I’m mystified by the field of technical analysis where people draw lines all over charts to try and predict prices of assets.
Sometimes the lines appear to make sense, sometimes people use big words to explain why their lines hold meaning, but i can’t help but feel like most of these “analysts” are just making things up.
Am i wrong here?
Is the field of technical analysis just another version of astrology/palm reading/psychics in a new domain?
Yes but if enough people believe it works it can work pretty well actually. At least in the short term.
Traders set the market in the short term so as much as I think it is ridiculous TA matters. Unless you are DCAing into bitcoin daily and don't care about anything else. Which is my current investment strategy.
reply
are there any prolific technical analysts who have established track records for predicting these short-term moves?
i see lots of technical predictions on twitter, but they usually only get retweeted if they’re right, otherwise they get deleted.
reply
Same in all respects.
reply
667 sats \ 1 reply \ @chris42 2 Feb
Heard a story about some trading charting software with the fancy TA indicator line things which people had been using for years but was actually being drawn the wrong way round
reply
33 sats \ 0 replies \ @kr OP 2 Feb
lmao
reply
they're self-fulfilling prophecies broken by the outside world's messiness.
There is (of course....) no God of the Market that makes things move in some mystical directions. But traders want "rules" so they can trade; if the other traders also believe in these rules, then they act by them, and acting by them makes them come true.
Algorithms need to be trained somehow on how to trade - algorithmic trade happens in milliseconds without human intervention - and then, these humans looking at charts divining things become trading rules algorithms use, thereby strengthening the self-fulfilling prophecy.
But these can only ever be "internal", i.e. they make rules only based on price movement; there is no outside world to these, and in the real world, there is, of course, an outside context problem to movements. These can and do break these rules regularly. They'd only work 100% if a) ALL traders used them all the time and b) market price movement happened in a vaccum without outside context problems.
Yes, Iain Banks reference. ;)
reply
0 sats \ 1 reply \ @kr OP 1 Feb
so if enough people start training their algorithms to react to technical indicators, then it becomes profitable for humans to exploit these overcompensations, right?
reply
oh, every structure creates its ways to exploit it right along with it. In combination with outside context - Makro, fundamentals, etc - you'll see where an algo is just following the internal logic and dumping a fundamentally valuable asset for technical reasons, for instance. which is exactly what "buying the dip" is.
reply
432 sats \ 1 reply \ @kurszusz 1 Feb
Nope, technical analysts (the GOOD technical analysts) are not fortune tellers.
Technical analysys is based on probabilities, and on past statistics (for exemple what happened if price was rejected from a resistance, etc)... In this way was formed the patterns (every pattern have their sense), and peoples learned about how it works "usually". And it is a most dose of psychology :) If a lot of peoples (a lot of capital) think the same thing, and start to make actions on this direction (short or long), the price is obligated to follow this, because of the supply / demand ecuation... The problem is when a bigger capital think to "trap" these "smallest capitals", and make a big order in other direction (bull trap / bear trap). These are the whales (in crypto usually the big institutions). This is the cause, that technical analisys is never 100% sure, and a normal trader / analyst never say you, that is sure price will go up / down...The correct affirmation is, that "we have 80% to price increase, but never can exclude the opposite"
reply
0 sats \ 0 replies \ @ama 1 Feb
The problem is when a bigger capital think to "trap" these "smallest capitals", and make a big order in other direction (bull trap / bear trap).
TA has signals which can reveal those traps, too, and tools to try to minimize its effects (cut of losses, etc.)
This is the cause, that technical analisys is never 100% sure, and a normal trader / analyst never say you, that is sure price will go up / down...The correct affirmation is, that "we have 80% to price increase, but never can exclude the opposite"
And not only that, of course, but also which is the most likely appropriate reaction depending of the actual price movement.
reply
69 sats \ 2 replies \ @ama 1 Feb
Is the field of technical analysis just another version of astrology/palm reading/psychics in a new domain?
No, it isn't. It's actually a math/graph way to analyze the psychology of the mases.
reply
0 sats \ 1 reply \ @kr OP 1 Feb
can you explain the math at a high level?
how do you convert psychology into numbers?
reply
All markets are machines for making numbers out of psychology.
reply
I don't think it is mystic astrology if the person know what they are talking about. From what I understand, the lines basically mimic human behavior. Markets move up and down based on human psychology, so the lines just show that and after a while certain patterns have a higher probability to move up or down.
reply
0 sats \ 1 reply \ @kr OP 1 Feb
if sophisticated traders have recognized these patterns of human behavior, wouldn’t they have already exploited them for their own gain?
reply
well, they do. Those are the rich people ;).
reply
I'm by no means an expert, but when I was into investing I was more of a fundamentals guy. I picked up enough to know that the theory is based on human psychology. Humans react predictably to price action. But, what has happened is that traders react to the patterns. It seems almost like a solipsistic loop at times.
