Long Term Update: at resistance?

From my previous update: “..About the recent prolonged period of low volatility i’m observing an increased volume activity among all the biggest bitcoin exchanges, this let me think that bitcoin is probably accumulating to later break the trading range and move above $250. This break would be confirmed with a positive reading of the Chaikin Indicator..”

Well at the end it happened and a volatility increase in the right direction moved XBTUSD above the trading range ($210-$245), it is interesting to observe that a very strong volatility peak happened on October 22 but instead of topping this market continued to push upward (observe below chart),
at this point i think that an intermediate top might happen with a second volatility peak probably within November 10th.

At resistance?

Checking price levels it seems that it’ll be hard to pass $320-$330, the 1Year Vwap is at $264 and the 2nd positive deviation line stands at $323, only %5 chance to move above in the short term despite this i think that a final top might happen at or below $400 before a strong correction will take place. If i’m wrong a strong support lies between the VWAP and $280 (where it happened the first volatility peak).
bitstampUSD 3 Day #1 2015-10-29 17_33_14.988

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Long Term Update: Again on volatility

After having proposed with my previous update an interesting template about volatility breakouts, I introduce today a well know indicator about volatility: the Chaikin volatility indicator. Most of those who follow me probably already knows that volatility is ultimately responsible for a traders profits, since if a market does not fucking move (like btc is doing since September) then there is no way to make money from it:)
It’s therefore crucial to recognise those times when volatility is picking up as this offers the opportunity to make a decent trade.
Developed by Marc Chaikin, the Chaikin volatility indicator characterize volatility by calculating the difference between the high and low for each period or trading bar. It measures the difference between two moving averages of a volume-weighted accumulation distribution line.

As you can clearly see when the Chaikin is below zero nothing is going on in the market and during these times you should refrain from trading and wait for the Chaikin to tell you when things are getting interesting. Chaikin is thus excellent to avoid overtrading.


Once the Chaikin peaks, you know that you can start to think about closing your trade or opening a new one in the opposite direction (less recommended).
About the recent prolonged period of low volatility i’m observing an increased volume activity among all the biggest bitcoin exchanges, this let me think that bitcoin is probably accumulating to later break the trading range and move above $250. This break would be confirmed with a positive reading of the Chaikin Indicator (standard settings of 10/10 applied to a daily chart).

If you want to support this blog you can open an account at bit4x using my referral link, clicking here . Thank you.

Technical update: Consolidation Breakout Trading System

Today after many years i’ve reinstalled Metastock Professional, i was curious to see if there was some old Expert Advisors giving good result with bitcoin and i’ve found this one: “Consolidation Breakout” from Trading Systems Analysis Group.

Basically it works with volatility breakouts to identify entry/exit points and while this system uses John Bollinger’s Bollinger Bands and Welles Wilder’s Average True Range indicator, it is not linked to the methods of those two authors.
It’s based upon a strict observation of the Bollinger Band width compressing/decompressing (a method used by many traders) around the prices until the distance between the upper and lower bands is less than 1 ¾ times the 1 period average true range; it then looks for a breakout in either direction of the Bollinger Bands to capture the movement of the breakout. Once a position is entered, it looks to cross the 20-period simple moving average to exit the position but any other money management approach can be used for the exit.

I attach below the above expert advisor applied to a daily bitcoin chart. It works fairly well when volatility is high enough, even with less volatility performances aren’t so bad without substantial losses.
At the moment the system is flat and exited a short position on 4 Sept. at $231.

I’d like to add that because bitcoin recently has been very boring from now on there will be updates about Currencies, Equities and Gold, all instruments that i trade regularly with my btc broker since September 2012.

Short Term Update: headed to $255

The price of XBTUSD has dropped again today back to my short term support at around $275 where i’ve my first positive price deviation line (computed using 2 months VWAP). From here it’s unlikely to see a bullish reaction and i expect a further bearish development down to the 2 months VWAP at $255 (see pic). I’d be really surprised to see a reverse from here but it would mean that the strong uptrend is still in place. A test down to $255-260 price zone could be an interesting short term buying opportunity.

bitstampUSD  1 Day   #5 2015-08-01  14_49_05.696

Regarding my long term view my opinion hasn’t changed much, i still think that the bear market is over and this market is accumulating in this prolonged sideways move; a strong breakout above $300 will follow later this year or in the first half of 2016. As long as it stays above $210 I’m continuing with my bullish bias.

Long Term Update

Two months ago in my previous update i was skeptic to see a bullish reaction and i was almost convinced of a drop to $210 and lower instead XBT/USD choosed to avoid my bearish scenario of sub $200 prices.

What could this mean? Well i think that the drop from the 2013 all time top is over and this market just entered in a prolonged sideways move where it appears to withstand the high selling pressure that has characterized the correction since the all time top; this long term accumulation should resolve in a big upward movement later this year or at max in the first part of 2016.

What i’d like to see now is a smoother move above $300 rather then a violent price spike that most of the time resolve itself in a further drop. A constant rise will also allow my long term moving average to finally turn bullish and convince me to average down my long term position of June 2014.

To invalidate my new bullish bias XBT/USD have to move below $210 this summer.

Short Term Update

It’s been a while since I have taken the time to post an update and I’ve been feeling a bit guilty about that to be honest! I remind to everyone that every monday i post a small update on my twitter profile, so keep an eye on it.

You see, the XBT/USD is approaching $200, and I think it’s headed lower still. We could see it reach $170 by the end of next month but at the same time i think that this long term drop is pushing the bitcoin market to the edge of a new rally. The main problem is that the downward trend is still pronounced that a visit sub $200 is inevitable.

