No, Technical Analysis is Not a "Quantum Event" - Part 2

Fear, greed, and insanity can all be found in this newest installment to our ongoing multi-part exploration as to why every single thing our resident "Elliott Wave Fanatic" bases his work upon is not even wrong, but rather, mere meaningless nonsense.

As in the previous installment, the original author’s ideas are quoted and bolded, following the abbreviation “TA” for “Technical Analyst” since he styles himself as such and I’m all about respecting people’s self-identification.

My well-meaning and rant-heavy critiques will appear underneath in plain text.

Let’s dive into this sludge-filled analytical cenote and peruse the gunk!

TA: “This sentiment is an aspect of duality composed of Fear & Greed. These are opposites of each other and alone can not be in this world.”

ILTY: Anybody have a creative-commons picture of that “Wait, Wut?” pear?

In our last installment, you informed us that prices are a reflection of sentiment. We explained why that wasn’t anything other than a small part of a larger conceptual whole that does nothing to help us actually understand how various economic pricing mechanisms and concepts work in the real world.

Put differently, we showed that the very first building block at the foundation of your whole system is wrong, and that this essentially puts you down the wrong path right from the get-go.

Unfortunately, in the very next sentence about fear and greed, you go so far down the wrong path, that you’re not even on the path anymore. It’s like you tripped and stumbled down a steep cliff, whacking trees along the way, and at some point mid-tumble decided that each leafy bonk to the head is actually an important insight into the very nature of existence itself.

Guy, you’re not having insights. That’s a concussion. You should get that checked out. I’m worried about you.

But purely for the sake of argument and further exploration let’s roll with the idea that “price is a reflection of sentiment.”

I’m happy to point out the positives of what you’re saying, before we get into all the confusing vagaries.

You write that sentiment is "an" aspect of duality composed of Fear & Greed. I emphasized the "an" for the simple reason that this makes your statement “not false,” in the sense that, yeah, in a very unspecific general way Fear & Greed, understood as a duality (in whatever way you’re defining that) can be considered to have various “aspects” and “sentiment” can be conceptualized as one of them.

You see, it’s not that you’re wrong with this statement. I’m finding that you’re usually not just straight-up wrong. You don’t say things that are one-hundred percent provably false.

I have a feeling it’s because you’re actually a pretty intelligent guy and understand that making provably false statements can easily be disproven and undercut your entire raison-d’etre here on Steemit.

But even though your statement isn’t wrong, that doesn’t imply that it’s meaningful in anyway--for your purposes or otherwise.

Because, sure, we absolutely can conceptualize “Fear” and “Greed” together as some kind of duality. We just don’t need to conceptualize Fear and Greed this way.

We can just as logically conceptualize “Fear” and “Greed” as part of a “Sentimental Trinity” along with, say, “Hope.”

Even though I could have just picked some other “sentiment” or “emotion” at random, I went with “Hope” here because it’s actually a psychological factor that economists working within the field of Behavioral Economics have begun utilizing in their analyses of human interactions in the marketplace and market behaviors. ¹

In this case, we have a Trinity--a concept that holds a lot of emotional connection for a lot of people, at least as much as the concept of a Duality--of Sentiments which interact in various ways within the individual and collective minds of Investors in the marketplace.

Fear can drive prices down.

Greed can drive prices up.

Hope can act as a “supercharge” to Greed, driving prices higher, faster.

Hope can act as a “inhibitor” to Fear, slowing downtrends with the sentiment that perhaps prices will recover.

These three sentiments can be understood to act in this way. It’s sensible. It has a nice, internal consistency. It’s not such a bad way to frame the world and how it works.

But there is absolutely nothing that requires this kind of conceptualization.

Because you could also model human behavior in the marketplace in all types of other ways that make just as much logical, rational, and intuitive sense.

You could keep using the Trinity of Fear, Greed, and Hope, but add in the idea that if a significant amount of investors hold a short position in a particular asset, for example, then Fear can drive prices up (short-squeezes), Greed can drive prices down (more people entering short positions), and Hope can do all types of wacky things. ²

You could also chunk the whole Trinity of Fear, Greed, and Hope altogether, and work within the parameters of a new Duality--something simple, like, say, “Optimism & Pessimism.”

The following would be a rephrasing of your theory of the basic tenet of Technical Analysis, modified to fit this new “Optimism Pessimism” duality:

“The basic tenet of Technical Analysis is that sentiment drives all price actions. Simply put, price is a reflection of sentiment. This sentiment is an aspect of duality composed of [Optimism and Pessimism]. These are opposites of each other and each alone can not be in this world.”

See how well that works? Notice how it actually works even better than the “Greed & Fear” Duality.

Because “Greed” and “Fear” are not typically understood--outside of the Technical Analysis crowd--as being “opposites of each other.”

Classical Greek Virtue Ethics and the Catholic Ethics evolving from it, understood the opposite of Greed to be Charity (understood in the broad-sense of benevolent and generous self-sacrifice for the well-being of others).

Lots of modern behavioral psychologists who study and analyze human emotions consider the opposite of Fear to be something like “Trust” or “Courage.”

Greed and Fear are oftentimes not even opposites. Fear can cause Greed. ³

Think about it. Someone puts $10.00 into a cryptocurrency in September. Today, that has turned into $1,000.00. They were originally planning on taking whatever money they earned from this and donating at least 50% of it to charity. But once the money is real

(Brief interlude to shill for one of my favorite non-profits, Direct Relief, which has 99.4% (!) of all its expenses going towards its humanitarian aid efforts and programs directly helping the most vulnerable people in society. Make “Charitable” a word that describes you, today!)

