Don't Get Caught Up In The T/A (Technical Analysis) SCAM!
T/A (Technical Analysis) AND THE AVERAGE INVESTOR
I don’t like market technicians and traders and here's why. Whether you realize it or not, traders attempt to make a living by taking advantage of the average public investor. They try because they know that the majority of “public traders” are inexperienced.
I’ve had many arguments over the past years with day/ position traders as well as T/A experts. My position has always been that T/A is nothing more than a tool to justify trades while allowing the trader to feel more secure in his or her position. I would challenge that over time, one could flip a coin and find similar success.
SO, WHAT EXACTLY IS T/A?
Most T/A is based on the flow of things such as money, volume, sentiment, which at the end of the day is a measure of actions people take in the market. One problem with this is, such actions are always wrong. That’s because the market is always wrong. It's in a perpetual state of correcting itself and therefore eternally in a state of flux.
T/A is inherently flawed because past or current price can never be used as an accurate indicator.
In order to understand this, you first have to understand what “price” actually is. Price is an independent variable. Viz., T/A says, P = f(P,x,y,...). I'm saying F = f(x,y,p,...) where p is a scale parameter. F is the indicator and p is an independent variable. Thus these technicians attempt to predict future price can be seen as both asinine and mathematically nonsensical.
Such elementary views guarantee certain failure because it invites the erroneous conclusion that observing price enables accurate prediction of future price.
IS ALL OF IT A WASTE OF TIME?
This is not to say all parts of T/A are useless. There are certain support levels which can become psychological barriers and work to affect price. Even at that, since unforeseen circumstance can occur at any moment, these levels are nothing more than educated guesses and cannot be counted on as solid trading information.
WHAT ABOUT OTHER FORMS OF T/A?
Other forms of T/A such as sentiment indicators are equally as flawed. The danger here is that sentiment follows price and price never follow sentiment. Since this is the case, really of what good is it? You need something that changes decisively before price changes meaningfully. That's definitely not sentiment. Sentiment always follows. The essence of the matter which is the case for all T/A is there's no more information in price, than price. So how can you expect that T/A will tell you more than price does? Yet, you need something that does exactly that.
IF IT DOESN’T WORK THEN WHY DO PEOPLE USE IT?
Most people using T/A are hoping to make money during wild swings in the market. What you see in these swings is the mass of traders all trying to fleece the "public", but since the public isn't really buying into these markets right now, the traders are merely fleecing each other.
Traders use T/A because it makes them feel justified. They need external assurance that their trades will be successful. To feel like they've figured out mathematically how to win and how to beat the system. It gives them confidence that they can know where the market is headed and where a price will go next. No one wants to go to college for 4 years only to come out feeling like they've learned nothing.
Many times traders will get into what is called in physics the “theory of runs”. This means that a trader, based on his or her T/A, will be posting winning trades, sometimes for hours, days or even months at a time. Seemingly like they are making oodles of money! This does nothing more than fool them into thinking they can beat the market, that is until the “run” ends. Typically, when these runs end, they are equally as bad in the opposite direction causing the trader to lose all or most of their past gains. That's why the statistic prove that 99% of all traders go broke within the first 1-2 years.
WHAT SHOULD I DO THEN?
Don’t fall into this trap! While all of these pseudo hotshots are playing the market based on nonsense like sentiment, T/A, chart reading, and gut feeling, they are going to miss out on a great bull market by never holding. Don't play that game. What game? The same game all the traders play where they assume the "public", is stupid.
Buy into great projects and hodl those coins for the long run. Take the time you would have invested into reading charts or jumping in and out of trades, to go do something more constructive with your life. Not only will you be less stressed but you will have a lot more money to show for it in the long run.