BTC markov method follow-up, initial pt reached
This worked out scary well... I'd need a bigger sampe to confirm the method is consistent, but examine the following dynamics of the BTC movement through this "matrix" built around the initial symmetrical channel:
- 31616.3 was my target last week when it was 28k merely because that level marked the upper bound (top point of local diamond) of the next most probable state - i.e. at the time of last analysis the most likely neigborhood of an adjacent state of 4 sections (individual boxes) had an upperbound at the 3161.3 level.
- In general BTCUSD has been respecting each state like clockwork - this means when it gets near upper-bound of state it pulls back to lower bound of state and vice versa. The probability of the next state given the current state is based on the probabilities of the stochastic matrix, but one cn actually eyeball the tendency of yellow path (I call this the "yellow brick road" because it leads to the emerald city lol, i.e. new highs to around 83k by end of year; if it strays from the yellow brick road t risks meeting the wicked witch of the west, aka danger, aka risk to 13-23k to establish a bottom if we don't breakout of the markov grid (breakout would be around 34k-41k. So... the tendecy of the yellow path is like a connect 4 mid-point creek that moves +- 1 units in alternating (typically) fashion, every now and then going 2 up after a 1 down which gives it the updward drift pushing toward breakout. The reason there are intermittent consecutive ups with +2 and not +3, +4, +5,... within the +-1 pattern is because to go +2 in the time period for each state (which is constant) is still approximately linear, however after +2 it becomes non-linear - specifically expanding geometric with limit as n approaches infinity becoming exponential... The stochastic matrix is by design a system of linear equations so when a +2 and especially +3 occurs there is a bifurcation in the probability outputs (they go haywire) that signals this +3 or more w.r.t path is truly a change in structure
~ NOW THIS IS WHERE IT GETS INTERESTING: during the move off last weeks lows there was a break of structure (or at least break of expected path defining structure)... it moved up for 2 consecutive states and then "jumped" up a 3rd consecutive state (the mechanics of what this means are in the above point. The interpretation of what this means is more clear; the prediction of near-term price action now becomes more complex but at the same time it confirms that volatility will escalate and that makes it a traders market again which we all should love. See below for Interpretation and Prediction:
Interpretation: I mentioned last week that the rate of state transitions was starting to accelerate around the chopzone at 28-30k and because of that the probability of next state being higher with upper bound (and therefore initial target) of 31616.3 was a lot closer to 1 than 0 (previously the transition probabilities had been around 74-78%, the initial shift took the probability to 88. Now the rate that the shift is accelerating has increased substantially and, thus, forced the path structure to a non-linear system. The question now becomes, (a) will it remain non-linear (a way to evaluate at a non-linear level via approximation will be to redefine the size of a state to be proportional with the degree of the non-linear form (e.g. quadratic (which is where it is currently would require a neighborhood of 8 (2 x 4) sections to capture the implied range)... if not (a) then it would likely exhibit properties similar to when an asset goes parabolic and then breaks down when the movement becomes unstable - in our case it would imply a sharp pullback to around 29-30k (equal but opposite to the non-linear degree realized by the movement to local maximum state) and that would ultimately reset back to the linear path (i.e. back into the sideways consolidation). b) is the bifurcation to non-linear path necessary to initiate the breakout from consolidation (rather than an anomaly that reverts back to linear base).
(b) is the most plausible if it establishes new support here at the 31616.3. We are about to see moment of truth at this very moment and I have mapped out how to play both of the 2 possibilities:
PREDICTION:
- If 31616.3 can hold here as support, expect next leg up to attempt breakout around 34k-37k (has 41k old support above that to deal with ut were not there yet
- if this doesn't hold it will test support around 30.8k, which if that fails expect the reset-to-linear scenario back down to the 28-30k range.
- A third possibility (c) is that it over-corrects from the bifurcation in structure and goes from non-linear at degree +2-+3 into a non-linear -2 to -3 (which could take it to 23k-13k. Either way... we're not in Kansas anymore don't expect the boring sideways price action recently to continue from here. I'll update on which scenario has higher probability given condition around if it holds 31616.3.
