetacash      0.947               0.201
Qtum      0.912               0.265
Bitcoin Gold      0.740*               0.570*

*Note that because of the very short size of the Bitcoin Gold dataset, its Gain (G) and volatility might change a lot in the long run.

If I were forced to assemble a portfolio of altcoins, i’ll probably opt for low volatility alts, like Ethereum, Monero, Next and Ethereum Classic. Eventually I would add Dash and Litecoin because by increasing the number of assets as a result I will reduce the final volatility of the portfolio.
At the end of this post you will find what i’d actually do if asked to diversify an initial capital of bitcoins.

To give you an idea of the Gain (G), you have to power this number to the number of days interested, for example (G)^365 will give you the average value of your asset in 1 calendar year.

For Ethereum is:

0.998^365 = 0.4815

or a 52% expected decrease in value towards XBT in 365 days.

How Much to allocate individually on each altcoin?

This is a simple question with a simple answer, the formula to obtain the fraction of your capital to wage on a particular asset is:

F = 2P - 1

Where P is the Shannon Probability and F the optimal fraction of your capital to wage. The Shannon probability of a time series is the likelihood that the value of the time series will increase in the next time interval. The Shannon probability is measured using the average, avg, and root mean square (volatility), rms, of the normalized increments of the time series as i explained in previous udpates.

For Monero is:

F = 2 * 0.4953 - 1 = -0.0096 or ~1% as an optimal fraction to wage

For Ethereum is:

F = 2 * 0.5079 – 1 = 0.0158 or 1.6% as an optimal fraction of your capital

Monero has both the Persistence and Gain negative but what about Ethereum? How is it possible to have a positive persistence and negative Gain (G = 0.998)?

Well the point is that an asset’s gain in value can be negative, even though the likelihood of an up movement is greater than 50% or 0.50 (in this case 0.5079). How can the time average of something be positive, and result in negative values?

It may seem counter intuitive, but just because the average daily gain in value of an asset is positive, is not sufficient evidence that the asset’s value will increase or be a decent investment.

Do we really see asset class with these kinds of price characteristics?

The answer is that we do. During the dotcom equities bubble of the 2000, about half of the equities had these characteristics; many were to fall the hardest, too. I think the same about many altcoins/ICO, they will end badly in comparison to Bitcoin.

This is why a possible asset allocation might be to go short against Altcoins with a fraction of your Bitcoins (says 10% shorting 5 crypto); it is a strategy that might suffer some losses in the short term if you are unlucky with volatility going against you, but it will surely win in the long run.

In the upcoming PART III – We will better understand how to assemble a portfolio of cryptocurrencies starting with EURO or USD instead of Bitcoin and it’s intended for who hasn’t yet invested in any Crypto.

 

Weekly Range Update: again at resistance

eng
XBTUSD Daily Chart – VWAP Levels

XBT/USD weekly price range 10500$-14400$ | The resistance zone for this week is very wide and ranges from 12000$ to 17000$ and is defined by the 2nd and 4th deviation line, we start the week again near a resistance but I think it is possible to reach 14400$ with a maximum peak at 17000$ eventually the week later near the CME bitcoin futures debut.

To compensate for higher levels of volatility I have increased the coefficients to calculate the various levels of VWAP price deviation lines so as to have greater consistency with other indicators that I use to compute volatility, supports and resistances; all this to ensure a good correlation between the different approaches I use.

We are very unbalanced to the upside and I don’t expect significant declines for this reason the support area is more narrow and ranges from 9250 to 10500 dollars just above the 1st deviation line.

The RSI oscillator is always clearly overbought with its average being saturated well above the threshold level of 70; these two conditions do not preclude a further push of the market at $14000 and until I see a slowdown on the weekly chart I will continue to ignore this oscillator.

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to 3600-4500 USD.

ITA version here.

Weekly Range Update: at resistance

eng
XBTUSD Daily Chart – VWAP and dev. levels

XBT/USD weekly price range 7600$-10700$ | The 2-month VWAP is now at 6600$, the resistance zone ranges from 9600$ to 10700$ and is defined by the 3rd and 4th price deviation line.
XBTUSD begins the week at a resistance level, however this pair has proven that it is not impossible to reach the fourth positive deviation line above VWAP, it has already happened on November 8th.

The support area ranges from 6600$ to 7600$ and is defined by VWAP and the 1st deviation line.

In the event of a strong profit taking, I think it is very difficult to see a test down to the VWAP at 6600$, given the enormous strength of this market is much more likely that the support level at 7600$ will hold.

The RSI oscillator is clearly overbought with its average just above the threshold level of 70; these two conditions do not preclude a further boost of the market up to 10700$.

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to 3700-4400 USD.

ITA version here.

