Monkeys Playing With The Emperor's New Charts
Technical analysis of the stock market has been taking place for probably as long as it has been around, as computer hardware and software has improved, so too have the analytical tools available to traders and investors alike.
At some point in time, somebody looked at a chart of some stock prices over time, and saw patterns that they claimed were classic recurring patterns. What is more, they could use these patterns to predict the stock market.
I was introduced to one of these people via a video link on Twitter, I was sceptical to begin with, as I felt that if you could truly predict a price of a stock or crypto using patterns in the chart, there would be a far higher number of billionaires in the world.
After watching the video for some time, my bullshit alarm was pinging so loudly it gave me tinnitus. I couldn't quite believe what I was seeing, and it wasn't just this guy, I searched around and saw video after video using the same style, time after time.
I could break down for you the exact method of delivery, however I don't think that would be very helpful or digestible, instead I shall describe what I saw with the use of our old friend; analogy.
Non Analysing The Bus Journey
(gets on bus, turns to fellow passenger)
"Excuse me do you live around here?"
"Yes."
"Great, do you know which way this bus goes?"
"It goes to either the train station or the big supermarket on the hill."
"Huh? Those are in different directions; I mean, which one is it going to?"
"I told you, it could go either way."
"Ooookaaay, let's try this another way, which way will it turn at the end of this street?"
"Right."
"Cool!"
"Or left."
"Ah."
"Yes."
"I see."
(Bus pulls off.)
"OK, here we go, coming up to the corner . . . aaaannnnnnd, we've gone left, there you go, I was right."
"But you said it could go right as well."
"Which is correct, it could have; and I also said it would go left, and it did; therefore I have a 100% success rate with predicting which way this bus is going to go."
"Hmm, I still can't tell whether it is going to the station or the supermarket, which way will it turn next?"
"Well the fact is, it has taken 3 right turns and 2 lefts in the last half an hour of this journey, this usually means that the next turn will be left."
"OK, so it's going left?"
"Yes."
"Great."
"Unless it turns right."
(the bus turns right)
"See; I said that could happen."
(in voice of Marge Simpson)
"Hmmmmmmmm"
Behind The BS
Whilst researching for this article, I felt that I should find out if anyone agreed with my sentiments about this type of analysis of crypto charts, I mean I could be wrong, it's happened before! So I googled "Is Chart Analysis Bullshit?"
I came up with some pretty hilarious results (linked below), one of my favourites, was how a bunch of actual monkeys, beat hedge fund traders using millions of dollars worth of technical analysis tools.
So in the end nothing I found changed my mind about chart analysis, or technical analysis, or whatever else you want to call it.
As far as I can see, it is a bunch of people making non predictions about markets, and then claiming to be right when something happens that they said would happen. They often omit the fact that they in fact predicted a lot of things, and only a tiny amount actually came to pass.
Some of the people making the predictions are probably aware that it is all BS but they are making money out of it. Others genuinely think they can predict the future on past patterns, and simply suffer from confirmation bias.
Verdict:
Nobody can predict the future by looking at patterns of anything, whether they be charts, tea leaves, wrinkles on your palm, or bumps on your forehead. If you follow one of these people, pay close attention to what they are saying, are they really making predictions, or are they doing what our friend on the bus was doing above?
Further reading:
The Emperor's New Clothes: Wiki
Why Technical Analysis is 100% Bullshit: F.S. Comeau
Technical Analysis is Bullshit: Medium
How hedge-fund geniuses got beaten by monkeys — again: Market Watch
Any Monkey Can Beat The Market: Rick Ferri - Forbes
Confirmation Bias: Wiki
A classic handle and cup shape
indicating that the market has paused but will continue up
Picture courtesy of Meta Stock via Investopedia
Except of course, when it doesn't
Picture courtesy of Medium (original unknown)
But we can all be happy with a bullish Steem Reindeer!
Picture courtesy of @positive(@furion)
WHAT ABOUT YOU GUYS? WHAT DO YOU THINK ABOUT TECHNICAL CHART ANALYSIS; IS IT ALL BS OR DO YOU KNOW PEOPLE WHO ARE ACTUALLY MAKING MONEY OUT OF IT, AND CAN PROVE IT BEFORE THE FACT? AS EVER, LET ME KNOW BELOW!
