I consider parabolic fitting a smoothing algorithm with poor forecasting results in most cases, but apart from theoretical considerations let see in detail if parabolic smoothing and forecasting can help us finding a strong long term resistance for BTC/USD.

Parabolic rise is also called an accelerated growth phase, so after it breaks out from a long basing pattern (for bitcoin the 16 months prior January 2013), it starts a rapid growth phase with a series of ever-steepening, rising trend lines. The acceleration of bitcoin price appears as a parabolic curve on the price chart, and can happen that the final stage of the move will end with a leg that is virtually straight up with a buying climax last bar.

Parabolics almost always collapse, this is what worries me at the moment, sometimes there is a bit of topping followed by a precipitous decline, but other times the straight up move reverses into a straight down move of equal or greater magnitude.

What is doing now bitcoin is a good example of a parabolic rise in an early stage, using last 10 weeks i derived the formula of the current parabolic that bitcoin is following:

y = 1.81 * x2 – 11* x + 35    where x2 is x to the power of 2

As i explained many times i think that normally a swing can last up to 25-30 bars, in this case weeks, extrapolating the above formula i can compute a target (you can do the same just substitute “x” with the number of weeks).

With 25 weeks i’ve a target of 890$, using 20 weeks i’ve a reasonable 540$ target; i think that a long term top beetween 500$ and 1000$ is likely to happen, all depends if bitcoin will reach the wall street crooks or not:)

Jokes apart, if this weekly upswing will last 25 bars then the top is due next August/September 2013.

This is a weekly view since may 2012. It is visible the August top at 15.40$ and the double bottom at ~9.70$, in the second pane of the chart there is the net volume and it’s clearly visible the strength of the current solid uptrend, buyers are predominant even in the last 4 weeks of congestion spent at around 13.3$.

I include as usual in this first post of the year a forecast for the 2013, considering actual volatility it will be very hard for BTC/USD to go above 18.7$ before the end of 2013; at the same time bitcoin shouldn’t go under 9.6$ (that correspond also to the recent double bottom).

A confirmed drop under 9.6$ is without any doubt a strong bearish sign; by the way the market seems to be holding well at the moment and stable above 10$.  In case of a correction in the weeks to come, just looking at the chart and applying the principle that higher highs typically follow higher lows i can project one obvious downside target for the BTC/USD and it is located around 12$, above previous 9.7$ mid-term low and it represents also a 50% price retracement support.

This is a daily view since november 2012. It is visible the halving block date that does not have affected the market uptrend. In the second pane of the chart there is the net volume and it’s clearly visible that a mild short term correction has started few days ago.

I calculated that if the volatility will not rise the support will be around 12.15$, i’ve drawn two static support lines in the chart and i’m confident the market will not go down the second one at 11.7$

This weeks range estimate is 12.4$-13.8$, eventually 12.1-12.2$; i’ve in mind a large stoploss for this long term trade but if market will break down the 12$ level with high volume i’ll have to reconsider my long position,  but so far the drawdown is manageable and acceptable.

This is a weekly view since January 2012 Top at 7.22$. It is visible the long period of accumulation spent at 5$ during the first half of this year, the crash of August with the old top that acted as support at 7$, in the second pane of the chart there is the net volume and it’s clearly visible the selling activity hasn’t been all that dramatic.

It is very important  for who is interested to stay invested in bitcoins for the long haul  to stay above the 7$ level, i’m moving back to my old plan of a possible retest at 7$ where i expect to see buyers coming back in the form of a strong positive net volume on a weekly basis.

I included as usual a forecast for a mid term bottom, assuming a weekly correction of maximum 20-25 weeks for this downswing and it will be hard for BTC/USD to go below 7$ by the end of this year. I’d like to add that the secondary lower top at 13$ may have marked a bearish divergence on some oscillators i use which could lead to a prolonged but not extreme downward movement, eventually down to 7$.

For the short term btc/usd i’ve been too much optimistic on my previous udpate, short term support at 10.5$ didn’t worked and after a quick sell-off i think btc/usd is rebounding up to the 11$-11.3$ price zone where it will probably resume the drop; so for who is interested in a quick but risky profit it might be worth the risk to buy now, as i said many times i post relatively safe trades here and for now i’ll wait further developments before thinking to open another trade.

If you have any questions, please feel free to ask leaving a comment or writing me on twitter.

The weekly moving average is pointing  upward again after the huge sell-off from 15$ to 8$, the BTC/USD reacted quickly to the moving average itself and now i think bitcoin will initiate a sideways move around 10$

I’m skeptic about a big correction because the buyers are still dominant compared to the sellers during this strong uptrend and one big investor can’t control the market on a temporal scale, it’s much more difficult to consistently manipulate a market on a time basis therefore i’m not much worried for the presence of this big player at MtGox, the only damage he can do is to add volatility that might deteriorate investor sentiment.

More info in the attached image (click to enlarge),
see you at the next update.

