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.
xbtusd_w

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 tradingview.com, just look for “KAMA – Enky v1.0”.

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

Offtopic: Cacoethes scribendi

“Cacoethes scribendi” or translated from Latin to english “a burning desire to write”, writing always of bitcoin sometimes is boring, today i show you the template i use with metatrader 4 applied to other assets like stocks, indexes and altcoin.

I already explained that an idea that i like is to do a price regression of our asset using a filter that eliminates all cycles below 30-40 periods with the intent to extract the underlying long term trend, then you can try to earn some money trading the secondary cycles that move the price up and down inside the price channel.

SP500/N100 weekly chart

sp500

Mid channel line color is white thus this market is neutral the ideal situation to trade the price levels, at the moment there could be a short opportunity, stoploss above the dotted positive deviation line.

n100

Similar situation for the nasdaq 100 index.

GBPUSD

gbpusd

The big drop of the Brexit is clearly visible, the pound should stay above 1.29, it’s the moment to buy with a stoploss below 1.28

Nikkei 225

nikkei225

Nikkei is short for Japan’s Nikkei 225 Stock Average, it is a price-weighted index comprised of Japan’s top 225 blue-chip companies traded on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the United States.
In this mothky chart is visibile the big rise fueled by the quantitative easing of the Japan Central Bank and the subsequent drop after flirting with the resistance at 21000.
At the moment it is holding above the first negative deviation line, i don’t see any trading opportunity.

Tesla

tesla.png

On the weekly chart the tendency is neutral, midline color is white, ideal to trade secondary cycles like the one that pushed down Tesla below 150 usd and below our support, a very good trading opportunity, it is possible also to trade the dotted levels but they are less safe.

Ferrari

ferrari

Daily chart of ferrari (RACE ticker), after an interesting double bottom on the support this stock trended higher above the resistance after the earnings.
I think we are seeing a buying climax and in this situations is smart to sell the good news, i see a short trade opportunity here but it’s wise to wait some weak signals from this stock before going on.

Nintendo and the Pokemon Go Bubble

nintendo

No comment here, the bubble is evident but this stock is still hovering above midline and the long term trend is bullish. Again a nice double bottom at the support.

Apple

aapl

Last five years of Apple in this monthly chart, here the support levels worked almost perfectly. Apple is losing some steam as the midline color is white, neutral long term tendency despite you can see a sequence of higher highs and lows. The stock reacted from the dotted line at around 90 usd but i’m not sure is going up yet, the trading opportunity here is a test at 75-80 usd this year or the next one.

ETCUSD – Hourly chart

etcusd

Hourly chart of ethereum classic, again bubbles are clearly visible. Some congestion outside the upper solid deviation line it’s the warning signal, be prepared to open a short. Now volatility is a bit lower and this altcoin is moving inside the dotted deviation lines. I see a buying opportunity once 1.85 usd is tested.

Conclusions

This price channel indicator is an improvement of the classic bollinger bands indicator, what i don’t like of the bollinger bands is the wrong way to compute the upper and lower bands that might lead to very misleading values sometimes as i explained at the end of this old article. To keep things simple i omitted to include some timing indicators, for example adding the Walter Bressert DSS oscillator with ethereum classic we have:

etcusd+dss

Clean cycles togheter with a correct approach to spot support/resistance levels and you have a decent guide to follow. This oscillator is configured using 9 periods and 5 periods for a second pass smoothing.

 

 

Thank You

Since May 2016 I’ve seen a strong Bitcoin price rally after the breakout of the $500 resistance.

“Move fast for profit regardless security and customer satisfaction” may be applied to companies but not for a true decentralized cryptocurrency like Bitcoin.

I want to thank Bitcoin Core for the very conservative approach to its development. Core has been doing a supreme job maintaining the reference client, making sure that the network is running smoothly and insuring that the 11 billions $ market cap doesn’t decline due to bugs in the software because of developers negligency like happened today to another altcoin.

Thanks again for doing a great job.

