Technical analysis in cryptocurrency: a glorified horoscope?

OK I know I'm stirring the pot here a little with this topic, but I just have to say it. You know how you can read your horoscope, and find predictions in it that suit you? One in 12 people in the world have basically the same future, according to horoscopes, yet we can all find kernels of truth in these broad, enigmatic statements. It is kind of cool when things seem to match up, though. That, I suppose, is the fun of it.

Without getting into too much talk about confirmation bias, it's easy to see why people look to technical analysis as a way of determining patterns in markets. It's very appealing - the idea that one could look at trading movement, study the psychology of buying and selling patterns, and thereby infer predictions. After all, if I could accurately technically analyze cryptocurrency, I could be a very rich person in a very short time.

There are a number of issues with technical analysis when it comes to cryptocurrency. It's true, in normal, average days, where nothing unusual or newsworthy occurs, one might be able to infer a buy or sell pattern from previous activities. One could observe numerous mathematical behaviours of people, using Fibonacci laws to determine likely scenarios. This tends to work relatively well in certain situations, like huge economies that move slowly, such as the stock market, during uneventful times. Even then, news can break that sends a stock tumbling or skyrocketing in an impossible to anticipate manner.

Cryptocurrency is like the stock market on crack. It is frenzied, fast, emotional, and turbulent. It is also much, much smaller. This means, due to less liquidity, that market conditions can change much more severely in a short time compared to larger, slow-moving beasts like the stock market. It's a different animal entirely.

Back in September, I recall watching a technical analysis showing a pattern that suggested an incoming correction. Days later, China announced they were banning all crypto exchanges and ICO's. The market took a nosedive. The technical analysis fans were pointing out the accuracy of their predictions. This had nothing to do with Fibonacci, mathematical psychology, or buying and selling patterns. People panicked because they worried the market would plummet under the crackdown of the Chinese government.

Similarly, now that the entire market is rocketing skywards, many are predicting long-term growth to astronomical numbers. This is also entirely possible and may even turn out to be true. Let's hope it does. But it won't be because of a line on a parabolic growth graph. It will be because of world events, new upgrades to crypto-technology, or friends talking to each other about Bitcoin, like what happened this Thanksgiving weekend when 100 000 people signed up to Coinbase.

It's fairly obvious after a huge spike like this past weekend, there will likely be a sell-off soon. Traders are not necessarily planning to hodl for the next ten years and will instead take profits at certain price goals. This is the only situation where technical analysis can slightly help to see mathematical patterns. But even then, if an announcement rolls out that Bitfinex is toast - bad news, or that Bitcoin is fully adopted by Wall Street, or that the Lightning network is launched - good news, the technical analysis is merely coincidentally correct - down or up.

"Well, it's worked for me."

Awesome. Any purchase of bitcoin has worked for everybody for the last 5 years, because it has steadily risen when you stand back and look at it long term.

Set the technical analysis aside and instead simply use dollar-cost averaging. Save a certain, safe amount you want to spend and invest, at regular intervals, what you are comfortable spending after doing research - and only spend what you can afford to lose. Then, be prepared for the volatility of a market that moves like a tsunami when news breaks.

That is, after all, the fun of it.

If you enjoyed this article, please donate to...
BTC: 1FadQUp6PxQcbt1sicLRDE3f7v2kQPpVBq
BCH: 13Gb1p2m9evD6jaR2ZEs1dyVPRWojKFEfY

sources:
static6.businessinsider.com/image/58cac6c0112f7091008b4798-1333/screen-shot-2017-03-16-at-121408-pm.png
english.kolkata24x7.com/wp-content/uploads/2016/07/daily-horoscope.jpg