BITCOIN Lesson on Mean Reversion
Diupdate
Hi everyone,
Wanted to post a quick chart to show the history of Bitcoin's price action and its relationship to the mean. If you look back in time, you will see that after price falls significantly from the mean, or rises too far past it, it always corrects back toward the 135DMA, which I have shown on the chart. This is why I feel that at this time we are much, much more likely to rise up toward the 135DMA than to fall much further from here and why I called for a massive rally recently, see
We bottomed at -47% below the 135DMA which is about as low as price falls (with the exception of late 2011, but that was also after we went above the 135DMA by +883%!) This is important to remember at times when price is dropping dramatically, or rallying to unbelievable highs. Remember... price WILL revert to the mean, it always has, and most likely always will.
When price is significantly below the mean, typically about -50%, it can present some great buying opportunities. When price gets way out of line and above the mean, by at least +50%, then it is time to be cautious. This in addition to other indicators as well as general market sentiment can be used to help with your trading strategy.
Take care, and best of luck out there!
Wanted to post a quick chart to show the history of Bitcoin's price action and its relationship to the mean. If you look back in time, you will see that after price falls significantly from the mean, or rises too far past it, it always corrects back toward the 135DMA, which I have shown on the chart. This is why I feel that at this time we are much, much more likely to rise up toward the 135DMA than to fall much further from here and why I called for a massive rally recently, see
We bottomed at -47% below the 135DMA which is about as low as price falls (with the exception of late 2011, but that was also after we went above the 135DMA by +883%!) This is important to remember at times when price is dropping dramatically, or rallying to unbelievable highs. Remember... price WILL revert to the mean, it always has, and most likely always will.
When price is significantly below the mean, typically about -50%, it can present some great buying opportunities. When price gets way out of line and above the mean, by at least +50%, then it is time to be cautious. This in addition to other indicators as well as general market sentiment can be used to help with your trading strategy.
Take care, and best of luck out there!
Catatan
We just got a nice move up in the with alts leading the charge. Update: Bitcoin now sitting at about -26% below the 135DMA, it bottomed at about -47% below. I am still anticipating it to grind its way back up to kiss the 135 and then it most likely will be overbought at that point and will retreat back down to support. It will then consolidate and slowly gain strength to move to test the 135DMA once again.
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