XBTUSD is basically flat and my support/resistance price levels are unchanged (currently $375-$430) although price tends slightly lower after a failed attempt to break above $420 last week.

This is the same template i proposed in the last update with just a shorter period used for the average and its deviation lines. The Osma indicator is still slightly weak, also the 2 months VWAP is at $405 and flat.

In this situation the best strategy, for a short term trader, is to trade the deviation lines without relying too much on timing indicators or in simple words just buy the supports and sell the resistances.

I was expecting a stronger up swing but XBTUSD entered a sideways movement that to end requires a breakout somewhere above $430 or below $375. I’m reading many bitcoin traders analysis, most of them bearish because of the block size issue but at the moment i prefer to remain neutral about it.

I decided to average down my position because XBTUSD is moving up from the newly formed higher low and this is the confirm that a new uptrend has begun. I was expecting a low in the $290-$300 price zone but bitcoin did the bottom at around $360 after the Mike Hearn news of mid January. This is very bullish IMO, a strong higher low despite a bad news and concerns about the blocksize debate.

I attach here a template i use for a weekly chart, the platform is Metatrader 4. As you can see I’ve drawn a long term price channel starting from an interpolation of current uptrend (green line) and deviation lines based on the average true range, another way to measure volatility. Extrapolating current weekly upswing i think the maximum target should be around $600 by the end of march. In the lower pane of the chart there is an interesting oscillator, OSMA, now moving to bullish territory.

If i’m wrong then this market will fail to establish a new higher high and will probably move down to the first negative line at around $290-$300, an important support area.

Chek this post of one year ago for a brief explanation of the theory beyond this forecast. This year I propose again the same analysis and it will be a main guide about support and resistance levels for all 2016.

Updated values for bitcoin (in brackets values of last year)

More or less bitcoin’s entropic values dropped a bit, with less volatility and a smaller value for the growth now 0.000166% compounded daily or 6% yearly growth down from 22% of 1y ago.

*458 is obtained with today price (432$) times (1.000166^365)=1.06
432*1.06=458, just change 365 with the number of days you prefer for a different forecast.
For a more aggressive forecast you can use 1.001742 instead of 1.000166, this bigger value for growth doesn’t consider measurement error due to the short dataset I used, only 1145 days of historical data. Use this bigger value at your own risk:)

Conclusions

As usual i recommend to consider the support/resistance levels obtained with a halved volatility value thus for 2016 btc has an high probability to stay inside the $277-$760 price zone with a strong support at around $170 in case of panic selling.
At the same time i think that at the end of a strong buying climax period it’ll be hard to see btc price above 1250$ and very unlikely if not impossible to see it at or above 3400$ (using twice the value of historical volatility).

In my previous update i was expecting a top around $400; “…….. i think that a final top might happen at or below $400 before a strong correction will take place……..”, i’ve been wrong and XBTUSD topped at $500 with an impressive lecture of the Chaikin volatility indicator, see chart below (click to enlarge).

At the moment the volatility indicator is below zero despite the recent price spike to ~$370 that i consider resistance for this week ($360-$390 price zone).  The forecast i’ve done in January is still valid and i think that without an insane volatility level it’ll be hard for the next top to be above $650-$700 before year end.
As usual i’m open to comments here and also in my irc channel.

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).

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

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.

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.

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 , 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 the result is again certain, so the entropy is 0 here as well. When  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.

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$.

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..).