Offtopic: Quantitative Analysis of Altcoins, part I

In this update we will compare major altcoins towards bitcoin with the quantitative systems I use in the annual forecast that I publish in the first post of each year. Concisely we will list the volatility and gain values of these alternative assets to bitcoin. I would remind you that it is always preferable to invest in assets with low volatility and consequently high returns, volatility always deteriorates the gain of an asset.
I used weekly data, the last 52 weeks where possible. Only Bitcoin Gold hasn’t enough data for a proper computation of its quantitative values.

ALTCOIN Gain (G) Volatility (RMS)
Ethereum 0.9865 0.176
Dash 0.9862 0.188
Monero 0.979 0.1509
Litecoin 0.977 0.1511
Ethereum Classic 0.9765 0.169
Next 0.961 0.182
Ripple 0.96 0.236
Zetacash 0.951 0.1631
Stellar Lumens 0.9313 0.29
Bitcoin Cash 0.93 0.207
Qtum 0.909 0.206
Iota 0.88 0.179
Eos 0.8421 0.322
Bitcoin Gold n/a n/a

This table explains why every time you ask me an advice about altcoins, I tell you that it is better to ignore them because NO ALTCOIN shows positive gains above the unit due to the fact that they are dominated by volatility that highly reduce the final gain of the asset.
Said this, the less bad altcoins are Dash and Ethereum followed by Monero and Litecoin with a preference to these last two because of lower volatility compared to Ethereum and Dash.

A special mention to Bitcoin Cash that, considering its high market cap, both Gain and Volatility are bad.

To conclude, the big mistake is to compare altcoins to USD, in my opinion it’s wise to compare them against Bitcoin; against fiat currencies is easy to perform well.

Technical Appendix

The procedure to compute volatility and gain is always the same explained in the past:

  1. Compute log of Today bar divided by yesterday bar
  2. Average values (avg) of last 52 periods (n) (1 year using weekly data)
  3. Compute Volatility (rms)
  4. Compute price momentum probability with the formula P = (((avg / rms) – (1 / sqrt (n))) + 1) / 2
  5. Compute Gain using the formula G = ((1+rms)^P*((1-rms)^(1-P))

ITA Version here

Weekly Range Update

XBTUSD dailychart
XBTUSD dailychart

XBT/USD weekly price range 6800$-8600$ | This week the 2-month VWAP updates to 6100$ from last week’s 4800$; new data is replacing the old ones and it may happen that you have some slight changes on the price level of the reference average.

The resistance zone ranges from 8600$ to 9800$ and is defined by the 2nd and 3rd deviation line of the 2-month VWAP.

The support area ranges from $6100 to $6800 and is defined by VWAP and an intermediate level between the VWAP and the 1st deviation line.

I think it is very difficult to see a test down to the VWAP at $6100, if there were to be some profit taking the market should not fall below $6800, considering that the RSI oscillator turned upside without testing the oversold area i still believe that this market will go over 8000$ eventually after a small correction towards our first support at 6800$.

The other template I use on Tradingview with KAMA average and deviation levels is very similar to this one; the weekly KAMA is at 5800$ not far from the 6100$ of the 2-month VWAP.
The resistance zone is 8000$-9300$, slightly lower than the one presented with this update of 8600$-9800$.
Basically we have a decent correlation between the two templates (VWAP using Sierrachart and KAMA using Tradingview. com)

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to 3200-4000 USD.

ITA Version Here.

Short Term Update

eng
Updated Weekly Range Levels

Given the good price reaction from the 5400$ bottom, I decided to update the price levels for this week to 6250$-7600$ with an extreme to $9000.

As I often say, the higher the bottom, the higher the chance is that the following top is very high and could be between 9000 and 10000 dollars, we have seen that the market almost never reaches the fourth VWAP deviation line so let’s say that a good top could be around 9000$.

The ALMA moving average isn’t yet bullish but it’s close to reverse its direction while the RSI failed to reach oversold territory and this means that the market remains very strong despite all the FUD of last week.

 

Weekly Range Update: returning to the mean.

eng
XBTUSD Daily Chart

XBT/USD weekly price range 4800$-6200$ | The resistance price area run from $6200 to $7600 and is defined by the 1st and 2nd VWAP positive deviation line.

Last week I had hypothesized a correction down to the support zone between $6500 and $5400, so it was with a minimum at around $5500. I honestly expected less bearish pressure, but it is a long time that the XBTUSD cross does not return to the mean, our 2 months VWAP.

I think the correction is not over yet, most probably it’s time to test the 2 months VWAP which now is $4800. I think it is very difficult to reach the $3300 or the first negative price deviation line, this has not happened for many many months and such a drop might also help bitcoin cash to surpass bitcoin market cap, an event that could frighten the bitcoin community. Despite my personal bias about BCH I still own a part of the bitcoin cash obtained with the fork; for now I don’t sell them to help diversify my investment in cryptocurrencies during this period of high volatility and uncertainty.

