Technical Analysis is Boring (and useless in many contexts)

in #bitcoin3 days ago (edited)

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Note: This is not financial advise, for educational purposes only. Do your own research (DYOR)

When I first got into the crypto space, I've noticed that a lot of YouTubers and content creators, in general, were relying heavily on technical analysis, sometimes making it their central point of focus, so as a good noob, I thought that technical analysis was of great importance. However, shortly after that (a couple of weeks) I started to seriously doubt that technical analysis was that useful or important as it might seem at first glance.

The following are just a couple of straight forward reasons why I don't rely on technical analysis anymore:

#1 Same chart, different interpretation's
This first one is just common sense. Everyone has access to the same rough data, especially since the information is so open due to the design of the blockchain technologies. Yet, two people would see the same chart and would get two different conclusions, sometimes diametrically opposed conclusions, which to me just proves that this whole thing is borderline pseudo-science with some data as a cover-up.

#2 Being wrong as a technical analyst,.... pretty common
I still remember the videos I saw in the past, of people claiming that XRP will moon, even giving rough estimates of time, well, if you haven't been under a rock within crypto land, you'll know that those estimations were way off,.... not only XRP did not moon, but it actually went downhill.

Now, being mistaken in economics is not that bad if you learn of your mistakes, however, this is precisely the point, even if you "learn" more, you will never stop being wrong a lot of times, simply because the system is driven by forces dominated by free will (humans).

Those 10-minute videos explaining Fibonacci sequences on YouTube could be better spend watching cat videos (on the low end) or learning a new language.

The worst part of being wrong as a technical analyst is the part of knowing that all that effort to ingest that information was a waste of time.

#3 It is very boring
Seeing a chart of how people are buying or selling more or less of bitcoin is extremely boring, and listening to the explanations of where the price will go is as interesting to me as watching grass grow. I understand that technical analysis gives you a general idea of trends, for instance, I noticed that since the majority of people within bitcoin had come to expect the price of bitcoin to be within the thousands of dollars range, is highly improbable that people will sell enough bitcoins to the point were bitcoin is again under 1 thousand dollars, since the majority of the people expect a price above certain range (for instance 3k) there is a high resistance of the price falling below that. The resistance is even greater when you take into account all the passwords that are lost and all the people that take out loans to put into bitcoin and therefore will never consolidate losses by selling at a lower price than what they bought.

However, all those general concepts could be explained in a direct manner, without seeing every day a different chart. The only comparison I can think of is watching the segment on the weather conditions in the morning news, you could learn the general idea of how weather works, but that wouldn't give you a special insight on what would actually happen tomorrow.

#4 A lot of insider lingo (booooooooooring)
Technical analysts speak their own language.

And sometimes is not even necessary,... it is pretty common to hear blown out concepts presented with grandiose statements such as:

"This green candle signals a possible breakout of the downtrend sequence and thus a rise to previous historic all-time highs,.. blabblablbal"

Could be presented in a more direct manner, like:

"This chart is showing that we might go up in price, even to 20k! IMO"

What's the use of semi-reliable probabilistic information if on top of that I need to learn 350 new words?... in my experience the return on investment is not that interesting.

#5 HODLERS doing technical analysis?
One of the most strange things is seeing bitcoin maximalist's who are also hodlers doing grueling technical analysis. If they are for the long run (truly) and they will not settle for less than 100k bitcoin, why doing technical analysis at all? That price movement will take some time, even if bitcoin goes parabolic for 3 months straight, meaning that there would be more than enough time to do transactions to consolidate your gains.

Then, why doing technical analysis? I scratch my head thinking about this. You might say it is to buy the dip, but yet again, to do that you can set up an automatic purchase decision at a certain price level, there are plenty of services offering that, why not using that time an effort to something else?

I have no idea.

#6 The visualization of certain possibilities change the outcome
Imagine your doctor tells you that you have cancer, and gives you a dire prognosis, you have 7 months to live. Would your attitude towards life change? I think there is a high probability it will, you might even start doing soul searching and researching topics on theology, and who knows, you might even become a Traditional Catholic.

In that scenario, the knowledge of the illness brought about a different outcome, a different behavior.

