Don’t Believe the [Technical Analysis] Hype!

tl;dr: Read a lot and educate yourself and don’t think technical analysis alone will make you rich.

I’ve been a part of various Telegram and Slack crypto channels for some time and far too many of them have become flooded with price conversations about various crypto currencies/assets/tokens/coins (whatever moniker you choose to use). These types of conversations are reminiscent of bulletin boards in the late ’90s during the dot-com bubble. The bulk of conversations are focused only on the price movement of crypto assets. There’s little or no discussion of the underlying business (if any), vision for the project (if it’s more of a community project), the technical details of the product/project or the merits of the fundamentals. It’s all about the price action.

I think there are many valuable contributions made on a daily basis by many well educated and experienced technical traders. However, most of the newer entrants into he world of crypto assets, have not taken the time to learn about technical analysis or truly understand it. The most common question of “Will X go up or down?” Is usually answered by some well-meaning “painter” who comes up with a chart and shares it. Some of these technicians are amazing at reading the market and, more importantly, identifying the best entry and exit points.

However, to all of the newer “investors” coming into crypto on a daily basis, I’d like to put something out there for you to think about. The market will rise. The market will fall. As an “investor”, one should define what is their investment amount and time horizon first. “How much can I lose?” “When will I need the money?” Answer these questions honestly and put the money into an account ready for crypto asset investment. Now, start doing your research and decide which coin(s) you want to hold and for how long. Do some more research and make a decision of how much you want to allocate to each coin(s) and pull the trigger. This is the most scary thing you will do. You will likely never see that money again. Don’t imagine what you could do with it when your coin goes up 1000x. Don’t!

Don’t look at minute to minute price changes. Don’t look at random charts or price movements. Stop looking at the prices more than once a week. Instead, focus on educating yourself on the fundamentals and also learning about technical analysis. Read as much as you can about the technology, the potential disruption at a macro level but also at a micro level with your specific coins. Examine new entrants and potential competitors. Learn about changes that are occurring (usually on a daily basis) and try to understand the advances in the technology. If you see something fundamentally change (besides price) then make a decision to exit (fully or partially) or increase your position based on your fundamental assessment of the asset.

The problem with most technical analysis in crypto is that most people have learned the nuances of technical trading only in the last couple of years, at best. Trading crypto assets like Bitcoin is still very illiquid compared to buying Apple stock. A lack of liquidity means that macro events can force acute price swings unexpectedly. These things happen in the stock market too but they are even more pronounced in the crypto world. Most technical traders on Wall Street have been doing this for decades. They have vast amounts of data, algorithms, efficient markets and regulation to also help guide their technical trading decisions. They have learned that technical analysis is not a crystal ball but rather an indicator of possible probabilities of price movements based on methodologies that people have identified using historical patterns over decades. Crypto is less than ten years old. Widespread crypto trading is a bit more than five years old. “Do your own research” #DYOR is something that veteran crypto investors say all too often and upset new entrants. Well, they say it because they’ve learned the hard way that you will get “rekt” if you blindly follow someone else’s investment ideas. #DYOR also means, learn the fundamentals. Learn technical analysis for yourself and learn to become a good long term investor.

Most newer entrants following all of the charts and opinions others put out, don’t really understand the technical details of the analysis and are just looking at prices. They wind up making mistakes on when to enter and when to exit. of course, even those reading the charts make mistakes but the good ones, know they will make mistakes and have tight stop loss orders to minimize the damage when they are wrong.


Also published on Medium.

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