JamesRennie

Buying BTC stopped making sense to me a long time ago

BITSTAMP:BTCUSD   Bitcoin

Ok there is a lot going on with this chart but I'll try and explain it clearly. If you look carefully you can see the blue marker showing price change 35%. What I did was add a 21 weekly Exponential Moving Average(EMA) to the chart. Then measure the difference in price between the moving average and current price. You can see at that time it was 35% difference. Then using the long indicator you can measure a risk reward of 2. If you don't expect the price to go high enough to at least get risk reward of 2 you should reconsider the trade. It's not that you can't make money you just have to be money greedy to do so and face more down side risk.

You can see to the right I repeated the process with current price today and below image is where price would have to go. If you wanted to take the same risk buying. This is just considering the risk of reversion to mean and ignoring other risk factors for simplicity.


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