I always say that charts are a great way to predict the past. As such they are very useful. They can not predict the unpredictable but as we know the past heavily influences the future as signal and noise are nested and when you can measure the signal it is a guide for what is up next. Perfect markets are random but few market are perfect especially in these days of market ‘curated’ by regulators and their rigging with liquidity.
People are not only fooled by randomness, they are often oblivious to signal too. You might be acting randomly but you are nonetheless in your car at roughly the same time going to work in roughly the same place even though you parked your car randomly in a different bay when you arrived and adjusted your chair a bit from how you were sat the day before. Signal and noise are rolled up together and signal is normally a big element that cycles through everything. Of course, you might break down on the way to the office, be called home for an emergency, have a moment and go fishing instead but in the main the signal is a pretty high component of your wave function.
It’s the same with stock charts, which is why moving averages are so popular. The less efficient the market the bigger the signal. I judge Crypto is a pretty inefficient market or rather has been and it has therefore lent itself quite well to my technical analysis. You can see the noise in the bitcoin chart. You can see the fractals, which are in themselves a result of partially non-random events.
So fractals are a bit of a mystery to folks but you can imagine them this way. Get a sheet of copper and a ball hammer and hammer away at the sheet as much as you like. Pretty soon you have a fractal pattern on the sheet of copper that is very recognisable and kind of repetitive in a hard to predict way. This is because the pattern is created by roughly the same action, acting on roughly the same metal substrate by roughly the same hammer face with roughly the same force within a bounded area. Nature is full of these Fractal patterns because rain falls in roughly the same way on roughly the same mountain, roughly the same waves wash up on roughly the same shore and roughly the same wind blows on roughly the same fluffy cloud and so on. In the markets it is roughly the same people, making roughly the same decisions on roughly… you get the idea. This injects fractals into charts. ‘Roughly’ is the random element, the rest is the signal.
Of course, a big ole meteor strike will wreck the lot, markets and all, but left unmolested these process produce patterns that reveal the processes themselves.
So here is Bitcoin’s chart.
With some speculative lines. I’ve been extrapolating this $12,000 to $13,000 level for a very long time, one way or another and if you care to go back here on Forbes you’ll see me call Crypto up from the lows of 2020 and call it back down to below $20,000 again.
In a way I comfortable with the $20,000 level and just about resisting a program of slow accumulation at these prices. As a Bitcoin and Crypto believer, I see that long term prices will be multiples of current levels, so buying now and watching the price halve is no biggie, it will wash out later. However, I am resisting, I’m not that sanguine an investor. Bitcoin could breakdown at any moment but underestimating the time it takes for an asset to fall to a low is an easy error to make.
Then there is a huge metaphorical asteroid out there that could turn things upside down in Crypto and that is the Ethereum V2 launch in September. Friday’s (19 Aug 2022) dump was likely Option expiry driven, so until that is past it remains a waiting game.
My take is, we appear to be in a bear market recovery and the bear market bottom is not yet established, nor has there been a satisfactory moment of capitulation. So for investors it has to be wait and see but for traders there is still plenty of noise to trade.
I’ll leave the fun to the traders and wait.