Bitcoin Forum

If it were only robots bidding and there were no externalities, what would the support and resistance plots look like?

Log functions? Sigmoid? Linear?

The rate of bitcoin generation is known beforehand while supply (Total amount - hoarding) and demand are unknown (but estimable) variables.

To clarify, I mean to refer to cumulative support/resistance.

Maybe if I provide an image:

http://i43.tinypic.com/29wu9sy.png

Support=linear (within the bounds of the chart)
Resistance= sigmoid

Thanks for answering my clumsy question but it does not fully explain what I see, and it is unrealistic to expect a true parabola. For example, there seems to be a ceiling after which the parabola tapers off. Is there an indicator that takes the values at which this occurs into account?

i had this thesis about the perfect BID/ASK price-psychology, and now found myself to paint this lousy picture:

http://img689.imageshack.us/img689/7481/thesis.jpg

P* is the balance price

the grey and violet sprinkled lines suggest that if the bid/ask side looks like that, it is either a bullish or bearish divergence.

my thesis for this psychologically bid/ask schema:

if everybody thinks the price will be high in future (bullish divergence): people are in a hurry to buy, therefore set there bid-walls higher
if everybody thinks the price will be low in future (bearish divergence): people are in a hurry to sell, therefore set there ask-walls lower

got my point?!

interested what you think about it..

a psychologically-balanced price would look bearish on the BID side and bullish on the ASK side (just as MTGOXlive looks, when we have a stable price)

btw: psychology-bid-ask-balance-price-thesis copyright is MINE! :P
ps: don't judge my ugly painting, i did not have a lot of time.. :)

-9000

\
\\
\\\
\\\\\
\\\\\\\
\\\\\\\\
\\\\\\\\\
\\\\\\\\\
\\\\\\\\\\________/

Everyone wants the coin, sellers do it cause they need to and don't wait.

+1

@ gewure:
Thats right, yet the spread chart doesnt look like the one in your image. In fact the bullish & bearish divergences are directly inverted.
Just check on mtgoxlive when there is a clear up or downtrend.

http://img714.imageshack.us/img714/3369/thesis.gif (http://imageshack.us/photo/my-images/714/thesis.gif/)

The reason behind this (as I understand it):

When there is an uptrend (bullish divergences show), the balance price (P*) moves up and up (to the right in our picture) quicker then the majority of traders can adjust their BIDs, therefore the BID side takes the shape of an drawn out function with its lower "belly" pointing to the left. The ASK side at the same time shows a clinched function with its lower "belly" pointing to the left also, because ASK orders are "eaten up" earlier then traders can react to the price movement by setting higher ASK orders.

Same game with downtrends, only the other way around.

hmmmm.. @spekulatius:

i think what you said is partly right, but there is a lack of communication between my model and your correction:

my model tells you what the bid/asks look like BEFORE a movement of the price takes place, your 'correction' of my thesis applies to the time WHILE a movement takes place.

it is hard to do any serious empiristic studies on my thesis, since i don't have the time, the knowledge and the resources to do so, and it is at all questionable if the bitcoin price on mtgox applies at all to such a pschologically trading scheme (after all, how do i know that what i see is because of the psychology i imply and not cause of other reasons?)

but anyway, im gonna watch this quite close in the next time and do some additionaly study on it.
think about my time-thesis: the divergences i painted are what the bids/ask look like before something happens,, they reflect the approximation of traders to the P* of the future!

thank you very much for your input!

Ok, so I began thinking the answer is an inverted normal curve. The reason volume decreases with spread is because the likelihood of that order being filled drops with distance from the current price. Bulls and bears use positive and negative skewed curves respectively, while a neutral participant believes there will only be random fluctuations. There is a point at which each participant believes it is not worth it to place a bid/ask. In the chart below I chose < 5% but this will obviously differ amongst groups of participants. Wherever the probability curve crosses the "line of implausibility" you will see the cumulative volume flatten out. Large walls appear where the neutral curve crosses the "line of implausibility" because this is as bearish or bullish as you can be while still believing there is a chance of getting your order filled on average.

http://i40.tinypic.com/6qimw1.png

The lower chart is similar to gewur's except that I have used an inverted normal curve rather than a triangular function. I am still digesting chodpapa's second post but I believe this is consistent with what he described.

Critiques?

