Technical Analysis TA – Does it actually work with Crypto ?

                                   

I ran a small share club many years ago.  We started dealing mainly with ‘penny shares’ because members didn't want to invest too much money at first.  It went well – I spent much of my spare time researching newly listed businesses, reading the financial times and of course trawling through the famous penny share guides.  

Basically, things were quite straightforward.  A newly listed ‘penny share’ would either go up in price, fail completely (or shockingly plummet down), or do nothing much at all.  Very often, we would attempt to buy off a newspaper tip, only to then miss out as the price had rocketed by the time we actually got round to instructing a broker to purchase the share on our behalf.

 Back then, we could only buy and sell shares when the markets were actually open for trading, they were also not open at all during the weekends.  We needed a dealing account setup through a broker who would of course take their cut.  Back then, we often had paper share certicficates to store as proof of ownership and much of the dealing took place over a telephone.

The share club wasn’t actively doing much, we were making small amounts of money but I wanted to take things up a notch, and buy into larger shares of well known companies.  Amstrad (anyone remember Amstrad?) was a favorite as was privatized companies like electric and water utility companies, banks and building societies. There were plenty of other options too and I started hearing about trading techniques like shorting and how to analyze trends.  

I studied charts and looked at indicators, started to learn the terms and follow the experts. Knowledge of fundamentals and technical analysis was a must.  You simply could not stand at a bar and have an intelligent conversation about stocks and shares without holding your own in the world of technical and fundamental analysis and all the associated buzz worlds.

Fast forward at least 20 years, and enter the world of crypto.  The decentralized digital money concept grabbed my attention, but not straight away.  

I happened to be surfing around on Youtube and spotted some sponsored ads. coming up on various (unrelated) videos that I had been watching. 

I became interested, and started watching ICO reviews mainly.  (I will carefully skip past the well publicized Ponzi, pyramids schemes that failed and that almost lost me all my life savings as that’s not what this article is about).

I invested into a couple of ICO’s.   This usually involved buying Ethereum or Bitcoin first to be able to then buy into the ICO’s token.  However, I kept some funds in ETH and BTC and noticed they were gaining in price and my small holdings were worth more.  I started looking at the the charts on exchanges where they were held. 

I saw the all familiar candles and played around with the trend lines.

It brought back memories but this was a lot more fun and I tried to see if I could work out where Bitcoin or any random Alt-coins for that matter, were heading.  I used the old saying ‘predict the future by looking at the past’.  I had a go at day trading again and failed miserably.  I persevered, but got absolutely nowhere.  It made me angry in fact and affected my whole mood.  I started subscribing to the Youtube crypto ‘legends’ and popular twitter guys.   Heck, I hung on to every word spoken by John Macafee and Charlie Lee.  Any mention of technical analysis and I was there taking it all in and making notes. 

“This bull run is going to see Bitcoin breaking the 50K barrier and all the alt-coins will follow suit!”,  People were confidently saying and they were proving it too.  And they were even suggesting they would eat their own body parts if they were wrong!  

But I followed their reasoning and went over their lengthly analysis, watching them trace out the trend lines and discuss the support and resistance level lines.  I already knew about volume and moving averages and was quite happy with the mention of Stochastic RSI, MAC-D and Bollinger Bands.  

After a few weeks though, I decided that I simply just couldn't cut it and that these experts were crypto geniuses and I needed to follow them.  

Mid to late 2017 was an exciting time and the term ‘all in’ could be heard everywhere. I listened to my favorite analyzers showing us inverted ‘heads and shoulders’ and good old ‘cups and handles’ and decided I would go along with their predictions.  

Shockingly, after pumping  money in, I discovered, that it didn't work out. But there were lots of reasons why of course.. ‘The hack’  the  ‘Unexpected dumping by Whales’, more ‘government regulations being imposed’,   ‘China bans Crypto’, and so on.

These unexpected dips seemed to come out of nowhere.   These experts were so unfortunate… their predictions were solid but the unexpected just kept happening.  But of course by the next video, they had moved on to the next set of subjects and talked about the speed of transactions and cost of mining, which did nothing to console my disappointment.  Right, here’s my first point:

Point 1

If you ask 1,000 people if they think it will snow on Christmas day in London 2020.  Some will be right some will be wrong.  Looking back at trends and doing weather analysis is great, but will it guarantee a successful prediction?

Back to crypto analysis.  Crypto is complicated in that there are so many factors that can alter the value of a crypto coin.  The governments, the whales dumping without warning, problems with exchanges, the company behind the coin itself, regulations, hacking and so on.  I guess this isnt that much different from the modern stock market but, technology has enabled hacks and computer problems to occur more often and at any time and of course the crypto markets are running 24/7.   There is aslo no easy way to prevent scams and decentralized exchanges manipulating their figures.                          

Point 2

Now this is going to be like comparing those people who stare into a crystal ball and predict the future.  

Let’s be honest, if anyone was that good at predicting the value of a crypto currency, would they actually be going to the trouble to script, record and present all that lengthly analysis to us in glorious 4K on YouTube? 

Youtube and other social media platforms will earn presenters money for their views and votes as well as advertising.  So as long as they can get the clicks they will earn money – they just have to be clever when it comes to ‘moving on’ when their prediction didn't come true.

Point 3 - The Macafee effect

In the advertising world, it is agreed that if a famous and trusted person endorces a product the sales will normally be boosted.  

This is why a lot of famous people supplement their income with advertising even after their height of fame has passed.  So when John Macafee or Charlie Lee talks about the future of a particular coin, people listen and many have acted upon thier words.  If a social media celebrity with say a million followers (who are following because they are already directly interested in the subject), carries out some convincing technical analysis of an alt-coin do you think it would make a difference to the value of the coin?  Of course it would, and they can then subsequently say “I told you so” and gain even more followers!

I have the feeling I’m sounding bitter and hateful and people will say it’s only because he made bad decisions and lost money.  But no, far from it in fact.  I'm still into crypto currency and decentralization.  I say, that blockchain technology is here to stay.   I haven't made my fortune and yes at time of writing my portfolio is showing a 40% loss.  But this is not due to anyone else's technical analysis.

There are some very clever people out there who are brilliant analyzers and I admire their knowledge.  Crypto, is like the UK weather, always changing, unpredictable and full of surprises.

I wrote this article because I’m seeing even more people talk about TA and how great it is.  They often spend 20 or more minutes making a video trying to convince me that they have this magic knowledge somehow and I should hit the like button and subscribe.      

Technical Analysis can be enjoyable and is great especially when looking back.  However, if I could predict as reliably and a well as people are making out that they can, I wouldn't be here writing this.

Treat the above as food for thought and discussion and by all means prove me wrong, I would love to hear your thoughts and will read all of them. 

Andrew Willis — Independent Researcher, Promoter and Adviser to ICO and Crypto-currency related Enterprise