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Predicting the Time-window for Turns, in all MarketsInexplicably, upon publishing this post, the Title Chart becomes distorted beyond recognition thus, all references are to this Original Chart - below Do markets trend on the medium term (months) and mean-revert on the long run (years)? Does Black's intuition bear out that prices tend to be off approximately by a factor of 2? (Taking years to equilibrate.) How does Technical Analysis , as a whole, act as a trend following system while Fundamental Analysis matters only once prices get way out of line? Is mean-reversion a sufficient self-correcting mechanism to temper irrational exuberance in financial markets? We examine these questions in the proceeding; In his 1986 piece Fisher Black wrote: "An efficient market is one in which price is within a factor 2 of value, i.e. the price is more than half of value and less than twice value. He went on saying: The factor of 2 is arbitrary, of course. Intuitively, though, it seems reasonable to me, in the light of sources of uncertainty about value and the strength of the forces tending to cause price to return to value. By this definition, I think almost all markets are efficient almost all of the time." The myth that “informed traders" step in and arbitrage away any small discrepancies between value and prices never made much sense. If for no other reason but the wisdom of crowds is too easily distracted by trends and panic. Humans are pretty much clueless about the “fundamental value" of anything traded in markets, save perhaps a few instruments in terms of some relative value. Prices regularly evolve pretty much unbridled in response to uninformed supply and demand flows, until the difference with value becomes so strong that some mean-reversion forces prices back to more reasonable levels. Black imagined, Efficient Market Theory would only make sense on time scales longer than the mean-reversion time (TMR), the order of magnitude of which is set by S√TMR∼d. For stock indices wit hS∼20%/year, makes TMR = ∼6 years. The dynamics of prices within Black’s uncertainty band is in fact not random but exhibits trends: in the absence of strong fundamental anchoring forces, investors tend to under-react to news or take cues from past price changes themselves. In fact, the notorious and unbridled reliance and un-anchored, speculative extrapolation is the mainstay of most investors, as well as Wall Street's itself, as it is the regular course of everyday "investing" across most asset classes. In the following a picture emerges (and we test it), whether market returns are positively correlated on time scales TMR and negatively correlated on long time scales ∼TMR, before eventually following the (very) long term fate of fundamental value - in what looks like a biased geometric random walk with a non-stationary drift. We have looked at a very large set of financial instruments, drawing on data sets from 1800 - 2020 (i.e. 220 years). We applied the same method to all available data in Stocks, Bonds, FX, Commodity Futures and Spot Prices, the shortest data set going back 1955. As it turns out that, in particular, mean-reversion forces start cancelling trend following forces after a period of around 2 years, and mean-reversion seems to peak for channel widths on the order of 50-100%, which corresponds to Black’s “factor 2”. Mean-reversion appears as a mitigating force against trend following that allows markets to become efficient on the very long run, as anticipated previously by many authors. Regarding the data we used for this study; Commodity Data sets - Starting date Natural Gas 1986 Corn 1858 Wheat 1841 Sugar 1784 Live Cattle 1858 Copper 1800 Equity Price data sets - Starting date USA 1791 Australia 1875 Canada 1914 Germany 1870 Switzerlan 1914 Japan 1914 United Kingdom 1693 From trends to mean-reversion The relation between past de-trended returns on scale t'< and future de-trended returns on scale t'>. Defining p(t) as the price level of any asset (stock index, bond,commodity, etc.) at time t. The long term trend over some ti scale T is defined as: mt:=1Tlog . For each contract and time t, we associate a point(x,y) where x is the de-trended past return on scale t'< and y the de-trended future return on scale t>:x:= logp(t)−logp(t−t'<)−mtt'<;y:= logp(t+t'>)−logp(t)−mtm't'. Note that the future return is de-trended in a causal way, i.e. no future information is used here (otherwise mean-reversion would be trivial). For convenience, both x and y are normalized such that their variance is unity. Remarkably, all data,including futures and spot data lead to the same overall conclusions. See in chart; As the function of the past (time) horizon t'< (log scale) for Red & White Bars, the futures daily data and spot monthly data. To compare the behaviour of the regression slope shown in the chart with a simple model, assume that the de-trended log-price pi(t) evolves as a mean-reverting Ornstein-Uhlenbeck process driven by a positively correlated trending noise m. It is immediately apparent from the dashed line in the chart that the prediction of such a model with g= 0.22, k−1= 16 years and y'−1= 33 days, chosen to fit the futures data and g= 0.33, k'−1= 8 years and gh'−1= 200 days, chosen to fit the spot data. In the short term volatility of prices is simply given by S'2k's'. Non-linear effects A closer look at the plot(x,y )however reveals significant departure from a simple linear behaviour. One expects trend effects to weaken as the absolute value of past returns increases, as indeed reported previously. We have therefore attempted a cubic polynomial regression, devised to capture both potential asymmetries between positive and negative returns, and saturation or even inversion effects for large returns. The conclusion on the change of sign of the slope around yt'<= 2 years is therefore robust. The quadratic term, on the other hand, is positive for short lags but becomes negative at longer lags, for both data sets. The cubic term appears to be negative for all time scales in the case of futures, but this conclusion is less clear-cut for spot data. The behaviour of the quadratic term is interesting, as it indicates that positive trends are stronger than negative trends on short time scales, while negative trends are stronger than positive trends on long time scales. A negative cubic term, on the other hand, suggests that large moves (in absolute value) tend to mean-revert, as expected, even on short time scales where trend is dominant for small moves. Taking these non-linearities into account however does not affect much the time scale for which the linear coefficient vanishes, i.e. roughly 2 years Conclusion Here we have provided some further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). This coincides with Black’s intuition that prices tend to be off by a factor of 2. It takes roughly 6 years for the price of an asset with 20 % annual volatility to vary by 50 %. We further postulate the presence of two types of agents in financial markets: Technical Analysts , who act as trend followers, and Fundamental Analysts , whose effects set in when the price is clearly out of whack. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance in financial markets. From a practical point of view, these results suggest that universal trend following strategies should be supplemented by universal price-based “value strategies" that mean-revert on long term returns. As it's been observed before, trend-following strategies offer a hedge against market draw-downs while value strategies offer a hedge against over-exploited trends.
