Technical Update: KAMA, an underrated indicator

Kama moving average is a very interesting filtering technique developed by P.Kaufman.
This moving average has been designed to account for market noise or volatility, KAMA will closely follow prices when swings are small and the noise is low, instead when the price swings widen KAMA will adjust trying to follow prices from a greater distance. This trend-following indicator can be used to identify the overall trend, time turning points and filter price movements when the market is flat avoiding annoying whipsaw false signals trades.

At the moment i’m working on a modified version of this indicator with the help of the tradingview online platform, i added deviation lines from the KAMA average and settings have been optimized to better track XBTUSD price movements on daily and weekly chart.

Here’s an example of this indicator applied to a weekly chart of XBTUSD with some comments.

It’s evident that when the market is flat the KAMA average is relatively stable without giving false signals, when this happens you can try to trade deviation lines to catch bottoms or tops.

About this week the secondary positive deviation line is around 3200$, should you go short at that level? Well is at your own risk to trade against the main tendency that now is bullish, instead you might follow the trend buying at the midline or below it, i’m enough sure that today sell-off is healthy and the price was just moving back to the midline point (KAMA average) from the first positive deviation line.

Beware that because of very large price variation during the same bar the KAMA and its deviation lines can change a bit. The indicator is available for free at, just look for “KAMA – Enky v1.0”.

Your feedback is highly appreciated and will help me improving this trading tool.

Weekly Range Update: introducing 4th deviation line

bitstampUSD 1 Day #1 2017-05-22 09_25_59.731
Daily Chart – VWAP + dev.lines

XBT / USD weekly price range is 2040$ – 2680$. | With this update I introduce an additional deviation line from the 2-months VWAP reference average.

The 2-month VWAP may be a bit slow now that XBTUSD is experiencing quite high volatility levels, so for an appropriate price range I decided to introduce the fourth line of deviation.

When a market is very strong it is possible that it moves between the first and second line of deviation that acts as support and resistance defining a price channel. At the moment XBTUSD is moving between the second and the third line and it does not happen very often and if you look the RSI you can see that it is oscillating between the overbought threshold (70) and the maximum value of 95-100, an extreme situation if compared to other financial assets.

Fundamentally this is an expanding market that reminds me the exuberance of stock markets from 1996 to 2000, why do I think that? Well just look, for example, at the unsustainable ascension of ethereum, an altcoin that does not have the magic ingredient to solve the scalability problems that all cryptocurrencies have and yet part of the audience perceives this altcoin as different and superior to the others and does not think twice before buying it despite it doubled its value in just six days as well as 20 years ago investors bought technologically overvalued companies that within a few months increased their listing value by two, three times and even more.
Do not get me wrong, because I think the peak is still a few years away but just be careful diversifying in altcoins.

Returning to XBTUSD cross and considering the current level of volatility it is not excluded to see it above 2400$ by the end of the week, the support area I consider is around 2040$ but in case of another profit taking support is at 1720$.

In case of extreme fall the support area is 850-1200$.
Ita version here.

Weekly Range Update

bitstampUSD 1 Day #5 2017-05-15 07_27_41.186
XBTUSD daily chart – VWAP + dev.lines

XBT / USD weekly price range is 1667$ – 1893$ | Last week’s profits taking mean that a possible top has been made at about 1900$, for this week I think the price might remain confined inside the resistance zone shown in the chart (1667$-1890$).

Should an increase in volatility materialize it is not excluded that XBTUSD might visit lower levels, for example down to 1440$.

The ALMA average is always firmly up and the RSI dropped a bit down to the overbought threshold at 70. A drop to 1450$ would allow the RSI to finally move back to the oversold zone.

In case of extreme fall the support area is 800$-1100$.

ITA version here

Portfolio Update

LONG | 3 units (50 btc each) bought between May 2014 and October 2015 with an average price of 549$

No position open

I’m still long since May 2014 and considering the recent increase in volatility XBT/USD might reach the optimistic forecast for this year (2900$) of my January update after a confirmed breakout of the 1900$ level.

I’m not going to close my position if XBTUSD continues to stay above 1 year VWAP, now at 860$. This long-term trade may remain open for many years until bitcoin will move below the one year VWAP.

