Search the Community
Showing results for tags 'wave'.
Just wanted to share some philosophy on price movements for those new to crypto, investing or TA, and who may be spooked by the recent drop. This will be a somewhat lengthy read, but hopefully one that is worth your time. It seems that many are expecting the price appreciation to be linear or exponential, however this is never the case. Price movement is always fractal in nature, meaning that it resembles a wave pattern. For those with coding experience, another way to state this is that price movement is a result of a recursive equation that operates on the output of its previous execution. As this may come across as cryptic nonsense to most people, here is a simpler scenario that explains how this mechanism works. Assume there are David and Mary. David will take whatever you give him and use it to build a 10x10 letter “D”. Mary will likewise take whatever you give to her and build a 10x10 letter “M”. David therefore only knows how to build “D” and Mary only knows how to build “M”. Give them both a bunch of 1x1 Lego blocks. Pretty soon David and Mary are both done going through their stacks of blocks, with David creating a sequence of “D”s and Mary creating a sequence of “M”s. You collect their creations, shuffle them up, put them in a pile, split the pile in two, and give a David and Mary each half of the pile. The building blocks that David and Mary are now operating on are no longer simple 1x1 Lego blocks, but rather pre-assembled little “M”s and “D”s. David and Mary again do the only thing they know how to do, and assemble the ingredients into larger 10x10 blocks of “M”s and “D”s. The end result is a fractal. Each 100x100 structure looks like either an “M” or a “D”, however each one is made of smaller 10x10 structures that could in themselves be “M”s or “D”s. If the process were to be repeated, the next round would create 1000x1000 M/D blocks composed of 100x100 M/D blocks which would be composed of 10/10 M/D blocks. A fractal is therefore a pattern created by some constant behavior acting upon its own result. Aside from producing pretty graphics, fractals are commonly observed in nature presumably for the same reason outlined above; same underlying behavior given a different input produces a similar pattern at any level of evaluation. Anyway – how does this apply to price movements? Using the example above, Mary and David are you and I and all other investors, and historical price movement is the Lego block. Regardless of how much you may believe to be different than me, and I may believe to be different than the other guy, we are all people and as such are all subject to exact same emotions and similar mental decisioning processes. At the end of the day, we will all produce either a “D” or an “M” simply by virtue of being a human. Next, let’s take this one step further. Assume that David and Mary do not build blocks at the same speed. Sometimes Mary is faster, and other times David is faster. Your job is to work through the pile of blocks as quickly as possible, so after each round instead of splitting the pile in half, you will give more blocks to either Mary or David depending on which one is faster with clearing their own pile so that both may finish going through their own stacks at about the same time. This will maximize the speed with which you are clearing the blocks, but the effect will be that on some days there will be more “D”s generated, and on other days there will be more “M”s. Perhaps Mary is generally faster than David, but after kicking butt for three days straight she is now tired and is dragging ***. David will now be the top producer for a day or two while Mary recovers. Maybe Mary has been kicking as for so long that now that she is at the point of complete burnout and it will take her a couple of months to recover and catch up to David who is now well rested. Perhaps Mary also works faster when it is sunny outside as she feels energized, whereas David works better when it is cloudy as he is able to concentrate better. Keeping this example in mind, assume that “M” here corresponds to an upwards price movement, whereas “D” corresponds to a downwards price movement. Open your charts and zoom in and out or the price movement. Notice that each movement is composed of many smaller movements, and that each larger movement is merely a building block for some even greater movement. Using the David/Mary behavior described above, does the chart make more sense and is the price movement more intuitive now? The behavior described above is modeled by Elliott Waves in TA. When you see analysts labeling waves with numbers, they are in essence attempting to model an outcome of the current fractal behavior round. Fibonacci levels used to predict retraction/extension levels are likewise based on fractal behavior. It turns out that us being human leaves behind a very distinct behavioral signature that causes price bouncebacks at certain levels much more likely than at others. Chart Patterns (double-top reversal, flag, etc) are rooted on the same principle; they may seem like BS on the surface, but human trading creates repeatable patterns simply because it is driven by humans, and all humans are at the end of the day are largely the same. I am not going to go into any further details on Fib levels, Elliot Waves or Chart Patterns here since there is ample information available online, so Google will be your best friend there. Once you understand the fractal behavior that drives price movement, understanding various indicators intended to interpret such behavior should likewise become much more natural. One thing to keep in mind is that all indicators based on behavioral patterns are merely one part of the overall equation and as such will always be probabilistic. Just because some analyst states that XYZ may happen based on the chart, does not mean that it will actually happen. Rather, what they are saying is that based on human behavior and previous price action, some proposed outcome *may* be likely. Always keep that in mind. Moving on – fractal behavior at a micro level (single round of Mary and David dong their thing) can frequently be modeled using momentum-based indicators. These will include indicators that most people will probably be familiar with, including MA, EMA, SMA, MACD, RSI etc. Here is the thing with momentum-based indicators; if the intervals are set up properly to follow the speed of the market, then momentum-based indicators may be somewhat useful. If the intervals are misaligned with the market speed then any signals generated by these will be complete BS. Stated differently, by adjusting the intervals of various indicators you will be able to see whatever you want to