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.

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.

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

The #btctrading IRC channel

##btctrading is a place where many traders hang out and discuss about bitcoin market analysis. The community in ##btctrading will be mostly the same community that you’ll find here in the comments.

Download an IRC Client

A popular open-source option for Windows / Linux is Xchat: http://xchat.org
Mac users might want to consider Colloquy: http://colloquy.info

Connect to the FreeNode Network

Once you install the application you’ll want to connect to the FreeNode network. FreeNode.net is a network that is very popular with open-source development communities. Most web-development frameworks have an IRC channel on FreeNode so we’re in good company.

To connect to FreeNode set your IRC client to connect to the server irc.FreeNode.net by setting it in the client’s user-interface or by entering the following line in the input box:

/connect irc.freenode.net
Join ##btctrading

From there you can join the btctrading channel using either the IRC client’s user-interface or by entering the following line in the input box:

/join ##btctrading

NOTE
Again I please everyone to join the unofficial channel using the double # as prefix (##btctrading), thanks.
Why? well because of freenode rules on primary channels at the moment i decided not to use #btctrading, more here.

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.

 

 

 

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.

Bitcoin is exiting a short term correction and it is projected to rise through 2014 as clear potential for growth is still intact despite an earlier warning issued by the Chinese central bank has banned its financial institutions from dealing in the currency. I’m confident that bitcoin can become a solid solution payment for electronic commerce and be a serious competitor to other money transfer providers; bitcoin should also continue to emerge as a viable alternative for investors around the globe interested to invest in a new financial asset where to store wealth.

I think that for this year the $350 price level is an important support, just below recent low of $382, for two reasons:

1. Using bitcoin historical volatility i’ve $350 as support computing the value with my estimation method based on time and price volatility;
2. Long Term VWAP computed since January 2013 is at $355

The maximum yearly upside target for 2014 should be around the $3000-$3500 price zone, in accordance with my previous long term forecast of $3600. It is a good opportunity for who is interested to invest in the bitcoin to buy something now and to set an indicative stoploss below $350.
Personally, i’m not going to liquidate my long term reserve of bitcoins as long as the price stays above $350 this year and i want to see the price for weeks below that level before any liquidation takes place, a quick drop below it isn’t enough for obvious reasons.

What we are seeing is a contraction of volatility or daily range. In general, price expansion tends to follow periods of price contraction, like a cycle. This market like any other market alternates between periods of rest or consolidation and periods of movement. Volatility is actually more cyclical than price.

When bitcoin consolidates, buyers and sellers reach an equilibrium price level  and the trading range tends to narrow like it is happening these days; we need new information to enters the market to move it away from this equilibrium point and finding a new price area.

I think we need to wait January to see some decent fresh news capable to increase again volatility and move the price away from here, either up or down. Net Volume remains weak and there is a lack of strong buyers at the moment. For this week support is the recent $550 low, that is also the midpoint (50%) of the strong upswing from $382 to $720, resistance is around last top ($720).

I want to wish you guys a Merry Christmas and see you soon at the next update.

 

 

Today marks the Two Year Blog Anniversary of btctrading.com!
It is really hard to believe that two years have already gone by from the very first post that was published back in 2011 and 147 posts later, here we are with more then 115k hits,not bad for a free blog i’ve started just for fun.  I value the time you take to stop your daily tasks to read my posts and leave your wonderful comments. Your input brings so much value to this blog, more than you know.

I’d like to share with all of you a view of monthly visits:

It is interesting to see some relationship with market behaviour, every top in monthly accesses has been followed by a top in the market, except the August 2012 top were the number of accesses was less but a slight top it is still noticeable. I think that a top is in with the last 266$ seen in April but this doesn’t mean that the market is bearish, i think it is consolidating above 100$ and preparing for the next move.

Happy Blog Anniversary – Thank you for your support and see you at the next update!

Paypal 2012 estimated earning is around 2.2 Bln $, i used a P/E of 10 to compute the market cap, considering that since 2002 Paypal isn’t anymore a public company but was acquired by Ebay.

Actual Bitcoin market cap is 115,745,249 USD or 91,561,260 EUR

For doing this forecast i used the ARIMA or Autoregressive Integrated Moving Average. It is a statistical analysis model that uses time series data to predict future trends. It is a form of regression analysis that seeks to predict future movements along the seemingly random walk taken by a financial time serie by examining the differences between values in the series instead of using the actual data values.

This model type is generally referred to as ARIMA(p,d,q), with the integers referring to the autoregressive, integrated and moving average parts of the data set, respectively. In this case i used 1 set of autoregressive parameter p, 1 integrate d, and 1 moving average parameters q.
ARIMA modeling can take into account trends, seasonality, cycles, errors and non-stationary aspects of a data set when making forecasts, because of the absence of a proven bitcoin seasonality cycle and/or other cycles i ‘ve not included these aspects  in the forecast. More info about this kind of regression at http://en.wikipedia.org/wiki/Autoregressive_integrated_moving_average

Here’s the result using as input the weekly prices recored at MtGox, average of High,Low and Close of each weekly bar.

I’ve to add that due to the presence of a strong volatility around the forecasted value we might see wide swings ranging from 3$ to even 8-9$ in the next 3 months or so.

Here you can see an example of this regression technique applied this time to daily data of Mtgox

 

Will it work? Well only if the bitcoin will follow a 12 day cycle that i included in the forecast, why? i said in the past a couple of time that sometime a 12 days cycle model the bitcoin price movement; without this cycle the forecast is flat around 5$ as it is expected to be considering the last month spent around that level.  The effect of the 12 day cycle is not so strong as you can see in the attached chart, at max it might push the price down only to ~4.5$

I’ve to conclude saying that the internal dynamic of  bitcoin price time serie is not enough good to allow consistent and reliable forecasts (due to the lack of strong and consistent cycles) with these regression techniques, the confidence level of each forecast i made is very wide due to the presence of a strong volatility that diminish the usefulness of the forecast  itself.

This imply that the best trading strategy for the short term is to buy the dips and sell at the first bounce instead of relying on some sort of cycle forecast, and i think that this is what many traders at MtGox are already doing:)
Thanks and see you at the next update.

Yesterday, June 19, at 17:15  (GMT), a big user account and database of MtGox.com was hacked. This includes usernames, emails, and hashed passwords.  If you used the same email or password on MtGox as you did on different other websites, i recommend you to change password in case your MtGox password is cracked from the database.

This is the last official update from mtgox:

[Update – 6:30 GMT] Still here. Still working hard to get things online.

• SHA-512 multi-iteration salted hashing is in enabled and ready for when we get users reactivating their accounts
• We are going to push our relaunch time to 2:00am GMT tomorrow so we have time to launch a our new backend and withdraw passwords

_________________________________________________________________________

Regular market coverage will probably resume on Wednesday, January 22

Thanks

One of you suggested that I post my trades and analysis about bitcoin on Twitter AND on this blog. I am going to experiment with this idea to see what happens. Feedback and suggestions will be appreciated. You can find me on Twitter by clicking on the “FOLLOW ME ON TWITTER” line that appears on the right hand side of this blog right above the Blog Trading Record.