Can I predict the value of BTC/USD?

[Altoidnerd]

of of course not gox even its wisdom.  I always have mad displays while goxing.  I dont gox much but when I gox...yeah..

See what I mean?  I'm so glad they give that display.

[macsga]

of of course not gox even its wisdom.  I always have mad displays while goxing.  I dont gox much but when I gox...yeah..

See what I mean?  I'm so glad they give that display.

Yep; I'm with you on this. I believe you got it right!

[Altoidnerd]

Right now (BTC china), we have a

30 min - upswing - its recovering from min point of neg momentum
15 min - going down - past the peak of a weak rally
5 min - beginning the hellish decent
3 min - worst is almost over, about to come up could be strong hard to say
1 min - very nearly min, will rise soon

[Altoidnerd]

of of course not gox even its wisdom.  I always have mad displays while goxing.  I dont gox much but when I gox...yeah..

See what I mean?  I'm so glad they give that display.

Yep; I'm with you on this. I believe you got it right!

alright cool lets get filthy.   (rich)

shit should be published

[Altoidnerd]

So you take this data:

30 min - upswing - its recovering from min point of neg momentum
15 min - going down - past the peak of a weak rally
5 min - beginning the hellish decent
3 min - worst is almost over, about to come up could be strong hard to say
1 min - very nearly min, will rise soon

they're all weighted with intensities, summed, and you have a "state function."  If the 1 and 3 and 5 min data are all doing the same thing, you kinda know what will happen in the next 5 min, if the 15 and 30 waves are sufficiently weak of course.

if they're all coherent, well thats fantastic!

[rpietila]

Necro. Just b/c following. Sorry 

[empowering]

Great thread...

[JorgeStolfi]

Nice post @macsga, but I suspect that price is worse than chaotic, it is basically "random".

A chaotic system appears random but has a more or less deterministic model that, in theory, would allow one to predict its future from its current state.  In the double pendulum example, the state is the pair of angles, at the top and at the elbow, and their derivatives with time.  The trajectory in that gif was computed starting from some arbitrary state (particular choices for those four numbers) and applying the deterministic equations of motion.

A random system has no closed deterministic model, not even in theory; its evolution depends on external inputs that cannot be predicted, and cannot be enclosed in the state because they are themselves dependent on further external causes, and so on.  In this case, the external inputs include what each trader reads and thinks, the bills he has to pay and the money that he earns, government regulations, bank delays, and lost more.  If one tries to enclose all those variables as parts of the state of a closed model, one ends up with the whole universe, or at least with good part of mankind. 

So, in the theoretical model, the price must depend on external inputs that are not modeled, and therefore unpredictable, and therefore memoryless -- their future values are independent of their past values.

The question is whether one can still have some state variables in that model, so that the future prices are not entirely random but have some dependence on that state, and therefore to past prices.

The current price is known to be such a state variable, indeed a pretty good predictor of future prices.  That is, the price P(t+d) at a future time t+d is the price P(t) at the current time t times some factor (percent change)  D(t,t+d).

As far as I know, no one has been able to demonstrate any other correlation; that is, and relation between D(t,t+d) and the prices (or price changes) before the present time t.  So, it seems that D depends entirely on those external unpredictable factors.The best we can do is observe the probability distribution of D.  (I don't know what is the shape of that distribution, only that it is not log-normal.)

In other words, the logarithm of the price is a simple Brownian process whose increments log(D) are independent but not normally distributed.  This is the "log-Brownian" or "geometric Brownian" model. 

The unpredictability of price has been blamed on "whales"  who try to "manipulate" the price and break its trends.  However the market has fish of all sizes, and once one accepts that the increments depend on unpredictable external factors, it becomes unnecessary to distinguish "whales" as a separate category of trader.

For sure, a single trade of 100 BTC will have a much bigger impact on price than 100 trades of 1 BTC each, because the latter will tend to cancel.  In log scale, perhaps the change due to the large trade will be 10 times larger than the sum of all the little changes, typically.  However, one increment will be just as unpredictable as the other, and just as unrelated to past trades. 

Humans are genetically programmed to find patterns, even where they don't exist.  The trends and patterns that one may think of seeing in price charts may well be only illusions.  We also remember more easily our predictions that worked than those that failed, which reinforces the illusion.

Correlations between past and future price changes may exist for very short time scales d.  For example, it may happen that a trader who decides to sell (or buy) will do so in a series of successive trades; since these trades are all derived from a single decision, there will be strong dependence betwen them.  Also, presumably the general feeling of most traders will not change in a few minutes.  On the other hand, that general feeling may not influence their feeling towards the small changes that are likely to happen in that time span.  That is, one may believe that bitcoin will go to the moon this year, but nevertheless feel that it may go down in the next minute.  Also,

Correlations between past and present also may exist in common stocks.  For most traders, the main external inputs are a small set of  "fundamentals" like products and their demand. These variables tend to vary slowly and smoothly with time, so one can postulate models for them that include "momentum" --  that is, a dependence between the past and the future.

