Technical Analysis Is Coffee Reading 2.0

When I was young, I used to watch my mother and her friends gather up to drink turkish coffee. They would discuss news and events in their life while they were enjoying their shot. After they finished, they would flip the cups, wait for a bit and then turn them back up again in order to see the arbitrary coffee patterns forming on the base.

They would swear that over the years some patterns were looking much the same and they would indicate certain events. It makes sense since they would use the same motion to flip the cup, the recipe was much the same and the quantity of the water and ground coffee was also about the same. These patterns, whether they were clouds, animals or anything else in between, came to represent specific future events. Ask any of them and they would tell you that the stains predicted things like death, birth, marriage, misfortune, coming to money and other usual suspects as one would expect from these kind of things.

Of Course this is all superstition but there is a grain of truth in their belief that can also be found in the fortune telling arena. The patterns, whether they come from technical analysis, the zodiac or coffee stains don't matter as much as the people believing in them. In my hometown, most people knew about the patterns and the potential outcomes as much as traders know about "head and shoulders", "bull flags" and "parabolic growths". As the patterns emerge within a community that accepts and understand them, they become indicators of self-fulfilling prophecies. If enough people believe in them, then the patterns will fulfill their cycle in order to meet the expectations of those who depend on them.

This is why it is so hard to convince people against fortune telling or technical analysis. They both have seen the patterns predicting events time after time. Even though the 'misses' are far greater than the 'hits', it doesn't appear so because the brain has a tendency to forget the losses and only remember the wins. This is also why gamblers get caught up in the loop and why they rarely learn from their mistakes.

Humans are incredibly superstitious beings. The trick is not the accuracy of the system that drives the particular superstition but the amount of people who believe and follow it. In religion, this can cause massive problems. For example, if enough people believe that the world is going to shit and that we are approaching Armageddon day, most people will lead such a lifestyle that can cause a major catastrophe and thus fulfill their own superstition. Thing is, the individual will be clueless to the mass psychological effect that caused the events and they will rather believe the holy book or the priest that preached it.

Much like religion though there are some key players that can lead the crowd into fulfilling their own superstitions. In religion and politics we know them as politicians and priests. Even in science some people can cause this self-fulfilling dogma by designing experiments for specifically answering their own hypothesis. In the markets, those people are called "market makers". They are big players with extremely large positions and they can manipulate the entire market to their liking. Many will doubt this. They would say that coins like Bitcoin or Ethereum are "evenly distributed". A quick search on google about recent statistics and specific address growth would prove them otherwise.

As power concentrates to less people, the masses are easier to manipulate since few people can create loveable, attractive patterns that we are so used to them. We depend greatly on them in order to survive. Evolution has crafted us so we fall for them time after time again. Today, we are living in a world were patterns serve as fishing baits. We think we understand how everything works ...until it is too late.