@ bitcoinbitcoin123:

- I think you confused bearish with bullish sentiments in your picture
- The alteration with using parabolas instead of triangular functions is IMO a good idea and a more realistic approach
- The accumulated volumes likewise (good job!)

@ gewure:

Ahh, O.K., makes much more sense this way.
I hope I can contribute to even further explore the matter, although I have to admit not to have any emperical data at hand as well.
Therefore the following is only product of my own observations and reflections. Any comment or support by emperical data would be
welcome:
 - In times of bullish or bearish sentiments (clear trends indicated in either direction, visible to the mayority of traders)
    the two "price movement spread shapes" show, because of their shape Ill call them "UV"- and "VU"-shapes:

http://img717.imageshack.us/img717/5331/spreadshapes.gif (http://imageshack.us/photo/my-images/717/spreadshapes.gif/)

 - In times of uncertainty or contrasting estimates by equal amounts of traders wheter the price will go up or downwards, the other two
   remaining shapes "U"- and "V" shapes appear. The U-shape may be typical for times of sideways trends or neutral triangles, when
   traders wait for clear signals before they feel save to place their bets, in consequence there will be low volume on both sides of the
   spread and little price movement. The U-Shape can therefore be seen neutral

 - In times of contrasting estimations caused by numerous signals pointing in different directions, e.g. during a large doji
   (http://en.wikipedia.org/wiki/Doji) or anomalities during trends I would expect a V-shape to form, because high volume on both sides
   of the spread keep the spread small and price movement little. As long as a V-shape consists, it can be seen to be neutral as well.

Actually, someone must have asked those questions before. Im sure the answers are out there already. Maybe someone can provide some helpful links?

Please comment, thx

I thought about this... using the bitcoin market as an example:

If a bull believes the price of bitcoins will rise, which will he/she choose to do?

1) Place a large bid at a price below the current market rate. (even though he does not think the price will fall)
2) Place a large ask at as high a price as they think the market will reach before correcting.

It is vice versa for bears. So it makes no sense in your chart that bears will think to place more asks at high prices (which they do not think will be filled, because they are bears) than the bulls.

Then again I know almost nothing about trading so maybe I'm confused.

Another way of putting it is:

Why would a bull sell to you for cheap (near the current price) when they think they can sell to you for a higher price later?

Ok, I think its the same issue like before with gewures model and my "correction". His and your picture show spread shapes BEFORE a trend sets in while mine try to show what the spread look like WHEN a trend is in full motion (UV, and VU- shapes). Whether or not these proposed shapes apply to reality needs to be confirmed by some empirical data.


True, but thats not what they do. They simply cant adjust their orders as quickly as they are eaten up. Therefore the ASK-slope becomes increasingly steep. Same for the BIDs: the majority of bears cant adjust them as quickly as the price wanders, therefore a drawn out UV-shape forms.

P.S.: Good way to visualize whats going on before and during a price movement would be, if someone could film mtgoxlive for a day or two (hypercam, etc.) and then make it a time lapse.

update: http://vimeo.com/35204706 (http://vimeo.com/35204706)

up-update: http://vimeo.com/35383261 (http://vimeo.com/35383261)

Yea, I see what you're saying. It is interesting that a bull movement (as in your chart) causes the shape of the curve to go bearish (according to my chart) until it stabilizes.

Oh yea, definitely not practical for predicting future bitcoin price. I don't trust the depth chart at all.

wow, thank your for your incredible painting skills ;)

..and the discussion, offcourse! i agree to both of you in all matters, you made some good observations.

i became interested in this aspect mostly cause i study economics, am very interested in psychology in relation to economics, and saw a bid/ask orderbook in realtime for the first time while discovering bitcoin some months ago and it immidiatelly caught my attraction when i saw how 'easy' it was to manipulate for some individuals/some individuals (lets call him 'the manipulator') and force people into drawing conclusions from the bid/ask table. remeber at this point: drawing the conclusion that you ignore how the bid/ask tables looks like, is also drawing a conclusion! (perhaps not the most rational, since you could also draw the conclusion that 90% is fake and therefore have more information to operate on..)-

if you don't mind i will use your figures to discuss this matter with some fellow students at my university and look what they think about it.

greets
gewure

@bitcoinbitcoin113

i especially like your charts. makes more sense if you also include probabillity and volume into it, very good idea!
now the question is how to scale this model, to get usefull interpretations on future-price-movement-probabillities out of the mtgox bid/ask table.. (if at all)

there are a lot more systemvariables that need to be included into the modell, in order to have good interpretations.
if you have time, take close looks at the mtgox table, and write in here, if you observ any relations to our theory. i will do so.

thanks

Go for it. It is very theoretical right now, but if someone had enough money to map the true depth on both sides it may be useful, at least for a short time.