[macsga]

Hello people. It seems this thread is still attracting people I'm glad to see it revived...

Distinction between Chaos and Randomness

As previously stated in this thread (and elsewhere), a system can describe a [deterministic] chaos if very small differences at the initial conditions, give an outcome of enormous differences at a later time. A very common example is described by the movement of a double pendulum or at a larger scale at long term weather simulations. What we people do to form an understandable pattern, is to use rounding techniques (ie: integration) to limit possible "fallacies".

So, is our system chaotic? As it is commonly observed, we tend to describe a non chaotic system (or if you prefer a random one) easier than what it takes to describe a chaotic one. For instance when an Ordinary Differential Equation satisfies a Lipschitz continuity(1) in the Picard & Lindeloef theorem(2). In this case there's a linear correlation factor between differences in initial and final conditions and this factor is M * e^(LT). You can eliminate computations errors if L is large enough.

Summing, to state a system as non-chaotic, we need to do so for a very large L or for a non-linear correlation factor, if a global Lipschitz continuity is present. For such a "random" system we need to declare (as you very well mentioned) a probability space, which is in the essence a completely different system. Finally, there's always the possibility of mixing them and consider chaotic or unstable O.D.E.(3) with a random variable(s) as the initial conditions.  

To what category BTC/USD can be enlisted, remains as a task for the reader...

Further reading:
1. http://en.wikipedia.org/wiki/Lipschitz_continuity
2. http://en.wikipedia.org/wiki/Picard%E2%80%93Lindel%C3%B6f_theorem
3. http://en.wikipedia.org/wiki/Ordinary_differential_equation
4. http://en.wikipedia.org/wiki/Randomness
5. http://www.math.tamu.edu/~mpilant/math614/chaos_vs_random.pdf
6. http://en.wikipedia.org/wiki/Peano_existence_theorem
7. http://www.researchgate.net/post/What_is_difference_between_chaos_and_random

[JorgeStolfi]

For instance when an Ordinary Differential Equation satisfies a Lipschitz continuity(1) in the Picard & Lindeloef theorem. In this case there's a linear correlation factor between differences in initial and final conditions and this factor is M * e^(LT).

That only applies for "sufficiently small" displacements in the initial conditions.  If the state space is bounded (as in the double pendulum example), the initial displacement d must be less than R/(M * e^(LT)) where R is the domain radius.  Otherwise the d-neighborhood of the starting state will be not only stretched but also folded or rolled over itself, destroying the linear correlation.

Is there any evidence of any relation between future changes in price and past price history (other than the current price)?  I have tried looking for linear correlations in the case of bitcoin, but without success.  But that of course does not prove anything.

All the best, --jorge

[macsga]

For instance when an Ordinary Differential Equation satisfies a Lipschitz continuity(1) in the Picard & Lindeloef theorem. In this case there's a linear correlation factor between differences in initial and final conditions and this factor is M * e^(LT).

That only applies for "sufficiently small" displacements in the initial conditions.  If the state space is bounded (as in the double pendulum example), the initial displacement d must be less than R/(M * e^(LT)) where R is the domain radius.  Otherwise the d-neighborhood of the starting state will be not only stretched but also folded or rolled over itself, destroying the linear correlation.

Exactly, you have absolutely right. The thing is how small is "sufficiently small"...

Is there any evidence of any relation between future changes in price and past price history (other than the current price)?  I have tried looking for linear correlations in the case of bitcoin, but without success.  But that of course does not prove anything.

All the best, --jorge

Well; not one that I can recall or mathematically prove. What I could provide as a "proof" is that everything falls to a repetitive pattern that could very well be organized by "significant" participants. Maybe I got this thing wrong, but in complex problems, the best solutions are the simplest ones (Occam's Razor).

Thanks for your thoughts.
All the best
Costa, Greece

[Room101]

interesting thread guys, thanks

[macsga]

interesting thread guys, thanks

Thanks Room101, glad you like it.

[NewLiberty]

Necro. Just b/c following. Sorry 

I prefer to use the "watch" function for this to add it to the watchlist.

[macsga]

Necro. Just b/c following. Sorry  

I prefer to use the "watch" function for this to add it to the watchlist.