In the case of people who broadcast technical analysis to the entire crypto community, a similar thing may occur,... suddenly a lot of people say that a certain coin is dead (based on technical analysis) well, guess what? the price will drop, a lot of people are saying that buying bitcoin under 10k will be impossible by the end of the year, well, guess what? It might occur, just because of persuasion, but not because of the technical analysis.

However, that is not the entire story, the broadcast of technical analysis is not uniform nor a particular interpretation is universally accepted, therefore, different interpretations of charts try, in a way, to distort the market and the behavior of buyers to their own perception of reality, and once that happens, we are within the realm of sales, persuasion, and marketing, and data is just the facade to keep things nerdy.

In some cases, a well-shared chart that calls for a price pump might be influential in causing people to sell competing coins and thus crashing the price of other coins in the process.

For technical analysis to be really tested, people will have to be ignorant of what are the "possibilities", apart from what they immediately experience, and therefore, the free flow of value will determine a precise price for each coin. This is obviously impossible, we are curious.

#7 Some charters lie with their technical analysis
Nowadays is very difficult to find people who value honesty as it is, not because of convenience, but just because it is what is right, and therefore, it is not rare that some people weaponize the power of chart interpretation to persuade people to do certain activities, in order to benefit financially, for instance, I'm guessing a lot of people who are pumping out videos with promising charts, have significant holdings in those same coins they are promoting, possibly in the hopes of persuading people into pumping the price of their coin.

I have no problem with people promoting a coin that they like (unless the coin would be intrinsically bad, like for instance an obvious scam) however, I do have a problem with people who try to disguise as quasi scientist's with mathematical data, saying that some coin will go to the moon based on some charts. Because when the information is presented in that manner, a sizable number of people assume that the whole thing is science in it's purest form, which is never the case.

Chart interpretation is not as hard mathematics, technical analysis is just a probabilistic point of view and some guesstimations based on those probabilities.

#8 Technical analysts seem to ignore that whales exist
A majority of technical analysis pieces seem to strongly imply that the whole system of cryptonomics is entirely fair and perfectly implemented, which is really odd, because those same content creators are for sure keenly aware of the existence of whales, however, when doing technical analysis, they seem to instantly forget that, and therefore, they based their projections on a system that doesn't really exist, since any chart can be blown up in pieces by one large whale or a small number of whales.

So, if a whale (or a mini-group of whales) wakes up on the wrong side of the bed, the entire carefully drafted and analysis chart becomes obsolete.

Here is how Red5point1 on reedit put it, (I edited out 1 phrase saying that crypto was manipulated because is not regulated by a government, which is factually incorrect since the stock exchange in the USA is also full of manipulation)

I've seen so many "TAs" posting their analysis here or youtube, blogs and some have even made it to the news.

One thing to understand is that Technical Analysis relies on historical trade data to be accurate.
Traditional Charting software is built to filter out anomalies such as outlier spikes or in case of stocks to adjust for splits.
So, historical data needs to be accurate.

(...) Here is an example of the infamous Wolong boasting about his pump&dump scheme.
He/They even released their own coin Pandacoin (one of many with the same name) purely to pump and dump.
Wolong "recruited" people to join his pump and dump schemes at a cost, people would join his secret mail list and IRC meetings.
They pumped and dumped various coins for at least 2 years that I kept track off.

He/They were very likely not the only ones, and after Wolong boasted openly other groups formed, some of them with really deep pockets.
here are few samples of requests to join such groups sent to me in reddit
edit: 2nd message is my reply as the perpetrator had deleted his account already.

So, the point is cryptos have been manipulated all along, from the most popular down to the s**coins.
Major movements in cryptos are not largely influenced with what was on the news, if there was a hack or some new tech was introduced or some regulatory decision... the manipulators are the ones directing the movements.
So using "historical data" to do any technical analysis is useless and pointless.
The only thing they are good for is to rile up people into an expectation that manipulators can use one way or another

Conclusion

Instead of relying on probabilistic information, do your movements on the market based on fundamental analysis, meaning, how strong is the team, how good is the code, what type of technology is already displayed, etc

That, and controlling the size of your risk, is the most efficient way to operate as a crypto enthusiast. IMO.

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