~Best
Knocksville Johnny
- 31616.3 was my target last week when it was 28k merely because that level marked the upper bound (top point of local diamond) of the next most probable state - i.e. at the time of last analysis the most likely neigborhood of an adjacent state of 4 sections (individual boxes) had an upperbound at the 3161.3 level.
- In general BTCUSD has been respecting each state like clockwork - this means when it gets near upper-bound of state it pulls back to lower bound of state and vice versa. The probability of the next state given the current state is based on the probabilities of the stochastic matrix, but one cn actually eyeball the tendency of yellow path (I call this the "yellow brick road" because it leads to the emerald city lol, i.e. new highs to around 83k by end of year; if it strays from the yellow brick road t risks meeting the wicked witch of the west, aka danger, aka risk to 13-23k to establish a bottom if we don't breakout of the markov grid (breakout would be around 34k-41k. So... the tendecy of the yellow path is like a connect 4 mid-point creek that moves +- 1 units in alternating (typically) fashion, every now and then going 2 up after a 1 down which gives it the updward drift pushing toward breakout. The reason there are intermittent consecutive ups with +2 and not +3, +4, +5,... within the +-1 pattern is because to go +2 in the time period for each state (which is constant) is still approximately linear, however after +2 it becomes non-linear - specifically expanding geometric with limit as n approaches infinity becoming exponential... The stochastic matrix is by design a system of linear equations so when a +2 and especially +3 occurs there is a bifurcation in the probability outputs (they go haywire) that signals this +3 or more w.r.t path is truly a change in structure
~ NOW THIS IS WHERE IT GETS INTERESTING: during the move off last weeks lows there was a break of structure (or at least break of expected path defining structure)... it moved up for 2 consecutive states and then "jumped" up a 3rd consecutive state (the mechanics of what this means are in the above point. The interpretation of what this means is more clear; the prediction of near-term price action now becomes more complex but at the same time it confirms that volatility will escalate and that makes it a traders market again which we all should love. See below for Interpretation and Prediction:
Interpretation: I mentioned last week that the rate of state transitions was starting to accelerate around the chopzone at 28-30k and because of that the probability of next state being higher with upper bound (and therefore initial target) of 31616.3 was a lot closer to 1 than 0 (previously the transition probabilities had been around 74-78%, the initial shift took the probability to 88. Now the rate that the shift is accelerating has increased substantially and, thus, forced the path structure to a non-linear system. The question now becomes, (a) will it remain non-linear (a way to evaluate at a non-linear level via approximation will be to redefine the size of a state to be proportional with the degree of the non-linear form (e.g. quadratic (which is where it is currently would require a neighborhood of 8 (2 x 4) sections to capture the implied range)... if not (a) then it would likely exhibit properties similar to when an asset goes parabolic and then breaks down when the movement becomes unstable - in our case it would imply a sharp pullback to around 29-30k (equal but opposite to the non-linear degree realized by the movement to local maximum state) and that would ultimately reset back to the linear path (i.e. back into the sideways consolidation). b) is the bifurcation to non-linear path necessary to initiate the breakout from consolidation (rather than an anomaly that reverts back to linear base).
(b) is the most plausible if it establishes new support here at the 31616.3. We are about to see moment of truth at this very moment and I have mapped out how to play both of the 2 possibilities:
PREDICTION:
- If 31616.3 can hold here as support, expect next leg up to attempt breakout around 34k-37k (has 41k old support above that to deal with ut were not there yet
- if this doesn't hold it will test support around 30.8k, which if that fails expect the reset-to-linear scenario back down to the 28-30k range.
- A third possibility (c) is that it over-corrects from the bifurcation in structure and goes from non-linear at degree +2-+3 into a non-linear -2 to -3 (which could take it to 23k-13k. Either way... we're not in Kansas anymore don't expect the boring sideways price action recently to continue from here. I'll update on which scenario has higher probability given condition around if it holds 31616.3.
~Best
Knocksville Johnny
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