It was a "necro" thread before Risto came along (thread necromancer? WTF???). So I owed him some kind of progression. TBH, a lot have changed since I first wrote this thread though; for instance I'm not exactly sure that the "system" is certified as "pure" chaotic or random or a mix of those two. Several thoughts have demented my brain and Jorge has made things even worse with his post (thank you dearly Jorge).

Me and Altoidnerd (yeah, the other crazy physicist here) have been into a lot of google talk chats and even started a project towards a "prediction model" that could imitate the intrinsic infrastructure of similar "systems"; for instance an equation prediction via a mathematical package (ie: Mathematica) of the price and predicting the next couple of minutes by taking the 1st derivative of the projected equation (explained 10 posts above).

Another idea is to build a system that could use a "set" of given equations that could be "pretty close" to the one that projects the value of USD/BTC per minute. Say for instance, is it a damped oscillation? Then load up equation #1. Is it a log equation? take #2 etc. Unfortunately, I'm way beyond my programming skills that I used to utilize a decade ago, and frankly my dear, I don't give a damn programming such a system for me or anyone else.

This project needs fresh brains, fast coding hands and A LOT of time to do it. I could provide the science -and a couple of BTCs maybe- to see it fulfilled; but that's that. So if any of you younger chaps feel the urge, please seize the opportunity. This may turn you into filthy (rich) or (at worse) with a brand new PhD thesis.

Cheers

[JayJuanGee]

So apparently, I'm not able to make a reasoned guess that buy and hold has a much greater than average chance of working out for me.  Once I retire next year, I'll have more time to ponder my errors.

It's almost next year.  ARE you still planning to retire?  Does your retirement depend on the price of BTC or the ability to predict the price?  If your retirement does depend on the price of BTC, what is that price, and is it realistic? 

In light of the topic of this thread, I am inclined towards buy and hold based on my thoughts that we can predict generally the upward trajectory of BTC prices, but we cannot really tell where they are going to be at any point in time.. but we seem to be able to predict with some degree of probability (and certainty) that BTC prices are going to be within a range of prices.

Accordingly, I think that i can give some tentative plans towards my being able to include bitcoin prices in my investment portfolio, but since BTC prices are so volatile (which is also within the expectations), I cannot keep too much wealth in BTC in order to rely upon its appreciation for my plan... but if it does appreciate at the high end of the range, then I can act upon that in order to preserve some of the value of the gains... and accordingly to be able to remove some of the volatility from my whole investment planning package.

[macsga]

I *think* it's not the time just yet. Realistically speaking any person with 50 BTCs or above could be considered "retired" by the time the next "projected bubble" occurs. That won't have to involve the trading drama though. Several charts have been posted here and elsewhere predicting the inevitable:



Chances are that this will happen sooner or later for a TON of other reasons though (https://plus.google.com/+PeterHDiamandis/posts/dWQFcpcws8V) but we don't know for sure *WHEN* its going to be. We may get a good idea though if we have our eyes and ears open (which is why we hang out a significant time of our lives in places like this).

So to summarize, I think this is the season; we're getting close, but not just yet. Some of the most intelligent people I've met are probably reading this text right now. If it gets to be differently, then A VERY intelligent person, has managed to fool us all, which is perfectly fine by me. I'd seriously laugh about it.

The real question that arises into my head for sometime now though (provided that what we anticipate about bitcoin turns out to be true) is this: Who is going to sell last?

[thisisthis]

What if we are heading under the blue line? That's my fear, I believe in bitcoin but this downswing seems that never ends.

[macsga]

What if we are heading under the blue line? That's my fear, I believe in bitcoin but this downswing seems that never ends.

For one, this has happened before (see September 10). Secondly, it also went above for a couple of times. What we people do is trying to "fit" random data to "non random" equations. This thread is trying to prove that since there are "enormous sized" players into the game, the game itself cannot be described perfectly by a mathematical model and thus its unpredictable. Is there a possibility the USD/BTC value goes to zero? Yes it is. Is there a possibility that goes 100,000,000? Well, that has about the same odds with the first possibility.

I believe, this game is not for the masses. At least not for now. It requires a) either deep understanding of very complex economic aspects of our society or b) enormous levels of stupidity to go "all in" with bitcoin. I'm into neither of those categories. Or I'm into both of them. I'd say if I was an electron I'd define myself as super-positioned between these two quantum states. I'd advise you to read and try to comprehend Risto's SSS plan here: https://bitcointalk.org/index.php?topic=345065.0 and take a leap of faith. Or don't.

Everything is a choice.

[wachtwoord]

I *think* it's not the time just yet. Realistically speaking any person with 50 BTCs or above could be considered "retired" by the time the next "projected bubble" occurs.

50BTC at $5000 is only a quarter mill. I wouldn't call that retired just yet.