see and spin whatever story you would like regardless of what the market is actually doing. Needless to say, I am personally not a huge fan of any momentum-based indicators as they generate much noise and offer minimum value at best. In my opinion, there are only two scenarios where momentum-based indicators are somewhat useful: As a self-fulfilling prophecy. Most traders use similar sets of preset intervals, and as such most will “see” similar signals at similar times. This in turn will cause most to perform the similar type of action in response to the signal (buy/sell), which will cause the actual signal to materialize itself as an actual corresponding price movement. Dx/Dy based indicators such as MACD may provide an early warning sign of a slowdown which *may* point to an advancement in the fractal pattern (aka a reversal on some scale), but if and only if the underlying moving average intervals have been aligned to the speed of price movement. That’s really it. I’m sure there are plenty of day traders who have gotten quite proficient at setting up their indicators in a manner that is reflective of the underlying price and as such produces solid signals more often than not, but if you are a beginner I would strongly recommend not trading solely based on any such indicators until you get a good feel for the underlying asset and are able to intuitively tell whether your indicators are set up properly to follow the price action. When the fractal nature of the market is considered, it becomes apparent that momentum-based indicators are not particularly well aligned to modeling the underlying behavior. As soon as fractal development frequency changes, any indicators that have previously been rock-solid become instantly invalidated. Wanna lose all your money in a jiffy? Develop a trading bot based on any of these indicators and see what happens when the market moves sideways or begins oscillating at wavelengths lower than your source indicator interval settings. Nonetheless, it is not that momentum-based indicators are not all bad, it is that in the grand scheme of fractal behavior they are only valid on a very specific scale and for a singular fractal movement. They will work until they don’t, and once they don’t, they will need to be recalibrated. Elliott Waves/Patterns/Fibs are therefore better suited for modeling large scale price behavior, while MA/SMA/EMA/RSI/MACD/etc will be better suited for modeling confined price movements. Having said all of that, there is a reason that one of the richest people in the world is a value investor rather than a TA prodigy. Fundamental analysis works far better for predicting future asset value than any TA ever could. Utility, adoption, roadmap, quality of management *are* the core drivers of value, and value and its perception is what drives the price action. At any given point in time, the chart you see in front of you will thus be the result of the following: Value + perceived value --> Triggers action. Increased value = sunny; Mary gets more blocks. Decreased value = cloudy; David gets more blocks. Fractal behavior --> Drives market response to the action. Mary and David both do what they do using blocks they have been given. Speculation --> Amplifies the response. Here are the key points, and the reason that I wanted to put this together in the first place: Bubbles form when perceived value greatly exceeds the actual value. Considering all the FUD out there, large portion of people still believe that XRP is worthless (aka “perceived value = 0”). This means that (value + perceived value) for XRP is still close to (value + 0), meaning that recent price action has been driven by at least some actual value rather than complete BS. Two takeaways: (1) How many other coins do you know of for which this also holds true? (2) Once the FUD dissipates and the perceived value increases, the effect on price action will be exponential Mary and David are always at work. Even when it is sunny and Mary is firing on all cylinders, David will produce some blocks. Likewise, even when it is cloudy, the sun will break up through the clouds to energize Mary. This is the fundamental nature of the market, and is completely normal. This behavior is amplified by rampant speculation in cryptos, which is why 1000% returns are just as normal as 50-80% pullbacks. Ripple the company is gaining good traction. There are good news coming up, and it feels that those will only be followed up by more good news. The fundamentals are therefore getting stronger, and fundamentals drive everything else as per above. Forecast is predominately sunny with no rain in the foreseeable future. Therefore: - “XRP is crashing!” Are future good news anticipated? Yes --> Whatever then; HODL. - “My investment is down 50% in 24 hours!” Are future good news anticipated? Yes -> HODL. - “XRP is gonna drop to $1!” Are future good news anticipated? Yes -> HODL. - Headline: “XRP reaches $10/100/1000 only to crash 80%!!” Are future good news anticipated? Yes -> HODL. - FUD is replaced with extreme enthusiasm and you start seeing articles pop up on the internet containing the word “paradigm” -> Get out while you still can. So there you have it. I am gonna go take a nap now while hodling. Wake me up when fundamentals change please. Before I go snooze though, just one friendly reminder: I am just some internet guy, and you should never listen to internet guys. For all you know, I could be a dummy who doesn’t realize that they are dumb and instead views themselves as confident. Use your own head, do your own research, come up with your own decisions. If this perspective helps you sort some things out faster, then great. If not, then at least you know to be careful when handling momentum-based TA trading bomb...err…bots.
https://www.tradingview.com/chart/XRPBTC/bKM7ckmH-XRP-Ripple-Elliott-Wave/ One of our technical analysts on the forum mentioned "Elliot Waves" previously, and I did some research on it... It was actually quite interesting; it's a theory developed by Ralph Elliott back in the 1930's to describe social behavior among traders based on nothing more than psychology. And after seeing XRP price dip this morning - the morning after I find this information about XRP adoption and post about it last night, literally boggles my mind. So, yeah, I'd say price is really about market psychology at the moment, unfortunately. Eventually, people will recognize XRP as the one token that's actually getting used more than Bitcoin!
"Only a few services have gone live. A dozen banks are using a firm called Ripple to process international payments cheaply." http://www.economist.com/news/finance-and-economics/21695068-distributed-ledgers-are-future-their-advent-will-be-slow-hype-springs