Long Term Update: MtGox Weekly View

This week range estimate is 4.96$-5.34$. The February 2012 bottom at 3.87$ is strong support. I think a base building period characterized by a slow upward drifting movement is nearly complete.  Given the very good resilience shown by BTC/USD since the drop from january top I think this means that a big rally is due but we lack an important element for now, volatility.

As i indicated in the below chart in the last 5 week we have had always positive net volume, this is good and tell us that investors are consistently buying this market.

I indicated also a 1 month target given current volatility level that is very low (about 15% of historical value), if bitcoin will move back to the volatility level shown in 2011 the next 30 days target is in the 8.3$ price zone but unlikely it will do it; would be great to touch 6.5$ by July.

I’m still long from 5.06$ and i think i’ll carry this trade for long term, considering also the very low volatility that nullify any short term trade opportunity.

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4 thoughts on “Long Term Update: MtGox Weekly View

    1. For computing the daily range estimates i publish on twitter i use the Hodrick-Prescott filter, once i have the value of the filter (see it as a baricenter) from there i compute the top and low estimate with a quantitative approach following these steps:
      1)compute natural logarithm of data increments
      2)compute the mean for all data increment computed in step 1
      3)compute rms (root mean square) of all data increments, squaring each data increment and sum all togheter
      4)Compute target multiplying reference price for the exponential of RMS and square root of time (hours days or months):
      V0 * e^+rms * sqrt (t)
      where t is time, rms the volatility and V0 the reference price

      Example
      reference price is the Hodrick-Prescott filter value, for today is 5.22
      rms is 0.084*0.15 (actual volatility is 15% of historical volatility as i said in the last post)
      time is 7 because using daily values i want to see a weekly forecast , so 7 days
      so you have:
      5.22*exp(+0.09*0.15*sqrt(7))=5.41$ resistance for this week
      you can compute RMS using last 2-3 months for better estimation of Current Volatility

      1. Quant2001

        Thanks for the prompt answer,it’s difficult to grasp but probably is more easier than it looks
        basically if i substitute 0.15 with 1 i can compute the resistance with the high volatility that characterized so far the bitcoins, am i right?

  1. Yes and you have:

    5.47$(today price)*exp(0.091993*sqrt(7))=6.97$ 1 week target using historical volatility
    5.47$(today price)*exp(-0.091993*sqrt(7))=4.28$ 1 week support using historical volatility

    0.091993 is the RMS value using all historical data of mtgox since august 2010.
    simply use a negative value of RMS to compute support

    It is not recommened to use this formula for long term forecast because the growth isnt included, to include the growth you should use a more complex approach, maybe i’ll decide to write a post that will explain everything, when i’ll have time i’ll do it.

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