ATH from Historic Average Perspective

29 окт.

HISTORIC AVERAGING
The point of historic averaging is to provide a long-term perspective on an asset’s price by calculating an average that considers all available historical data.

The simplest is Arithmetic All-Time Average
PineScript: ta.cum(close) / (bar_index + 1)
To get it we must add up all closing prices and divide by number of bars. (Bar_index + 1 because bar_index starts with 0, which can mess up calculation!)


It provides us with some useful information:

• Long-Term Trend Identification
  
• Current Price Contextualization - point of reference to assess how high is the current price than its historical Average
  
• Exposes Long-Term Support levels - the historic average often aligns with significant support (True for Bitcoin particularly)
  

Since Arithmetic Averaging is more venerable to lagging, it made a significant gap from the lows:



If the weights weren't identical, the gap distance would have been less. So we can use other method of averaging for more precise alignments of the cycle Lows

Weighted Historic Average: This method assigns increasing weights to each bar over time, prioritizing later candles even more significantly. This method is particularly useful when you want to view the trend as influenced by more recent activity but still considering the entire data set. It may help in understanding price dynamics under growing market volume or volatility, as recent bars affect the average more prominently.



With such weighting method applied, the historic average better indicates long-term support levels making them more reliable to draw a relationship between current price and the Historic Average.

This post is not even about the rhyme of Weighted Historical Average with cycle lows.
If we divide closing price by WHA, we would get an idea how many times Bitcoin has been higher than the average during the times establishing All Time High.



Given the current uptrend, which shows potential to develop into a full-scale bull run, we can anticipate the next long-term ATH by monitoring the Close/Historic Average. As this metric rises and breaks above shaded levels, it signals continued momentum. Conversely, if it crosses below the first shaded range, this may indicate that a long-term ATH has been set, suggesting the market could be primed for the next significant correction phase.