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!