TVC:DJIEducation
by Nemo_Confidat
8
Price Trajectory Based on candlestick analysis, level of support, MACD, and Guth 3x confirm I am bullish on Tesla for Friday. The Guth 3x confirm shows that price & volume are low on this 45min chart and that an uptrend is starting with price & I believe as volume increases, price will also increase at an increasing rate. MACD shows weakening bearish divergence while D+ shows growing bullish divergence. If you look at the 4 latest candles, 3 of the 4 have bullish wicks while the most recent wick shows a market close price at the highs for the previous 3. What does this mean? Price could drop the next 45min to test the low point of the last wick & with price so low; based on all the previous indications ( MACD, 3x confirm ) we can expect the price to rise. My 682.10 price prediction is based on the very top level of support My 688.20 price prediction is based on the bull wick of the largest bear candle My 693.12 price prediction is based on this weeks high, which I think is possible that a new high can be reached Tesla is a hard nut to crack but using all forms of technical analysis together, I have confidence in my prediction.
NASDAQ:TSLALong
by Myantman101
BTC pennant updateAn update to my previous post... Adjusting the support line slightly (the added blue line) the chart can be seen as already having broken out of a pennant. After the initial breakdown, it retested the support as resistance and failed. It then dropped 1.80% within the hour. In hindsight, it seems like a textbook pennant. In my previous post where I had a larger pennant (yellow line), I don't think it was based on enough data points (only 2 for the support). Whereas the green line has 3 points of contact. Of course, it should not be ignored that BTC is currently still in the larger pennant that I originally drew. The brief breakdown seen in the chart may be seen as a fakeout in the future before we pump and reach targets around 42k. Else there is still the possibility of breaking down to 38k. And the fakeout was simply bought up with some buying pressure before the real drop comes. I guess time will tell which way it will go... Let me know what you think below :)
INDEX:BTCUSDLong
by yeetus247
I FOUND THIS VERY INTERESTING FOR MATIC/POLYGON!!!This is my analysis about Matic/Polygon which im gonna call MATIC in the rest of this caption. Matic is showing a very good potential for reaching the new ATH, Im using Elliot Wave Theory to find out which levels and the next move for this MATIC. And surprisingly, I found out that MATIC could possibly in the bottom of C Wave or 2nd Wave from Elliot Wave Theory. Now, if I was right, then we might see MATIC will trying to create a higher high and higher low sequence into the next target at around $3.8. Disclaimer: This content is not a Financial Advise.
MLong
by Kevin_Sailly
6
XRP STILL BOTTOMING IN THE ASCENDING TRIANGLE??!!On this Technical Analysis , I would like to share my opinion on XRP movement. Right now, we are witnessing something amazing on XRP, the price pullback and stop right above the Support from Ascending Triangle. I guess XRP still showing higher low sequence, even tho we still need to see a higher high happens from XRP before confirming this level as the Bottom of C Wave Elliot Wave. A clear breakout on this Triangle, would give us a very good confirmation and a clear next move for XRP. Disclaimer: This content is not a Financial Advise.
BITSTAMP:XRPUSDLong
by Kevin_Sailly
4
ETHEREUM READY BREAKOUT TO $4.000Based on what we see, Ethereum is forming an Ascending Triangle Pattern in 4H Timeframe. Could be good for Bullish, because the pattern usually for Bullish Reversal or Bullish Continuation. The EMA 21,34 and 55 shows a good sign that Buyer are start kicking in, we still need a confirmation close above the Resistance Line before the rally continue. Also be aware of decline near the Resistance, if the decline happen then we might see another rejection and retest on the Support line. Disclaimer: This content is not a Financial Advise.
Long
by Kevin_Sailly
1
XRP IS BOTTOMING??!! On this technical analysis, you will see that XRP is potential reach the end of the C Wave from ABC Correction Wave of Elliot Wave. So if this is true, then we need a confirmation on higher low sequence before it's continuing the recent uptrend. The good news is, the probability for it has been increase since we are close above the 0,618 Fibonacci and it's start maintaining ground above this level. By the way, we still need to be cautious because we still need a confirmation for the XRP bottom level. Disclaimer: This content is not a Financial Advise.
BITSTAMP:XRPUSDLong
by Kevin_Sailly
BTC - not the best news we can findAccording to the chart we can see that BTC not trading by range price between 45000 - 55000 Yes it's very big price range but, the tunnel that you can see by the chart very scary 1 we may see rise price till 55000 from now , and it's the good news but then we can easy get to step 2 2 down trend - target 40000 the most scary and not my best prediction that BTC may go till area of 32000-34000 and that point will give us 78% of retracements by fibo It's scary and everything may be changed by big investors like Elon and Grace scale but now it looks like the most real scenario Short term - Buy and hold till 55000 Long term - Correction
BITFINEX:BTCUSD
by HodlCrew
2