After the recent drop under 11.80$ i decided to close this long term trade initiated 4 months ago and take a break. This is the third consecutive day with negative net volume (outflow of money from the market) and this starts to worry me a bit after a big spike to 15.84$, i think we’ve just seen a buying climax bar that marked a potential top, after all the market surpassed yesterday my long term resistance at 14$.

I bought at 5.06$ 4 months ago, profit for this trade is ~661$, total gross profit so far 3261$, 8 trades profitable out of 12 total trades.

This is a weekly view since october 2011. It is visible the November low at 1.94$ and the top at 7.2$ that has been broken recently, in the second pane of the chart there is the net volume and it’s clearly visible the strength of the current solid uptrend.

It is very important  to see buyers coming back in the form of a strong positive net volume on a weekly basis (we are close to ten weeks of nice buying pressure).

I included as usual a forecast for a mid term top, considering 25 weeks for this upswing and full historical volatility it will be very hard for BTC/USD to go above 13.9$ by the end of Septermber 2012 and as i said on my previous update i’m tempted to sell at around 8.5$ if i see some bearish signs; by the way the market seems to be holding well at the moment.

I think we are seeing the beginning of a  weekly strong  uptrend after a long accumulation phase spent at 5$, if the BTC/USD will drop under 5.5$ the picture might change a little, in this case we will see probably the bitcoin moving sideways in the 4.5$-5.5$ zone

Judging the last 6-7  bars of this weekly chart net volume i see a nice buying pressure and i’m not worried for my open trade, at the moment i’m still bullish probably till mid July. I added a 1 month target in the chart and i used full volatility in the calculation of this target, so i think that will be very hard to go above 10$ for mid July.

Here a brief explanation of how i derived the 10.2$ target:

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, this process is simular to the calculation of standard deviation
4. compute target multiplying reference price for the exponential of RMS and square root of time (in terms of hours days weeks or months)

   V0 * e^+rms * sqrt (t)

   where t is time, rms the volatility and V0 the reference price

The reference price i used is 6.2$ but you could use also an average value of a moving average or another digital filter.
At the moment the rms value is 0.091497, time is 30 because using daily values i want to see a monthly target , so 30 days and you have:

6.20*exp(+0.091497*sqrt(30))=10.2338$ rounded to 10.2$

You can compute RMS using last 2-3 months for better estimation of Current Volatility, at the moment volatility level is about 80% of  the historical value, if you do the math you have a target of ~8.5$ instead of 10.2$ that i consider the maximum target for the next month. For long term you should use a more complex approach because this one doesn’t include the growth factor, it is suitable only for short term; why? well  because if the growth is very negative or positive with the pass of time it erodes the effect of volatility lowering or raising the target estimate.

At the moment the historical daily growth factor of BTC/USD is negative and it reminds me a typical bubble behaviour; when it goes up is just because of  Volatility Bursts.

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.

I think we are seeing a correction in a weekly uptrend, if the BTC/USD will drop under 4.7$ the picture might change a little, in this case we will see probably the bitcoin moving sideways in the 4$-5$ zone

Judging the last bar of this weekly chart net volume i dont see a great selling pressure and i’m not worried for my short term trade, at the moment i’m still bullish.

The weekly moving average turned slightly upward again after nine weeks of weakness, the BTC/USD after a strong bottom at 3.8$ is fighting to break through~5.1$.

 I’ve seen an increase in the buying pressure this week but i say again that without a proper breakout of the 5.1-5.2$ zone i dont think that the trend will reverse again to the upside going above the previous top at 7.2$, but at least the sequence of rising lows of the last four weeks is a positive note.

I want to do a consideration about the inflow/outflow of money during the recent strong upmove and the correction of the last weeks; during the upswing from the november low to january top more then 700k usd has been put in this market, while during the correction around 2 mln usd has been extracted, this is a lot of money and despite of that huge selling pressure the market retraced ~50% (from 7.2$ to 3.8$) without a collapse to the 2$ zone, usually a 50% retracement is a strong level of support.
But what does it mean? well i think that despite the fact that so much money have been extracted in the last 3 months the BTC/USD is showing great resilience and i think that a new wave of investors kicked in for the long term thus giving to the 4$ price level a great importance and it shouldn’t be violated this year. I think also that at MtGox there is enough liquidity to go double digit during the second part of the year, my guess.

This is a weekly view since october 2011. It is visible the November low at 1.94$ and the recent top at 7.2$, in the second pane of the chart there is the net volume and it’s clearly visible how it moved from a negative situation to a flat one, after the drop from 7.2$ to 3.8$ the picture now looks mixed.

The weekly ALMA moving average has now a downward slope, but less intense.I think that the underlying long term is still intact, despite three months of high selling pressure the price isn’t  dropped too much. It is very important  to see buyers coming back in the form of a strong positive net volume on a monthly basis (now still negative since january top) otherwise i dont think the 3.8$ will hold and considering that the april-may period has been very volatile last year and we could face rising volatility in the upcoming months there’s good chance that the congestion area from 4$ to 5$ will not last much.