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It is said that people are ‘fooled by randomness.’ This is true and it is also true that we are fooled by noise, which is actually the same thing.
As such, it is good to keep things simple and where possible to remove noise. One way to do this is to use moving averages and this is effective but because averages include tails of data, they introduce lags. This means that by the time an average has turned up or down to show a new trend the big move may already have happened. Nonetheless indicators like the 200 day moving average are broadly quoted and followed. You can of course weight averages and do all sorts of tweaking but before you know it you can be either discombobulated by all the different results or guilty of fitting the indicators to the desired narrative rather than the opposite of using the indicators to expose the narrative.
The best thing to do is to try and keep it simple and one way to do this is to step away and not become hypnotized by the final ticking bar or flickering ticker price and plan your entrances and exits and merely cast a sleepy eye on goings on. Some investors simply look at prices at close or put in advanced orders and let them ride. The reason is the same, if you can find a way to keep the noise down you end up with a clearer picture.
This is investing of course, rather than trading, but even in trading keeping it simple is usually the key to success.
So here is a way of keeping it simple. A way that can unclutter a chart and give you a clear picture. Make the time base for each move long. Whereas you might look at 10 minutes segments, 1hr charts, even tick by tick ones, try making the time base 1 month.
Here is Bitcoin on that time base:
There is not much zigging and zagging when you plot this way. The only open question is, did we see the bottom of Bitcoin?
Here is the previous Bitcoin boom and bust:
It’s hard not to see the similarity. It very easy to jump to conclusions, but I’m happy to leap to them in this case and in the next few weeks, if this bullish conjecture is correct, we should see Bitcoin past $6,000.
I continue to acquire.
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Clem Chambers is the CEO of private investors Web site ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.
Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards in 2018.