BTC RWI Strategy
When things get confusing I like to pull out the Random Walk Index strategy.
It measures logarithmic returns but in a different way: it runs a randomness test on a period of prices. There is a red line, the downtrend strength indicator, and the green line, the uptrend strength indicator. When either trend crosses above 1.0, the probability that the trend is random approaches zero. Think of flipping a coin and landing on heads 7 times, it could be truly random but the probability continues lower as you continuously land on heads. When the trend is said to be "not random", the market tends to be unreasonably extended, which seemingly almost all of the time causes a technical reversal. Think about how trading is hard: it's hard *because* the price is usually random. When the price is not random, a spring-like reaction happens, like starting a fire. The reaction happens until the it runs out of energy to sustain itself. Then, it goes below 1.0, which aligns, at least in this chart, with a low-risk market entry. I should mention however, even though it measures a good entry, it does not always give a clear exit signal above the 1.0 mark. Some short-term peaks give readings below 1.0 which can be confusing. Therefore, you should define how much risk you're willing to take once you've got profit. Don't risk what you cannot lose.
In this chart:
signal = 7 week RWI. The randomness probability of the last 7 weeks, aka semi-quarterly (add on a few days for noise). This is the basis of the trade idea timeframe.
white line = 130W avg. It's a historical resistance after a selloff of this magnitude. Expect volatility here.
blue line 200W avg. We usually bounce off this line to meet the 130W. Expect resistance there.
yellow circles = means the trend is now random and has bounced from the 200W avg to above the 130W avg.
Parameters:
Wait until the uptrend line passes through the 0.8 to 1.0 range to enter the trade. If this happens and the price stays above 18500, all is well, otherwise, expect a sideways trend or possibly gloom and doom! On a 50 day basis, this seems like a good idea, but other unknown timeframes may dominate the market currently. For example, perhaps there's a 12 year trend looming that's about to dominate the price and all market averages plunge downward? Spooooky. Don't risk what you cannot lose.
Reasoning:
The crowd is fundamentally bearish, and embarrassingly so. Pivoting bullish makes sense logically. We've seen the largest rally since March in global markets. But this has been a point of breakdowns for the past ~10 months and the market is hesitant. There has been several large breakdowns and the crowd assumption is that there will be another breakdown right around now. However, the crowd was unable to predict these first big breakdowns which tells me they are probably wrong this time as well about a subsequent breakdown. Being a contrarian, I think we will see higher highs locally, possibly the 35k area, but wanting more confirmation is reasonable. We could dip a bit to the 20k area before making "the move". But take my ideas with a grain of salt: I am hedged against myself. Assume we could make another wave down or a sideways wave. Don't risk what you cannot lose.
What do you think? Crazy person is at it again? BTC will go sideways even more? More dumping? Please voice your opinion (I value all opinion, thank you) below and thanks for taking a look!
Investopedia link for RWI:
investopedia.com/terms/r/random-walk-index.asp
Good luck and don't forget to hedge your bets!
It measures logarithmic returns but in a different way: it runs a randomness test on a period of prices. There is a red line, the downtrend strength indicator, and the green line, the uptrend strength indicator. When either trend crosses above 1.0, the probability that the trend is random approaches zero. Think of flipping a coin and landing on heads 7 times, it could be truly random but the probability continues lower as you continuously land on heads. When the trend is said to be "not random", the market tends to be unreasonably extended, which seemingly almost all of the time causes a technical reversal. Think about how trading is hard: it's hard *because* the price is usually random. When the price is not random, a spring-like reaction happens, like starting a fire. The reaction happens until the it runs out of energy to sustain itself. Then, it goes below 1.0, which aligns, at least in this chart, with a low-risk market entry. I should mention however, even though it measures a good entry, it does not always give a clear exit signal above the 1.0 mark. Some short-term peaks give readings below 1.0 which can be confusing. Therefore, you should define how much risk you're willing to take once you've got profit. Don't risk what you cannot lose.
In this chart:
signal = 7 week RWI. The randomness probability of the last 7 weeks, aka semi-quarterly (add on a few days for noise). This is the basis of the trade idea timeframe.
white line = 130W avg. It's a historical resistance after a selloff of this magnitude. Expect volatility here.
blue line 200W avg. We usually bounce off this line to meet the 130W. Expect resistance there.
yellow circles = means the trend is now random and has bounced from the 200W avg to above the 130W avg.
Parameters:
Wait until the uptrend line passes through the 0.8 to 1.0 range to enter the trade. If this happens and the price stays above 18500, all is well, otherwise, expect a sideways trend or possibly gloom and doom! On a 50 day basis, this seems like a good idea, but other unknown timeframes may dominate the market currently. For example, perhaps there's a 12 year trend looming that's about to dominate the price and all market averages plunge downward? Spooooky. Don't risk what you cannot lose.
Reasoning:
The crowd is fundamentally bearish, and embarrassingly so. Pivoting bullish makes sense logically. We've seen the largest rally since March in global markets. But this has been a point of breakdowns for the past ~10 months and the market is hesitant. There has been several large breakdowns and the crowd assumption is that there will be another breakdown right around now. However, the crowd was unable to predict these first big breakdowns which tells me they are probably wrong this time as well about a subsequent breakdown. Being a contrarian, I think we will see higher highs locally, possibly the 35k area, but wanting more confirmation is reasonable. We could dip a bit to the 20k area before making "the move". But take my ideas with a grain of salt: I am hedged against myself. Assume we could make another wave down or a sideways wave. Don't risk what you cannot lose.
What do you think? Crazy person is at it again? BTC will go sideways even more? More dumping? Please voice your opinion (I value all opinion, thank you) below and thanks for taking a look!
Investopedia link for RWI:
investopedia.com/terms/r/random-walk-index.asp
Good luck and don't forget to hedge your bets!
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