Like a lot of people, you heard about the fantastic returns that some people are making by investing in cryptocurrencies, and you wanted a slice of that pie. You listened to some friends and bought some Bitcoin and few altcoins, and everything was rosy. Since then, though, your dreams of racing Italian sportscars across the lunar surface have lost their glow. The market took a bearish turn, the value of your portfolio has shrunk down to an alarming level, and now you're concerned about where to go from here.
You're not ready to give up, so you make the usual moves. You start by reading "news" articles and looking at websites. After only a few days, you're on a first-name basis with multiple You Tube crypto gurus who offer such a broad spectrum of trading "advice" and "insight" you suspect they know little more than you do.
With your brain reeling from trying to absorb it all, you scour Twitter and Reddit as your crowdsourcing of crypto investment advice reaches a crescendo pitch.
In the midst of all this, you run across some information on something that people use to help them figure out what moves to make, something called Technical Analysis.
You look at charts made up of something called "candlesticks" and read about something else known as "indicators." You've seen similar charts, generally in a TV ad for some investment firm but you never looked closer to see if you could read them or if they made any sense. You take a look around and, there are many sources for information on Technical Analysis, some of which promise to reveal it's secrets to you, for a nominal fee, of course. Much like the You Tube crypto gurus, no two people can seem to agree on what sort of system you should learn to be able to make profitable trades. You find you're even more confused now regarding what to do next than when you began trying to figure your situation out.
It Isn't Easy.
If what you've read so far sounds like your story in whole or in part, we have some things in common, because it's my story and it's how I began to see the need to study technical analysis to improve my trading. I know from conversations I've had with other crypto-traders that the process, as I outlined it, is a pervasive experience for many of us.
When you are new to crypto trading, it is both confusing and challenging to try to decide what one needs to learn first and where you go to get what you need to know. The truth is: there are so many resources to utilize; it can be overwhelming to find the right ones, and it's easy to move in a direction that's not the best one for you. The task may be so daunting that you give up entirely and look elsewhere for your trading guidance.
Despite all that, there are several sound reasons why you should learn at least the very basics of technical analysis, some that are external and others internal.
First, most other people in the crypto trading space don't use technical analysis, which automatically helps you create an edge over them in the market. It's as simple as that. The market is a battlefield designed to take capital from the ignorant and inexperienced members and present it to those who've taken the time and put forth the effort to learn and understand what they're doing. There is no point in sugar-coating the truth: trading is being at war with everyone else in the market. Every possible weapon one can add to their arsenal increases the chances of success. You do not need to learn T/A at a rocket science level for it to improve both your trading skills and bottom line; knowing how to use only the basics gives you a substantial edge of others who do not.
Second: Learning T/A will give you the confidence that comes from making your own decisions about how you see things. If you underestimate the importance of self-confidence and reliance to a trader, your thinking is in error. Looking to others for guidance and "tips" on which cryptos to buy and when is not a situation a trader wants, that is an attitude shown by members of The Herd. Crowdsourcing trading information through social media is a recipe for losses. When it comes to the so-called "pump & dump and signal groups," the word is out, and the word is: "caveat emptor." Almost always, the largest chunk of cheese goes to the rats that organized the scam to start with, with a group of unsuspecting "traders" left holding the bag. While participating in a pump & dump or similar scam may not be illegal in the Wild West that is the crypto trading landscape, the morality of doing so is unambiguously murky and something I view with a jaundiced eye.
What Is This T/A Stuff Anyway and, Where Does It Come From?
Technical Analysis focuses on patterns of price movements, trading signals, and charting tools to judge the strength or weakness of an asset. The charts we look at and work with are graphic representations of an assets' price action within a given time frame. Traders look to find trends and patterns that will signal the price is more likely to go one way over another and then seek to capitalize on that information.
The basics of what we now think of as Technical Analysis dates back to Charles Dow, who, along with many others, revolutionized thinking regarding the price action of stocks beginning in the late 1800s. There is, however, a lot more to the story than just that.
What Are Candlesticks and Why Are They Important?
Candlestick charts originated in the Japanese rice markets in the 1700s, when traders discovered that, along with a powerful connection between the supply and demand of rice and its price, the emotions displayed by traders also influenced the market. In the latter part of the last century, Steve Nison, through his book, Japanese Candlestick Charting Techniques, is credited with introducing Western traders to their use. They are not the only ways that people track price action: traders also use bar and point and figure charts in various markets, but for our purposes here today, we're discussing candlesticks. In my opinion, it's the best place to begin.
Here's The Bad News: If You're Looking For A Crystal Ball On The Crypto Market, No Such Thing Exists.
Here is the first and often, the biggest obstacle that people choose to focus on when considering the need to study technical analysis: the very best, most accurate, and well thought T/A cannot predict the future with 100% certainty. While we're on that subject: nothing and no one else can either. Consider what such an endeavor involves. Millions of participants make up the crypto market, each with their skill levels, motivations, and goals. It's unreasonable to think that someone could devise a system that will accurately predict the end sum of how all these players will interact and do so flawlessly every time. It may be the Holy Grail of trading, but it's beyond our reach to grasp.
So, if T/A doesn't predict the future, why learn and practice it?
My answer: because it's the closest thing to scientific analysis that traders have in their toolbox. Just because it isn't perfect, that doesn't mean it isn't useful. By studying price action, volume, and candlestick patterns, support, resistance, and trendlines, by applying indicators and examining previous price history, it is possible to conclude where the price of a given asset may go and to respond in a way that has a strong likelihood of earning a profit. As enjoyable as it would be, the goal is not to have winning trades every time one opens a position, but to create an edge in the market while managing risk in such a way, that the trader succeeds just like a properly run casino does. The best traders never sweat any one position they've opened; they don't need to. They've already managed their risk in such a way that even if the trade goes south, their loss is minimal, and they move forward to the next opportunity.
It's All About Leveling The Playing Field
As a retail trader, new to this space, it's easy to underestimate what you will be up against and how hard you will have to work to overcome it. Whales, bots, flash crashes, stop-hunting, all these and more present threats, and one can easily find themselves at a disadvantage because of them.
T/A gives you the chance to grab the bull by the horns and make your own decisions about where the market is going so that you can turn a profit from it. Further: you can be sure that the people with the money to hire professional technical analysts do precisely that. If they're finding that level of value in it, it's probably a good idea for you to learn more about it. Developing your T/A chops helps you to keep the edge you're working to create over other market participants. Since so many other retail crypto traders don't use technical analysis at all, if you only get the basics down, you're light years ahead of them, right where you want to be.
I've put forth the reasons why I think that studying technical analysis is a vital part of anyone's education when they seek to make money trading in the crypto market. It takes work and effort to begin to unravel the complexities of technical analysis, and it could take you a lifetime to master. If you're still wondering whether or not studying technical analysis is worth the time and effort, there is one last thing to consider: once you have worked and developed your trading skills, they are yours for life. You can put them to work for your benefit in any market, and no one can take them away from you. The investment you're making in yourself by learning those skills will pay high returns throughout the rest of your career.