reply
72 sats \ 1 reply \ @kr OP 1 Feb
the fundamental stuff makes more sense to me… a business earns a flow of cash, and is worth some multiple of that depending on the time value of money.
if humans all react in predictable ways to price action, and traders are exploiting those patterns for their own profits, aren’t we back to square one where nobody really knows where prices will move next?
reply
Exactly.
reply
226 sats \ 0 replies \ @kepford 1 Feb
The fundamentals approach is what makes the most sense to me. That coupled with the knowledge about how markets tend to be irrational in the short term but more rational in the long term... that is the approach that makes the most sense to me.
reply
Sure seems that way - at least for the talking heads on TV. They make vague predictions and change them all the time when they are wrong.
reply
10 sats \ 0 replies \ @dgy 1 Feb
Well, the talking heads on TV are presstitutes and they tell anything for money.
If the people in the background want something to go down so that they can buy it for less or pump if they want to sell something themself and this is then sold as "analysis".
reply
10 sats \ 0 replies \ @kr OP 1 Feb
yup, no accountability as far as i can tell
reply
The truth is that technical analysis has been prostituted by many people who don't study enough. When I studied technical analysis, I got the idea that the goal was to find patterns that have happened in the past. There are good books that explain well the relationship between these patterns and the behavior of traders. What happens today is an aberration, because people are looking for these patterns and do not even apply the basic principles of them. For example, it is normal to see people drawing patterns in which the candlestick chart is even identical but then they forget to look at the volume and time frame of the pattern. Another common mistake is to draw support/resistance with only one or two points, when the books say that the minimum is three touches. These are just a few examples, but many more exist. Personally, I think the simpler the better, nowadays I only use the 50 and 200 daily moving averages and a border between bear/bull market.
reply
can you recommend some of the good books on this topic?
reply
I forgot to mention this one earlier. I have it in PDF, if you'd like, i send it to you.
reply
Thomas N. Bulkowski's was the one I used, but I know that Jack D. Schwager's is also very good.
reply
354 sats \ 0 replies \ @ama 1 Feb
I haven't read the later edition (The New Trading for a Living) or his Study Guide yet, but I'm sure they're worth as well.
In any case, with Bitcoin, being such a highly asymmetrical asset, its very difficult to beat long term holding. Being really methodical with TA and having a good money management strategy might make you increase your fiat capital, but that capital might likely buy you less BTC later. Long term holding it'll be a better strategy in most cases.
reply
275 sats \ 0 replies \ @ssaurel 2 Feb
You make a good point.
Technical analysis works like a self-fulfilling prophecy in my opinion.
All traders share these technical analysis tools.
Since everyone reacts in the same way when they see all these patterns appearing that have been defined in the literature, the market reacts in the same way.
It's a self-fulfilling prophecy, and since everyone buys into it, you can't go against it.
That's where Bitcoin changes the game, because if you understand the why of Bitcoin, you're in it for the long haul and can detach yourself from all these patterns and technical analyses to concentrate on more important things!
reply
275 sats \ 1 reply \ @kepford 1 Feb
I feel ya @kr. Right there with you. A few years ago I watched a guy teach lay people how to read charts. The whole double bottom, new low, typical stuff you see people do when they draw on charts. But, he was very honest about it. They cannot predict the future. There is always something that isn't predictable.
What I took away from this as I was doing some minor trading at the time was that if you do this long enough you could get good at recognizing patterns. You could use that knowledge of pattern recognition coupled with access to information to make informed predictions. But, I suck at it.
Now, we have the people on TV, Twitter, and elsewhere that are always making bold predictions. To me most of them are just snake oil. But, I don't doubt there is some skill and pattern recognition in it. Its not just magic or guessing.
I landed on @ODELL's advice. Stay humble, stack sats. I'm not a gambler. I'm not looking to become rich by some sly trick. I wanna see a better world where we can save the rewards of our work in something that will not be diluted into nothing.
reply
0 sats \ 0 replies \ @ama 1 Feb
They cannot predict the future. There is always something that isn't predictable.
Obviously.
You could use that knowledge of pattern recognition coupled with access to information to make informed predictions. But, I suck at it.
Because that isn't it. What you build a strategy according to the signals you get from the TA tools, and you decide what you are going to do (long or short) depending on what happens next, and you do it and then update the strategy.
reply
10 sats \ 1 reply \ @kr OP 1 Feb
a few more points that make me suspicious of the entire field of technical analysis…
  1. there are countless examples of incredibly wealthy long-term investors, vc investors, founders, etc… i’d struggle to name any incredibly wealthy technical analysts
  2. i haven’t ever come across tools to measure how effective technical analysts actually are with the predictions they make. do these tools exist?
reply
Hit up @checkmatey on twitter 🤙🏽
Glassnode onchain analyst
reply