The RSI oscillator would suggest a decrease but it is to be seen if it succeeds in bringing itself below 50, even here it is worth the same discourse done for the VWAP, it is a long time that the oscillator does not go into oversold territory so I would not be surprised to see it in that area during the week.

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to USD 3100-3700.

Many will think that the unexpected catastrophic event was the attack on bitcoin by some market forces, in this perspective I tend to disagree because we are very far from the support area calculated with 6-7.5 standard deviations. What we are seeing are the normal market forces at work among themselves, the strongest will win as well as in business in the end remains always and only one winner after a strong fight without mercy.

ITA Version here.

Weekly Range Update

XBTUSD dailychart
XBTUSD dailychart

XBT/USD weekly price range is 6500$-7600$ | The resistance zone ranges from $7600 to $8700 and is defined by the two deviation lines furthest from the VWAP.

I think it’s time for a correction to the first support located at $6500, the buying area for this week is from $6500 down to $5400. I think it is very difficult to reach $5400, a minimum at $6500 is much more likely and would not compromise the possibility to see a new ATH this week.

As explained many times in the past, it is important to look at where bottoms and tops are located to understand in which direction is headed our cross XBTUSD , given the great strength of the last two weeks it would be more consistent to have a minimum at $6500 rather then $5400.

To conclude the first level to observe is $6500, the next $5400 and without unexpected negative news it’s very unlikely this week to test the VWAP at $4350.

In the event of an unexpected catastrophic news, the support area on the weekly chart is updated to 2250-2875 USD.

Since many people asked me more details about these extreme price levels, I want to spend few words on how the support area is calculated in case of a strong drop due to unexpected negative news. I use the last 52 weeks to calculate bitcoin volatility and starting from the closing price of the previous week I project two support values using 6 and 7.5 times the initial value of the calculated volatility. In the past I have explained the concept of the “six sigma”, which concerns the construction quality in industrial processes and I have applied it in this field to calculate support levels and resistance levels which are practically inviolable and which obviously only apply for the current week.
A value of six times is used, with an extra tolerance of 1.5, to arrive at a maximum deviation that uses 7.5 times the initial volatility.

ITA Version here.

Weekly Range Update

bitstampUSD 1 Day #1 2017-10-23 10_40_21.867
XBTUSD Daily Chart

XBTUSD weekly price range 5630$-6360$ | Last week I had hypothesized a limited price activity within the most likely range, so it was except for the quick bottom done on October 18 where XBTUSD quickly recovered from the daily low.

The support area is similar to that reported in the previous update, ranging from 4900$ to 5650$, the resistance zone from 6360$ to 7080$.

I don’t expect to see a drop down to the first deviation line at $4900 although the RSI oscillator and its average are both overbought.
I believe that this will also be an interim week with the price remaining between 5630 and 6360 USD; I therefore find it unlikely that a strong bearish move will push bitcoin down to the 2-month VWAP at 4175$.
To conclude the first level to observe is 5630$, the next 4900$ and without unexpected negative news I see it impossible this week to go below 4900$.

In the event of an unexpected catastrophic news, the support area on the weekly chart remains unchanged at USD 2400-3100.

ITA Version at bitchanger.com

Weekly Range Update

XBTUSD dailychart
XBTUSD dailychart

XBT/USD weekly price range 5350$-6600$ | The most obvious thing for this week is that the XBTUSD cross will spend most of the time in a sideway movement between 5350$ and 6000$ considering that it comes from a rise with a strength never seen before since I follow bitcoin.

The buying area is the same reported in the previous update, ranging from 4700$ to 5350$, the resistance zone from 6000$ to 6600$.

The RSI oscillator and its average are both overbought as logical after the sharp rise seen in recent days. I believe that this will be an interim week with the price remaining between 5300 and 6000 USD, so I think a strong bearish movement is unlikely to push bitcoin down to the 2 months VWAP , now at 4100$.

In the event of an unexpected catastrophic news, the support area on the weekly chart rises to 2400-3100 USD.

ITA Version here.

Weekly Range Update: Yikes!!

bitstampUSD 1 Day #1 2017-10-13 08_18_24.109
XBTUSD tested VWAP 4th deviation line for the 1st time ever in its history

Updated weekly price range is 4730$-6600$ | It is interesting to note that the cross XBTUSD after two days of hesitation exactly on the second deviation line of our 2-month VWAP average then violently broke the resistance level to reach for the first time in its history the fourth line of deviation of the VWAP , this is a phenomenal sign of market strength.

Theoretically, the point where it broke the second deviation line (4800$) should now serve as a support in case of a price retracement but it is more likely that for the next two-three days the support level will be the third line at 5350$.
For who sold before these insane price levels it might be wise to enter again between 4800$ and 5350$.

Should the price levels, mentioned in this update, changes significantly I will keep you updated with Twitter.

ITA Version here.