About the short term, this market topped as expected in the price range i mentioned on twitter last monday, around $239. A new low will be probably established in the $190-$195 price zone as indicated in the attached below daily chart.


Short Term Update


In the above attached daily chart you can find the usual moving average that i use, the VWAP calculated with the last 2 months of data and its price deviation lines, also you can see the white line that is the ALMA moving average, in the lower pane there is the well know RSI oscillator.
The ALMA average has just moved back into bearish position and I think prices should go down to retest the first VWAP negative deviation line at $212, if the volatility stays low instead I think that $225 should work as support.
For those who follow me in my IRC channel they know that i’m short from $237 with a target variable from 225 to 190 dollars, I decided to open a short position (short term trade) after the market has made a lower top ($268 below the previous one at $310). I’ll remain short as long the market will stay below $250-$270.

In the last 30-40 days i’ve done 2 more short term trades, from $200 to $227 and from $237 to $255, i would like to conclude this update by telling you two words about the long term picture: it’s very simple the long term moving average remains bearish so not yet time to average down my long term position.

Long Term Update

I waited a while before publishing a new update after the crash to $165 to see if market would have stabilized over $ 200. Now XBT/USD do seem to have a bullish bias and it has traded up from oversold levels but there is too much risk to go against the short term bearish trend. Despite this risk i decided to open a short-term trade (2 long positions opened at $230 and $170) that i’ll probably close at $270 where i’ve the first decent resistance level.
Before thinking about any bullish longterm safe bets i need to see my long term moving average turning bullish again, at the moment it is at around $300 and firmly bearish.

In the below attached chart I have highlighted the important levels for this year that i’ve spoken about in the previous update,these levels are still valid and i think that any visit below $220 and above $130 represent a long term buying opportunity. It would be a perfect longterm buying signal to see this year my long term moving average turning up with the price still below $220.


Long Term Update: 2015 Outlook with entropic methods

With the smell of fireworks still lingering in the air i computed the 2015 outlook with entropic methods used in modern finance. The concept of entropic analysis of equity prices is old and it was first proposed by Louis Bachelier in his “theory of speculation”, this thesis anticipated many of the mathematical discoveries made later by Wiener and Markov underlying the importance of these ideas in today’s financial markets. Then in the mid 1940’s we have had the information theory developed by Claude Shannon , theory that is applicable to the analysis and optimization of speculative endeavors and it is exactly what i’ve done just applied to bitcoin/usd ratio, especially using the Shannon Probability or entropy that in terms of information theory, entropy is considered to be a measure of the uncertainty in a message.
To put it intuitively, suppose p=0, at this probability, the event is certain never to occur, and so there is no uncertainty at all, leading to an entropy of 0; at the same time if p=1 the result is again certain, so the entropy is 0 here as well. When p=1/2 or 0.50 the uncertainty is at a maximum or basically there is no information and only noise.

Applying this entropy concept to an equity like a stock or a commodity or even bitcoin itself common values for P are 0.52 that can be interpreted as a slightly persistence or tendency to go up, this means that for example stock markets aren’t totally random and up to some extend they are exploitable, same for btc.
Knowing the entropy level of bitcoin/usd is crucial if we want to compute its main quantitative characteristics, as i explained in the technical background of my blog this process is quickly doable once you have all the formulas.

 BTC/USD  US Stock Market  Gold
Growth Factor G 1.000553 1.000198 1.000120
Shannon Probability P 0.518 0.510 0.508
Root mean square RMS (or volatility factor) 0.056 0.022 0.009

As comparison i included in the above table a commodity and the american stock market, you can quickly see that bitcoin is much better then them in terms of growth, also the entropy is lower (because P is higher) the only negative aspect is the volatility that is much higher nevertheless the growth factor of btc/usd remains pretty high and once volatility decreases it will improve even more.
At this point with those quantitative parameters we can quickly compute a price forecast for 2015 just taking the growth factor G to the power of 365 (365 samples for 1y) and multiplying it for the initial price, at the moment is 315$, so we have:

Target price for 2015 = price * G^365 = 315*1.000553^365=383$ or 26% expected growth, but because of a rampant volatility there will be for sure strong price  fluctuations above and/or below 383$.

 2015 Price forecast  Full volatility  Half volatility
Forecast using only G 383$ 383$
Upper bound adding volatility 1136$ 660$
Lower bound subtracting volatility 130$ 220$

I included in the table also a forecast using an halved value for volatility, it is interesting to see that with reduced volatility i don’t expect to see prices below 220$, a well know support value for who follow regularly my blog and chat, I expect from buyers a strong buying activity in the low 200$ for all 2015 if the opportunity arise.

The price target in case of a new bubble is unchanged and it is the same i was forecasting last year, roughly 3300$ but don’t get excited too quickly:) there is only a chance of 5% to go there in 2015.

As usual i’m available to questions if more explanations are needed or if you want to obtain more details of these computations (formulas used etc..).

Long Term Update: again bearish

In my last tweet i’ve said that support is at ~$315 let see in detail why.


I indicated in the above chart a strong support area for the next 1-2 weeks, XBT/USD is now again bearish because XBT/USD took a peek below the 2 months VWAP support zone at ~350$. I think the market will spend most of its time today and the next days above or at $315 and if it does then the 316$ November low probably ended the drop from 463$ on November 13. Despite the prolonged correction seen in 2014 I see no sign that the very long term bull market has ended (bitcoin is well above the 2013 average price) and in any case I expect the XBT/USD to hold above its previous 2013 top at 266$.

In case of a move below $315 a problematic scenario could develop with the possibility of my old bearish scenario to materialize (a quick visit to 230$ or so). I Expect buyers to show up below 300$ but in this market the volatility is unstable and can increase very rapidly making it difficult to make predictions on where the bottom will be.