BTC and ETH Regression to the Mean - August Update

In todays TA I'm going to be continuing a series of analyses I began some months ago. I'll recap some important terms here but for a full recap please see this post going over why the MA 1000 is a useful indicator for baselines. I'd like to emphasize that the MA 1000 is not "the" baseline but rather a baseline.

• The Moving Average (MA): The MA is a stock indicator commonly used in technical analysis, used to help smooth out price data by creating a constantly updated average price. The number that follows "MA" denotes how many data points are being used. So when applied to the daily chart, 1000 days of data are being used.
• Regression to the Mean: In statistics, regression to the mean is when extreme events often regress back to the average. In trading, this is often called a correction. What we're going to see are not only corrections, but also over-corrections.
• Why use the MA 1000?: This is where regression to the mean comes in. The MA 1000 is not commonly talked about but is an important trend line to consider in the greater picture of things. It rarely comes up because it rarely needs to be brought up in the world of day-trading. It is however very useful for long term targets. Also, the more data points you have to inform a mean/average, the more reliable you can consider it. You may then ask why not the MA 2000? The reason is because you have to stop at a certain point. Eventually, you get to a point where you have enough data to inform you where the mean likely is. There is also the central limit theorem which you can test here. Basically, at a certain point things will revolve around the mean and rarely deviate too far from it for too long. For our purposes, we can think of the MA 1000 as an approximate of the mean.
  • MA 1000 = blue
  • MA 200 = yellow
  • MA 50 = red

Alright on with the show!

BTC's MA 1000 on the Daily Chart

https://preview.redd.it/kz2kbhqwbzhb1.png?1811&format=png&auto=webp&s=aaf1034c561ca79e7efa2330794db5a6cc3b978a

ETH's MA 1000 on the Daily Chart

https://preview.redd.it/ni9zo0jzbzhb1.png?1812&format=png&auto=webp&s=57b5f5bd7ecfcf9909f9d59d6448a88969037125

Ok so what are we seeing? BTC seems to be making its way back to its MA 1000 in a stepwise fashion. However with ETH we're seeing it crab just below its MA 1000, which is pretty on point within a margin of error. In both cases we're seeing BTC and ETH oscillate along their MA 50. What we're also beginning to see in ETH's case is that its MA 200 is going to be meeting its MA 50. These usually lead to a breakout, but in which direction I couldn't say. To emphasize the point from the intro, the MA 1000 is not the only baseline, but rather a baseline. Other MA's offer insight into shorter time frame baselines and that's what we may be seeing with the MA 50 and 200.

​

That's it! I hope you enjoyed.

​

edit: this post will *not\* be making any predictions about where prices will go. Instead, this post is emphasizing that prices in crypto seem to follow statistical concepts such as regression to the mean. From what we can see, prices do not like to deviate too far from their mean for too long, and that any drastic deviations from the mean are eventually met with correcting back towards it.