What do you think is the difference between your U and V neutral curves and the bear-bull, bull-bear balanced (or mixed) curves?

I ran Camstudio last night and recorded roughly 7 hrs, 40 mins of the spread. Will record more in the days to come.
http://vimeo.com/35204706 (http://vimeo.com/35204706)

I think you may have misunderstood. By "mixed" curve I mean to combine the blue and red into one curve. For example, your V(neutral) curve appears very similar to the V-side of the bearish sentiment combined with the V side of bullish sentiment.

i find the depth data should be considered in a market where a large player can consume a wall (for instance, the one that WAS at $7.20 not so long ago) and cause an avalanche/roller coaster all by themself. these kinds of movements often belie other indicators.

Alrigth, gotcha.

To answer your question: I think the difference is, that the neutral (U and V)-curves only occur during sideways trends, while VU,UV-curves ideally form during up or down trends.
As gewure pointed out, UV and VU curves may also form during sideways trends - and Id like to add, that it probably requieres a period of relative quietness for them to form. A period with little price movement before a clear trend is visible, otherwise the steep flank couldnt form. (I use the term "probably", because I lack empirical data to be sure here)
The combination of U and U flanks or V and V flanks of UV and VU shapes as it comes to mind in my picture is only a hypothetical game and has no relevance for reality, because there will only be UV or VU shapes at a time and if their flanks approximate, it will either result in V or U shapes. (I hope everyone can follow and picture the dance of shapes here;)

My recent observations from the footage recorded by me (see 3 posts up) suggest, that my prior estimation was wrong and V shapes actually form with LOW volume, while U shapes require high volumes as it lays in their nature, so to speak, to bumb all minor walls out of their way while spiking in all directions. In that way they rounden every V- to a U shape.

Summary:

U-shapes: High volume, sideways trend
V-shapes: Low volume, sideways trend

UV-shapes: bullish sentiment, [high or medium volume, UP TREND] or [extended low volume, extended SIDEWAYS trend]
VU-shapes: bearish sentiment, [high or medium volume, DOWN TREND] or [extended low volume, extended SIDEWAYS trend]

So did you record that? I was at work so I didnt get to see the walls get eaten.

Yeah, you can see it in the vid a bit (not much movement that day). Watched last 2 days but records got fucked up. So apart from the one vid, I can assure that with high vol (like the last 2 days) U shpes form.
Today with low volume its taking a more V-like shape actually. More than that, even a (possibly) bearish sentiment induced UV-shape is forming (watch below or on mtgoxlive.com):

http://img811.imageshack.us/img811/3928/190112mtgoxlive.png (http://imageshack.us/photo/my-images/811/190112mtgoxlive.png/)

Cheers

thanks for all this observations!

i still think your interpretation of the UV-wave as bullish and the VU-wave as bearish is partly wrong. it may be observed that the waves form such a look while a bullish/bearish trend is going on, but that does not necessarily mean that the bullish/bearish trends always form such a shape. in fact they dont have to at all.

i would recommend that we first focus on the research of the future-related implications the various wave-figures give us rather than studying the details of trends..(which i think are more complex).

e.g. UV-wave forming out of a U- or V-formed market suggests selling pressure and uncertainty on buying and therefore implies a psychological mood on the market regarded as bearish not bullish.

so to take your trend model:
we now have:

3 trends: down, neutral, up        (psychological)
2 signals: bull, bear                  (technically suggested using probabillity analysis)
6 data: Bidvolume, Askvolume, Bidplacement(price), Askplacement(price), historic volume, historic volatility             (raw information)

i would now suggest that we take a neutral trend and given data to form our pychological explanation model on marketmoves.
we have already done many interpretations.. great progress inside here :)

what exactly is "depth"? .. i mean out of what is it calculated? historic volatility and historic volume?

what effects do you think have a high or low depth for my last example?
.. that was:

neutral trend, low volume, a UV-Wave (which i suggest is a bearish signal) slowly appears

I would suggest to switch the terms "psychological" and "technical", as "trends" are usually referred to in chart technical contexts and psychological sounds more like bullish or bearish sentiments (--> moods). Also a "signal" is to me an indicator to predict future market movements, rather then a proof of past or present movements. I think bullish or bearish sentiment meets it pretty good and we should stick to that term.

