Is Technical Analysis Prophetic or Preposterous? We Asked 7 Crypto Traders

clicks | 6 months ago | Google AI sentiment 0.10 | comments: discuss | tags: bitcoin cryptocurrency

Article preview (bot search)

(Original link:

Is Technical Analysis Prophetic or Preposterous? We Asked 7 Crypto Traders Dec 2, 2019 at 09:00 UTC Updated Dec 2, 2019 at 08:35 UTC Brad Keoun Is Technical Analysis Prophetic or Preposterous? We Asked 7 Crypto Traders The death cross. Just say it out loud. It doesn't sound good. And it's not. In fact it's quite bad. For most of October, analysts in the bitcoin market were warning that the death cross was coming – using what's known in the trading business as technical analysis. Technical analysis, or TA for short, is the art of divining future price movements by studying charts detailing how various assets have traded in the past. Patterns are discovered. Those patterns are compared with patterns that occurred previously. The assumption is that the past patterns will hold in the future, providing price predictions and a good chance to profit. A death cross, in the practice of TA, occurs when the line tracking an asset’s price average over the prior 50 days falls below the line tracking its 200-day moving average. The appearance of a death cross is considered the start of a bearish trend: The last time it happened in the bitcoin market, in March 2008, prices tumbled by more than half over the next nine months. So, it was considered unusually bearish when this year’s death cross finally appeared on Oct. 25, or thereabouts. Bitcoin’s price closed at $8,662 that day, and over the next few weeks it would tumble more than $2,000. Some analysts say the price drop was caused by a crackdown on cryptocurrency speculation in China. But TA believers say the whole thing was apparent from the charts. “Once the death cross happens, we're in a situation where the moving averages are screaming bearish,” says Big Chonis, a pseudonymous 41-year-old Massachusetts man with 43,000 Twitter followers and a separate, subscription-based TA feed. He asked that his real name not be used, he said, to avoid diluting the power of the Big Chonis brand, but added in a phone interview that he typically nets $3,000 to $4,000 a week as a full-time trader, relying primarily on technical analysis. The concept that traders could reliably make money – or avoid losing it – from watching when a blue line might cross a yellow line seems like phony-baloney to many investors in traditional finance (not to mention to journalists and other observers of crypto trading). But in bitcoin markets, TA is ubiquitous. Binance, one of the world’s biggest crypto exchanges, said in a Nov. 22 research report that TA was the second-most commonly followed investment strategy in markets for digital assets, after high-frequency trading. Joe DiPasquale, CEO of BitBull Capital, argues that TA helps break through the hype that often drives crypto prices high or low. “The recent surge at the end of October, due to the Chinese media hype, is a good example of an unsustainable speculation-driven move that has now returned to our previously indicated support around $8,100,” he said. “Technical analysis is what led us to believe that the high reached after Chinese President Xi Jinping spoke was ephemeral and would retrace back to just above $8,000.” TA was originally developed for markets where trading has a long history and data is bountiful. For stocks, TA outperforms analysis based on business fundamentals, including factors like earnings growth, according to an extensive 2015 study by three Israeli researchers. The finding held for investment horizons of one to 12 months. True believers say TA is even more important in crypto markets since nobody can really yet confidently pinpoint the fundamental value of bitcoin, invented by a small cadre of libertarian computer coders just 11 years ago. Is it a store of value, an inflation hedge, a digital form of gold? The future of money? Or simply the rewards for the owners and operators of the computers that are helping to keep the world's biggest blockchain running? It might be all of the above. “Absent some real fundamental news, people rely on charts and price and volume,” said Greg Cipolaro, a former Citigroup stock researcher who now helps run the cryptocurrency-analysis firm Digital Asset Research. “It's always kind of been a dark art.” With little else to go on, traders put their faith in the charts. They say to themselves, and anyone else who will listen, that classical technical analysis would tell us right now that the price of bitcoin is about to break a lot lower -- like, in the next week or so, because this candle chart looks like this, and that candle chart looks like that; in other words, you should wait a little longer before you go back into your accumulation phase. Even Big Chonis acknowledges there are limits to TA’s usefulness, or at least its application. In his Twitter feed, he says, he tries to point out “notable things,” or patterns that he sees in the charts. But he acknowledges that he’s not quite as prolific with the price predictions: “You're right in saying that you're not seeing me say buy, buy, buy, s...