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"Technical Analysis" is Meaningless Financial Astrology

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Avatar for dave_gutteridge
Written by   168
2 months ago

I got interested in crypto around 2017. Coming to understand how it all works was a steep learning curve, with plenty of difficult technical terms related to how blockchains work.

And there was also a lot of new financial concepts to learn about. Whether we like it or not, crypto markets move up, down, and around, largely the same way that stock markets do. This means that if you hold any crypto, it benefits you to learn at least a little about trading and the words used to describe it. For some reason, probably because they want to make it sound more involved than it is, people in finances want to complicate things with terminology, like saying "short" and "long" instead of saying they'll sell "sooner" or "later."

In the midst of learning about how stock markets work and things like "dollar cost averaging" and "market capitalization," I came across "technical analysis."

It sounds like something rational and somewhat scientific, and people who talk about it use terminology that blends in with more standard financial terms. They say things like "price resistance" and "testing the ATH." If you're new to all this crypto and market stuff, as I was, it seems like "technical analysis" is another corner of the financial world that you just don't get yet.

However, a little research soon revealed to me that "technical analysis" is actually very easy to understand. It follows a very simple principle:

It's complete horse shit and can, and should, be totally ignored.

"Technical analysis," which I'm putting in quotes because I refuse to acknowledge it as anything even remotely legitimate in this world, is basically financial astrology. It's an attempt to grasp at a sense of control over a random universe by claiming some kind of mastery over finding patterns in chaotic systems.

The first hint that it's total pseudo-science is that it attempts to predict the future, which can't be done. Or at least, it can't be done by trying to redefine chaos. It's possible, for example, for meteorologists to give you a good idea of tomorrow's weather by looking at the flow of high and low pressure areas from satellite data. They look at fundamental forces that drive the weather, and then tell you about possible results, like the presence of clouds.

The price charts of any one crypto or stock is the end result of all sorts of variant chaotic systems, not all of which are known. The resulting chart is effectively random, being pushed by fundamental forces that exist outside of the chart. Trying to look at the patterns of movement in a price chart to say anything about where it will go after the present moment is like trying to talk about tomorrow's weather by measuring how much today's clouds are shaped like horses.

The other reason you can safely disregard "technical analysis" is that there is absolutely no consistency in it whatsoever. Patterns in price movement will be selected at all sorts of time intervals, and any number of lines or patterns can be overlaid on top of them to come to any conclusion at all. If there were any science to "technical analysis," then different competing people doing it would all generally arc toward similar conclusions. With "technical analysis," you can find any conclusion you want at any time.

Not to mention the constant weasel words used to hedge predictions. A meteorologist will say tomorrow has a 70% chance of rain. You can then go over their historical records to see how accurate they were. "Technical analysis" only ever goes as far as saying, "the price could go up." Sure it can. Or it could go down. Statements like this hold so little information that they're effectively true no matter what actually happens.

I'm writing this in hopes of saving someone out there a little time. If you're wondering if there's anything to "technical analysis," as I did, let me assure you, the answer is an unqualified "no."

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Avatar for dave_gutteridge
Written by   168
2 months ago
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Comments

It was interesting to read your article I agree with your frustration but am not convinced in your framing of what technical or indeed any form of market analysis is for. Yes, people who draw triangles, go pattern spotting and chuck fibs on anything are rather tedious. From my position technical analysis has one purpose - it’s not about predicting the future - it’s about risk management. For instance, Dollar-cost averaging is an entry strategy - anyone involved in that type of buying believes the market will move in a specific direction. The question is at what point does that assumption become a financial liability? If you make a buy or a sell and the market moves against you when do you get out? For me, that's what technical analysis is for - determining risk - and setting parameters for cutting losses and taking profit at the right time. If you think it's about predicting the future then you're right to make a metaphor of astrological tarot reading - instead, I would say astrology is there to assist navigate the boat and to understand when it's going off course.

$ 1.00
User's avatar Z1
2 months ago

Astronomy is what guides boats, not astrology. One is actual science, one is make believe.

Similarly, there are legitimate ways to research trends and try to anticipate what the next best move is. "Technical analysis" is not one of them.

$ 0.00
2 months ago

My bad apologies for mixing the terminologies up. But I think you get my point. As I said it’s not just about trends it’s about risk management. And I agree there are plenty of ways to determine trends. Thanks for replying.

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User's avatar Z1
2 months ago

I did not read this one as I am already a believer in the title of the article. I believe Crypto is gambling for those who do not have access to data from those who manipulate the prices. I think most of the many "analysts" on social media are just a small part of the massive social engineering efforts used to herd the public's beliefs.

Some may be independents who make wild guesses and come back to take credit if they get lucky.

$ 0.00
2 months ago

Interesting, sometimes I am thinking about this too but it is giving me second thoughts. I think the market is full of gamble, we are not sure if it will go up or down. Just a pure luck.

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2 months ago

I came to the same conclusion as you! ;)

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2 months ago