Bitcoin chart very bearish: Using IQ to predict the market

Crémieux (@cremieuxrecueil) posted a study of the highest (and lowest) IQ professions:

As Steve notes, the ceiling seems unusually low. Where are programmers, mathematicians, physicists, medical specialists, engineers, quants, or lawyers? Instead, there is the category ‘physical sciences’, which encompasses multiple STEM-type professions as a single category. The category ‘medical practitioners’ lumps neurosurgeons with nurses. Being an oncologist is more demanding than being a generic general practitioner. Likewise, working at Google likely has a higher IQ threshold than being a typical civil engineer. What is a “quality surveyor” or a “town planning officer”? It’s like “Let’s lower the mean IQ for professions by making the categories uselessly broad or vague.”

Two major parts of IQ are information processing (in invoking Steve Hsu’s blog, which is titled Information Processing) and pattern recognition. This means taking a bunch of data and parsing it, such as for making a prediction. The smartest of people can quickly assimilate a lot of information and arrive at a correct inference.

What patterns can be ascertained from the 6-year Bitcoin chart below? What is the significance of the yellow regions compared to the orange ones?

It’s time for the c-word again “compression” , in applying geometry to the financial markets, similar to geometry and physics. The answer is, the yellow regions exhibit rising prices but sloppiness and choppiness of the chart, compared to apparent smoothness and compression of the orange regions. This holds even when rescaling the y-axis to account for price appreciation. No one else but myself noticed this.

Such sloppiness is always followed by large, abrupt declines soon after. Instead of waiting for the NQ futures to open, I initiated the short now and will remain short until price target is met and or the chart shows the required compression for sustainable bullish price movement. Predicting and profiting from this is so easy, my regret was not shorting more aggressively in 2022.

The usual kneejerk reaction is that technical analysis, such as chart pattern analysis, does not work (due to the EMH) or can be likened to astrology. It depends. Part of the reason why technical analysis fails so badly on stocks is because stocks are influenced by non-technical, firm-specific variables (such as earnings, competitors, buybacks, etc.). Bitcoin is not like that. Its price is purely a function of supply and demand, and is more like an self-contained system than one that has external inputs. So this makes technical analysis more useful, but this is not saying it’s necessarily doable or easy. Just easier, because you have eliminated a variable, that being fundamentals.

The EMH works most of the time and is a useful framework for pricing derivatives, but its accuracy not preclude the possibly of realizing risk-adjusted returns that are demonstrative of skill and not just luck, outside of the bounds of the EMH.