Watch out for these mistakes among BTC predictions

Markets

Dec 10

I wanted to highlight some of the types of mistakes and errors I’ve seen among primarily analyst but, also, other traders. It is worthwhile to watch for these mistakes in your own analysis and thinking:

  • Binary “all or nothing” thinking. It must be a great buy or sell here. Things are rarely certain in markets.
  • Reasoning towards extremes: it is going to zero or one million dollars.
  • Predictions made without considering uncertainty or range of possibilities. One analyst significantly raised his target because the price of BTC had slightly exceeded his model’s prediction. It is more likely that the price was still within the model’s uncertainty range.
  • Predictions made without providing a probability or confidence level. This is a common mistake.
  • Unspecified or testable predictions. “BTC is a bubble”. What does that even mean? Does it mean that it’s 5% more likely to decline 50% versus a 45% probability of tripling in price?
  • Non falsifiable predictions.
  • Anchoring bias
  • Predictions or insights made without alternate logic. This is a good question to ask of those who think it is a bubble. What needs to happen to falsify that sentiment? At what point are you wrong? If someone says to buy or sell Bitcoin today. Ask them what stop loss or risk you must incur or at what point you should buy back in (if they think you should sell).  And what’s the risk if you don’t sell?
  • Static thinking or backward looking. Some traders are looking at stats such as number of transactions today or limits of the network. Typically when massive amounts of money tackle any problem then historical roadblocks can be overcame.
  • One dimensional thinking. Some people are thinking about Bitcoin just as a payment method but functionally it has certain value advantages over gold. If one views Bitcoin from only one dimension or the wrong dimension then important information may be lost.
  • Dismissing the critics. Different traders have different objectives. A critic’s view might be completely valid when one understands their risk tolerance, objective, and platform. Some critics like Jamie Dimon have a greater responsibility to be skeptical.

 

 

 

About the Author

Curtis is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact him at curtis@beyondbacktesting.com.

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