Project maintainers

Contributors

  • Dr. Pieter Wuille

  • Cory Fields

  • Gregory Maxwell

  • Luke-Jr

  • Jorge Timón

  • Peter Todd

  • Patrick Strateman

  • Dr. Johnson Lau

  • Suhas Daftuar

  • ฿tcDrak

  • Michael Ford

  • paveljanik

OFFTOPIC: a quick view of an altcoin

This is an attempt to forecast where the next big movement will end of this altcoin, an altcoin that recently is getting lot of unjustified attention from the bitcoin community. I don’t know if people is bored of bitcoin and is trying to pursuit a “get rich quick scheme” pumping their bitcoins in this altcoin, aniway it is not the purpose of this article to prove it or not.

Here there is the weekly chart with logscale for the price axis.I highlighted the first big up movement and the subsequent price drop, a perfect 62%  fibonacci retracement down from the top to 0.015 btc/unit. Assuming that the current bullish movement will be of the same size of the previous one using a logarithmic scale the target should be at 0.135 Btc/Unit. There would be price retracements for sure before reaching such an optimistic target therefore a more likely long term top could be the point half way between our initial target and the bottom used as a starting point for our forecast. As indicated in the chart this potential resistance level is around 0.047 Btc/unit. IMO it would be a decent point where to open a short position because it is above the previous high of 0.035 Btc/unit and in a strong uptrend i’d prefer to avoid to open a short position from a lower high. In any case it is better to confirm the trade with a bearish signal with an oscillator of your choice.
altcoin

Poll

 

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.
chart
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.

OFFTOPIC: Donations

First of all I’d like thank everyone for contributing to this blog with donations since 2011; said this I kindly ask you to don’t send donations less than 0.01 bitcoins because there are problems with coinbase to process transactions below 0.01 btcs. I already reported this issue to coinbase technical stuff, i’m waiting an answer.

Thank You

Time is running out

I report  an analysis that take an historical perspective of the XBT/USD, using MtGox data for the period before the inception date of the Bitstamp exchange. The effort of this short analisys is to understand how much it’ll last the current decline in prices started 5 months ago.

I reported here all the most important past swings of this market, not always considering the absolute highs and lows but the upward and downward phases of the market which can include periods of sideways activity.

The earliest days

In 2010 the main exchange was MtGox, it opened in July but available data starts from 17 August.
Up to the first days of october the price stayed flat at $0.06 then rised significantly to $0.50 the 7 November. A correction followed with a low at $0.17 after 32 days.

The next swing carried bitcoin from 17 cents up to $1.09 (9 Feb. 2011) and again a correction, longer this time, 54 days down to 56 cents, it was april 2011.

The First wave

Everyone here probably remember the insane upswing that went from below 1$ up to 32$ of  June 2011, from this top bitcoin entered a bear market that lasted 162 days, till november 2011 where it bottomed out at $1.99

From this bottom a new upswing happened up to $7.2 (8 Jan ’12) , again similar in length to the previous ones: 52 days. This market then stayed sideways for 145 days, when the first days of June a new uptrend moved bitcoin up to $15.4, in August ’12 after 77 days. For the second time in a year we have had another phase of  flatness prices that lasted 139 days similar the previous one of 145 days.

The second wave

The first days of 2013 another upleg started from $13 up to $266; 97 days the longest upswing ever for bitcoin. After a period of huge volatility till July of the same year , prices stabilized at around 100-120 dollars and this consolidation ended 12 October after 185 days. So far we have had 6 consolidations with an average duration of 126 days or 158 days without considering the earliest days of bitcoin.

The last wave

This is the latest part with the solid rise from 140 dollars of October ’13 up to $1163, the bitstamp all time high done 49 days later. Since then 156 days are passed and comparing this value with past values i believe that the actual consolidation phase is coming to an end.

Eventually this correction might last as the previous one that lasted 185 days, this will project the end of the actual correction phase something around June 2014, one month from now.
Beware that this forecast doesn’t necessarily means that a new bottom will develop because as i said earlier i haven’t considered absolute bottoms in calculating the duration of all the past price consolidations; it just means that probably during next June a new uptrend will start.

Time will tell.

 

 

 

Quick Update

This market has stopped around the resistance price zone that I had speculated in the previous update (around $530) then resumed its downward movement. First support is in the area between 365 and 380 dollars, also because the 50% or midpoint of the previous swing from 340 to 548 dollars ($ 444) has already been broken down, which is certainly a bearish sign.
I believe that we will continue to see a decline in prices this week too, the main resistance is always the two month VWAP passing at 517 dollars.