If you have come to this place looking for a detailed explanation of how to do technical analysis on a chart, you have come to the wrong place! This page contains my "insights" and experience into technical analysis in the crypto space. Do I, like with many other things, think technical analysis is a scam? I actually don't. After all, technical analysis in market charts started as early as the 17th century, as soon as market data was being collated, and it has a rich history. And studying the patterns and understanding them can be enlightening. However it is good to be aware of the pitfalls as well. In my view, technical analysis hinges on two principle ideas:

1. The idea that the price in the market reflects everything that is happening in the world that affects that price

2. The idea that patterns recur, given the same set of price movements, the market will move again in the same direction that it moved previously

Now, no one claims that the markets follow these two laws to the letter all the time. In fact even if it was 70% successful, there is ample opportunity for the average investor to win big. And people have employed these strategies in the past to make large amounts of money and there is still a good use case for thorough technical analyses. However the following points need to be considered (and considered heavily) at that.

In the past, people carried out technical analysis using computers and software. However, now AI is being used (and sometimes self learning AI). AI is much better and faster at recognising patterns. So much so that now (actually I felt the same way even before AI) I feel that day trading on the shorter time frame charts (say less than half hour) based only on your intuition and looking at charts for patterns is almost always a recipe for disaster. 

While this may have worked in the forex or traditional share markets, crypto brings it's own peculiarities to the table. Cryptocurrencies are notoriously volatile, with prices often experiencing frequent sharp and unexpected changes. Compared to traditional financial markets, cryptocurrencies have a relatively short history. The crypto market is susceptible to manipulation by large players (whales) and coordinated groups that can drive prices up or down by acting together. Many new coins have low trading volumes and liquidity. All these lead to a lessening of individual technical analyses.

Moreover, common patterns in regular markets, such as head and shoulders, flags, and double tops/bottoms can, in the crypto market,  often result in false signals due to the  volatility and manipulation mentioned above.

Then there are the maladies that plague the any technical analyses and I've seen this time and again with friends, students and even myself. 

The first of these is tending to see patterns that are not there. This is common when people learn a new pattern and it seems to appear everywhere on every chart. It is a form of confirmation bias. It is hard to avoid, specially if you only know a few patterns to start with and don't take into consideration multiple indicators.

Being aware of this (non-exhaustive) list of pitfalls is a good starting point for embarking on technical analysis. However the most important item, in my experience, is to do your fundamental analysis first, and then go on to technical analysis.

Crypto prices depend on the fundamentals of the asset and this can't be overlooked. Regulatory news, technological advancements, market adoption, macroeconomic trends etc. all have significant impact on crypto prices. Investor sentiment at news, and sudden shifts of that sentiment may be very peculiar to the crypto market. Social media and influencers can cause havoc on the markets.

Technical analyses have to be combined with fundamental analyses, sentiment analyses and we must be adaptable to actual price changes. Using a diversified range of strategies, tailormade to our own personality, and qualities like preparedness to take risk, beliefs etc. seems to be the best approach.

Summary of Lessons I am trying to document here:

• Technical analysis is based on two fundamental concepts that don't always hold true.
• Can't beat AI for pattern recognition or speed in shorter time frames. Either adopt AI or play the longer game.
• Understanding the fundamentals of any asset you invest in is vital.
• For every buyer there is an opposite seller armed with the same set of data!

My articles in this series:

How to make money with Crypto by Rumjus - Part 1 Follow the experts - don't

How to make money with Crypto by Rumjus - Part 2 When to Buy Crypto / When to sell

How to make money with Crypto by Rumjus - Part 3 Technical Analysis

Disclaimer: This article is for informational purposes only. It is based on my personal (and anecdotal) experience. None of the content is financial advice. Users are strongly advised to conduct their research, exercise judgment, and be aware of the inherent risks with crypto currency investments. I am not liable for any financial losses. Cryptocurrency  markets are highly volatile and the possibility of investments tanking is higher than traditional investment instruments.