Now, though, the money is a reality, and that person starts thinking about all of the bills they can pay with that money. The bills were still there--a worrisome situation--before the cryptocurrency increase. But now that the money is actually real, the person starts worrying about those bills. “I should really keep the money to pay all those bills. What if I give half of it away and then I don’t have enough to pay next month’s bills. That makes me worry. I’m just going to keep all of it...I earned it anyway.” So the person cashes out their cryptocurrency position, converts it into fiat, and pays the bills.

All of this because the person first experienced Fear. That Fear let to Greed. And ultimately, that Greed let to almost $500.00 less going to a charitable causes than it would have if the person had not experienced that Fear.

Put differently, Fear and Greed can be a duality but they can be all types of other things too. And Fear and Greed can be understood as opposites of each other (although that runs against classical and modern theories of virtue ethics and psychology), but they can work in tandem (or, they can act in unrelated ways, not-dependent on one another at all).

So why not conceptualize a Duality of Optimism and Pessimism? That way, you can talk about bull markets reflecting an “optimistic sentiment” and bear markets reflecting a “pessimistic sentiment?”

The answer is that there is no answer.

There is no reason to focus on “Fear & Greed” rather than “Optimism and Pessimism” or “Fear, Greed, & Hope” or a “Sentimental Sextuplet of Anger, Disgust, Fear, Happiness, Sadness, and Surprise,” and so on and so forth, ad finitum…

It’s just one, not particularly useful, way to model human behavior

So, again, we see that our Technical Analyst is not wrong in the same sense as saying “sentiment is an aspect of a Trinity composed of “Positivity & Negativity.”

Sure. Ok. So what?

Because if you’re saying that this is just one way to model the world--a model that necessarily requires awkwardly shoving a number of concepts to fit within the “Fear & Greed” concepts to which you’re limiting yourself--then ok, that’s great. This doesn’t necessarily imply anything further about the world and how or why it works. It’s just a way of talking about the world. Cool. Pointless, but cool.

But if you’re implying (as I think you are) that this is THE way to model the world;

That this “is THE way the world works and must necessarily be described”;

That this is the only and best descriptive “Truth” and “Fact” of the world and human behavior;

Then, no.

You’re wrong.

It’s not.

You can’t prove that it is, anymore than I can prove that the sentiment reflected in prices is an aspect of the Duality composed of Positivity & Negativity.

Because you’re just using vaguely defined words, broad, ambiguous concepts, and small parts of much, much larger ideas, shoving them all together, and asserting that this is the way the world works.

And once you’ve made that unjustified assertion, you move on to your next assertion after that, build upon the unjustified assertion previously expressed. And on and on and on...until you’ve built up a completely dubious, improper connection between things like “the Duality of Fear and Greed” and “the little triangles on my chart tell me that the price is maybe, sort of, kind of likely to do “this thing” unless it does “this other opposite thing.”

It would be fine if you were presenting all of this as just an idea.

But your legal disclaimer is not moral absolution, and it doesn’t change the fact that your clear intention is to make calls that people will accept and follow.

You say that you are not giving investment advice.

You say a lot of stuff.

If you were really doing this for entertainment purposes, though, you could just as easily make these calls about other human interactions that can be charted, but which can’t so easily be utilized as investment advice by people less educated than you.

You could set up your ideas in a way where you could still profit from them, while also lowering the risk that people are going to follow your calls without knowing that your analytical system is built on a foundation of pseudoscience and meaningless piffle.

You could avoid making a particular call on a particular currency, and then making statements to the effect that you wish people much wealth and success.

Come on, guy.

We’re supposed to believe that you’re wishing people much wealth and success generally, with absolutely no implication involved that you are wishing them much wealth and success based on the calls and predictions about the prices of investment vehicles that you just made?

Not a single person who has even a basic economic, philosophic, scientific, or psychological education could read your essay and conclude that your analysis is based on substantial and legitimate ideas formulated with intellectual rigor.

You’ve got to be aware of all this right?

….more to come

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Link to Part 1

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Footnotes

1. If anyone is interested, here is a link to one representative peer-reviewed example of the type of work being done in this area, by Economics Professors Travis Lybbert and Bruce Wydick: Poverty, Aspirations, and the Economics of Hope accepted for publication in the University of Chicago journal of Economic Development and Cultural Change. For whatever it’s worth, I wouldn’t call myself a neoclassical economist, and I’m not married to the theories of Behavioral Economics...but you don’t have to be those things to get a lot of important and useful knowledge out of this paper and others like it).

2. Just as one relatively simple example of the innumerable series of events that “Hope” can be understood to trigger: Hope by investors with short positions in alternative asset classes that traditional asset class investors will have increased Fear, causing a sell-off in the traditional asset class, and a subsequent increase in Greed by investors short on the traditional asset classes, crashing the traditional asset class’s price, and causing Fear in the investors short on the alternative asset classes, itself resulting in a short-squeeze in the alternative asset class and a rise in their prices).

3. And Greed can cause Fear. A five year old can figure out all the ways Fear and Greed interact which don't fit into a paradigm explaining Fear and Greed as "opposites of each other."