@cryptogee,
OK ... this is not even funny.
On your post a couple of hours ago:
There's a lot more:
https://steemit.com/cryptogee-musings/@cryptogee/killing-bitcoin-with-a-million-sob-stories
Cryptogee, while you're at it, I answered your query ... look at the hyperlink at the bottom as well ... great documentary ... full doc on his site ... check it out):
https://steemit.com/lettersfromdarwin/@cryptogee/letters-from-darwin-an-evolutionary-coin-flip
Noooooo!!! :-)
I think you hit the nail on the head, is that real indicators of a market take into account lots of real world factors. There is going to be heavy rain in the coffee growing countries next year: sell coffee stocks
However with crypto we are trying to second guess the mood of the market, although as you also point out, if a crypto sits at the centre of an actual real world product, then we can use metrics related to that product to try and figure out which way a market will go.
Popular sports person wins big tournament while wearing Nike: buy Nike stocks (grossly oversimplified!!)
@cryptogee,
I couldn't resist. :-)
realmenteI really believe that you can answer my message, although it can happen that I am too tired today to answer the comments... I think I am already a pitonisa! lol... it's a fabulous truth the play on words and a little neuroscience makes you doubt or you just hear what's good for you... maybe the analyst gives you both options but you will give strength to the one that suits you, it's simple they know how to persuade, excuse me if there's something wrong written, I use a translator.
Translated with www.DeepL.com/Translator
Ha, thank you, it was a good translation, very nicely put :-)
Cg
this one proves that you are the master of analogies, HaHaHa, awesome!
Hhahahahahhahaha yeah it's such nonsense. Any time people are predicting the future but glossing over when they are wrong, you know it's nonsense
Lol I loved the "bus Analogy", that even gives a layman a good understanding. I also do feel that Technical chart Analysis is BS, I mean these people come of with different "software" claiming to have discovered how you can accurately predict price charts in the stock markets in order to rip people off. I am a forex trader and I learned the hard way and had previously purchased "tools" by con men claiming to give you at little to no losses when trading, but the situation had always ended up the same. The stock market is very volatile and unless one can see into the future, there's simply no way to know future price trend directions
After reading this article I am now completely certain why listening to analyst is like listening to fortune teller - they are both bullshit. Seriously though, why are there still people listening to them? It's not like they are God or anything. If people just use a bit of common sense they will realize that it is impossible to predict how the market will move, with or without patterns. Anyways, your analogy is really hilarious. Thanks for the interesting article.
Well @cryptogee, it's really sort of interesting to consider.
Sometimes "shit happens" simply as a result of people believing that it's happening. I don't know much about it from the perspective of crypto trading and technical analysis... but I'll share a quick anecdote:
I've been making a large chunk of my income from selling various things on eBay, for 20 years. In time, there is something I can only call "the sheep effect." Let's say I have two examples of the same item. I offer one for sale at its market price of $100. I put the other up for auction with a starting bid of one CENT. They are identical.
At the end of seven days, the one I put out for 1c has a final auction bid of $150 even though the SAME item could have been bought for $100, all along. Now, what happened? Well, because so many people were interested in the 1 cent version, it "appeared" more desirable. It's purel psychological... people "want what other people want" more than they simply want any given "something."
Now, let's get back to cryptos and technical analysis: It's probably BOTH BS and not-BS at the same time. The analysis itself is BS, but because a bunch of people believe that "the market will go up after a cup and saucer pattern," they flock into the market and MAKE the analysis "true."
That's my take on it.
to summarize everything and not write much .. predict an analysis of the currency market is difficult because in second the currency go up but the next minute is going down .. it is difficult to predict ..
what I liked was your prediction of this graphic ..
it looks like the predictions of haejin
Lolz, I don't know his predictions, but this could be any one of these guys, they are all the same I'm afraid.
Cg
I think when it does "work" it is because people all have noticed the handle and cup and act making a self fulfilling prophesy.