Bitshares Trading Diary, Day 6: Randomness...And A Whale Fight!

Have you heard of the Random Walk Hypothesis? It claims that price changes are random. Although there is reason to doubt the exact version, the informal version is one that every trader should know: price and volume changes can't be predicted. I certainly saw it today, when an unusually dull session was blasted into furious activity by an all-out whalefight.

I'd like to make a special shout-out to @razvanelulmarin , who was good enough to write a detailed critique of my writing last night. He made the point that I get too jargony; I have to admit I have been. Please follow him - please follow @razvanelulmarin ; you'll be glad you did.

Hopeful Overnight, Quiet Morning

The two-day chart I woke up to at 8 AM Eastern showed that yesterday's sagging was replaced with an optimistic climb...

...but the volume was light, making the climb in price sedate after it got rolling. Sedate enough to make a flurry of buying totaling less than seven Bitcoins' worth stick out like a huge-volume spike on the six-hour chart from the same time:

Yep: that big beanpole of volume in the right of the chart was less than seven BTC's worth of buying. The market did look good at that time, but the overhang of supply above 1000 satoshis was still there in the sellbook. Little did I know that most of the day would make me wonder if most of the traders had taken the weekend off.

Morning Doldrums...

Until 5 PM, I did little trading to day. That's because everyone did little trading. The market started to sag back, but on doldrumy volume; moreso for the late-morning rise.

Have a look at this screenshot from noon. Since Poloniex auto-adjusts the volume bars on the chart, this shot made a medium-sized spate of buying look like huge volume and lesser-sized sells into the buybook - dumps - look big. Neither were.

But the 24-hour chart as of noon did show an encouraging pattern that belied the subdued volume:

The candlesticks in green show buying pressure pushing the price up; the red ones show the reverse. See the volume bars underneath? The one under the green are clearly larger than the ones under the red. As any chartist will tell you, that's a good sign. It means that buying pressure is overbowling selling pressure.

So Bitshares looked pretty good while trading was nodding off. My optimism was only reinforced by an insightful post by @steempower "Comparing price action of BTS and NXT sharedrops: Peerplays vs Ardor" The takeaway was, Nxt had jumped up when the Ardor distribution was announced but languished into sideways trading for a few days until it really took off. So far, Bitshares has replicated it.

Reading that analysis certainly took the borings away.

...Afternoon Snooze...

I certainly needed some kind of pep-up because the afternoon was even more dozey. Here's the six-hour chart from 4 PM:

See those dashes? They represent five-minute periods when nothing was going on. The only action, leaving aside recurrent spates of buying and selling, was from tradebots placing and replacing low-volume bids and asks. Both sides of the orderbook shrunk away, widening the spread between high bid and low ask. That ostensibly huge burst of selling - the one with the towering volume column - was only a little more than three Bitcoins' worth.

There was a little to worry about: the buybook was so thin, even a tiny sell into the bids could move BTS' price down by several satoshis. At a time when the four highest bids were placed automatically by tradebots and had volumes of less than 6000 Bitshares, even a 0.13-Bitcoin sell into them could put real red on the candlestick.

Ostensibly, times like these are good for cleaning up as a spread-trader: the bigger price difference between the highest substantial bid and the lowest substantial ask means a greater profit margin for buy-sell-rinse-repeat. But luck eluded me, as my own bids and asks missed the little action there was. As of late afternoon, it looked like a predictably dull and fruitless day. After all, the dull morning had turned into a listless afternoon.

...Until The Whale Fight Begins!

Yes, at 5 PM the day looked like a dull-as-dishwater wash. Bitshares just couldn't get above 990, and virtually no-one had traded in the prior ten minutes.

Six minutes later, I was startled to see a huge buy order placed at 1030! When it had first popped up and gobbled up all the asks at or below, its remaining volume was almost nine hundred thousand Bitshares. A real whale had shown up to fight the bears! For sellers, it was "Yippee!" time. In seconds, it got whittled down to about 190,000 Bitshares. Breaking a cardinal rule of good trading, I dumped into the rest of it and made it history.

But not before I checked the buybook. The reason why I dumped into that 1030-satoshi "hallelujah!" bid was because the next-highest bid was only 1005. Mindful of yesterday's Lesson Of The Day - that a market jolted out of equilibrium will pull back to find a new one - I took the proceeds and placed a new bid at 999. As I expected, new sellers piled in and lowered the ask in the hopes that this great benefactor would chomp up the sellbook again.

He just might have. At 5:22, after the low ask had sunk to 999 satoshis, another huge buy inhaled all the asks up to 1014, leaving close to 900,000 Bitshares left as the high ask. This one, I didn't sell into. It jolted the trading price back up to 1030; I sat back to see what would happen.

In a way, that was dumb because the price did tumble back to 998 after the sellers eagerly complied with the 1014 buy order. I was lucky enough to get 120,000 at 999. It was a good use of the proceeds from my quick sale at 1030.

As the market settled down, I saw something I hadn't seen before: two whales - one with a huge bid of half a million at 998 and another with an even more huge ask of eight hundred thousand at 1002 - stared each other down. Up in the sellbook was a monster-sized sell of 1 million Bitshares. The duel was on!

But not until after I wound up for the day and started on this installment. For close to an hour, they stared each other down. Volume sunk back as we small-timers waited to see what would happen. The six-hour chart as of 6 PM:

shows the stand-off after those two monster buys. They stared at each other until 6:25, neither giving a satoshi-inch. Both stood their ground.

As the action prefigured, it was the seller whale who was taken out. A frenzy of buying rocketed Bitshares all the way up to 1035. By 6:35, it looked like the stage had been set for it to rocket up even further. Entranced, I bought 65,000 at 1017: a price that looked to me like a bargain. The buying pressure had overwhelmed the selling pressure. It was easy to forget that there were two whale-sized sell orders in the sellbook at 1040 and 1050. Whales ahoy for higher highs!

But surely enough, the market remained its unpredictable self:

As of 8:25 PM, it has sunk back to the same price it had been at during the doldrumy afternoon. The whales-ahoy rally had fizzed out completely.

Lesson Of The Day

You'll do yourself a real favor as a trader by assuming that the price changes coming up are random, or unpredictable. Always expect to be surprised.

Thanks (again) for reading, upvoting and commenting! See you tomorrow with Day 7's unpredictable twists...