I might decide to further increase the position if there will be a test of the 2 months VWAP, now at 1200$.

Weekly Range Update and intraday view

XBTUSD daily and intraday chart + vwap and dev.lines

XBT / USD weekly price range is 1425$-1720$ | I’ve included a short-term view of the last 6 days, i think that XBTUSD will continue to follow the resistance and support lines of the 3 days VWAP.

This market, however, seems to remain very bullish together with all the other altcoins.
I consider 1700$ a good resistance level for this week.

The daily ALMA moving average is bullish without any signs of slowing down and the RSI is in the overbought area. When a market is so strong in my opinion it doesn’t make much sense to consider over-bought signals to open a short position because they aren’t reliable enough when the underlying trend is so bullish.

In case of a catastrophic event the support area is now 750$-1050$.

Short Term Update

3 Days Chart – VWAP + dev.lines

Once I’ve found a decent value as a volatility coefficient to compute deviation lines this market responds very well to these levels.

XBTUSD failed to pass the first positive deviation line then a retracement back to VWAP where it consolidated a bit and now it’s reacting again to the upside.

Resistance remains the 1620$-1720$ price zone.

Short Term Update: 24hrs later

3 days VWAP + deviation lines

XBTUSD found support inside the support area that i’ve forecasted yesterday, considering the overall bullish sentiment of bitcoin i’d have been surprised to see a bottom below 1400$.

Resistance level should remain the same, starting from 1720$.
As a side note you can see on the attached chart that with a 3 days only chart levels and VWAP change quickly.

Short Term Update: 3 days VWAP

3 Days VWAP + deviation lines

After a decisive breakout of the 1480$ weekly resistance level and because of the high volatility i decided to zoom in with an intraday chart (60 min bar). 
Here the VWAP is computed using only the last 3 days and to compute the deviation lines only the volatility of the last 3 days is used, this allow me to have a snapshot of the current situation.
When a market is strong it usually stays above the first deviation line and the second one acts as a resistance, I think that for the rest of the week XBTUSD should stay below 1670$-1750$ with a support area right below the 3 days VWAP (1400$-1500$).
This market is very bullish and it’s quickly accelerating, the volatility i was expecting in my previous update is finally coming to the market.

Weekly Range Update

XBTUSD daily chart – vwap + dev.lines

XBT / USD weekly price range is  1230$-1480$. | The XBTUSD pair begins to approach the resistances on both the daily and weekly charts (see previous update for weekly chart), but still remains in strong position above the VWAP now at 1116$.
If there is a break of the first resistance level at 1360 $ there is room to rise up to the next deviation line positioned at approximately 1480$.

I’m reading here and there that because a new maximum has been made above the previous Top, that oscillators are all overbought, others worried about the low volume activity, because all of this many are thinking that an important ATH top is in. Personally I think there is room to go up to another hundred dollars before a correction appears, also i don’t forget that with bitcoin there is usually a volatility peak around a top, a peak that i don’t see yet.

To conclude our daily ALMA average is firmly up and the RSI as I said is in overbought territory. From now on there is the possibility that a maximum on the daily chart is near, just use a common volatility stop (there are many for free also at tradingview) to protect your long position.

In case of extreme fall, the support area rise to 730-930 USD.

ITA version

Long Term Update: Weekly Top Forecast

Weekly Chart – Price regression channel + Dev.Lines

It’s pretty obvious that XBTUSD is staying above the central line of the price channel shown in the weekly chart. The low of 5 weeks ago caused by bitcoin unlimited has been made above the midline of the channel and this is a bullish indication.

As you know, this indicator calculates a regression on past prices and projects resistance and support lines using the average volatility of the underlying asset, if there is sudden shift in volatility the indicator will try to adapt to this new information coming in and the deviation lines will change accordingly.

If volatility change is not dramatic the calculated resistance and support lines will remain fairly stable; at the moment the new resistance area where the next top might occur is between ~1250$ and ~1410$.

As a side note i’d like to add some words about the next top, it is very important to make it above the previous one to confirm the underlying bullish tendency; if bitcoin fails and moves below 890$ the implications would be bearish enough to see a minimum just above 700$.

ITA version here.