In the provided picture below are some interesting developments visible in comparison to the prior posted one. I think what we see here is not the norm and rather exceptional (although market manipulation to that degree can be witnessed more often with bitcoins).

!About 1 hr ago the mighty BIDwalls were moved closer to the center!

http://img705.imageshack.us/img705/1084/1901120838pm.png (http://imageshack.us/photo/my-images/705/1901120838pm.png/)

To speak in your terms: Due to recent (about 1hr ago) BIDPLACEMENTS close to the center in contrast to more off-center ASKPLACEMENTS, the prior bearish sentiment (totally agree with you, that it was bearish) visible in UV-shapes, -->see older picture, was not confirmed and a more VU-like shape formed while volume dropped. In consequence the price is driven upwards and we now have an uptrend --> VU shape transists to UV shape and continues with the trend.

In other words:

Because the manipulator ;) placed its unsurmountable BIDWALLS so close to the current price, that it is driven up; although the overall sentiment is bearish. We have an uptrend and will have in consequence a consistent UV shape, which I state is typical for uptrends (!not bullish sentiments, but up TRENDS, so to speak up-movements!).

Because the manipulation to the market is fresh, the current shape (picture above) resembles more the one of V (due to low volume), but when the trend continues, I am shure, the nature of the UV shape will show.

It isn't merely that existing bids were were moved closer to center.  Rather, money that wasn't on the books has appeared on the books.

Ok, so I think that, rather than volume, a better way of thinking about spekulatius' V- and U-shaped neutral curves is as "high certainty" and "low certainty" sentiment regarding the current price. This is seen if we change the variance of the neutral normal curve seen in my original figure. Changing the variance of the neutral curve then drags the bull and bear curves along, as seen below:

http://img16.mediafire.com/f1d7207af5023cce64155ad3ea50323f60f6f94b783df26858a2072eab3b1e375g.jpg

When there is high certainty around the current price, traders will place bids and asks very near the price. When there is low certainty about the current price traders are more likely to place bids farther out. In either case, which direction they place them depends on if they are neutral, bulls, or bears leading to the black, red-blue, and blue-red U-shape and V-shapes. Low neutral (or sideways, as spekulatius puts it) volume is associated with high certainty, while vice versa for high volume... it leads to uncertainty and unwillingness to place large bids/asks near the current price.

Once again, the form of my charts is due to sentiment, not movement. They are predictive, not reactive. The result of movement is as spekulatius described, but I think including movement so soon is complicating the model before it is ready. During a movement, uptrends naturally generate bearish sentiment, while downtrends generate a bullish sentiment. So the system is self-correcting until other factors come into play (external info, new money, manipulators, etc), which eventually result in uptrends and downtrends.

Make sense?

New video from last night (Costa Rican time yeah!):

http://vimeo.com/35383261 (http://vimeo.com/35383261)

I think the next step should be including fat tail risk, otherwise known as kurtosis risk. The normal curve does not describe the bitcoin market well due to the small market cap and obvious presence of "dragon players", as someone described our manipulators. I would say a large proportion of the variance is due to the actions of these traders. They use FUD to incite emotional reasoning amongst traders with smaller positions, thus increasing the proportion of variance found in the tails.

I am imagining a three dimensional scatter plot of skew, kurtosis, and variance... with the variance coming out of the page (since it cannot be negative) and also color coded to facilitate comprehension. This will allow us to plot values that describe state of an ideal market in which all information regarding sentiment is present in the bid/ask walls, and all traders have perfect understanding of this info. It should look something like this:

http://i43.tinypic.com/6ia2pu.png

Then it will be time for maths and gathering empirical evidence to figure out why the model does not fit reality (e.g. spekulatius' theory about the effect of trends, fake walls, etc). I foresee Fourier and Monte Carlo in our future. The data will probably end up being too noisy and this type of analysis has probably been published somewhere already, but in my experience no one ever really knows what they are doing anyway so lets go for it.

+1  ;D

I think the position of walls is often related to Mt Gox fees. Max 1% difference to not lose money, min .5%.

Here's (https://bitcointalk.org/index.php?topic=106319.0) a thread of some guy posting regular 24h videos of the MtGox spread!

Some guy here. It's been interesting making these vids so if you like 'em or have any suggestions it's always good to hear from viewers.