Is Technical Analysis Needed in the CryptoMarket?

I get questions whether I really deny technical analysis and do not use it in trading? When we were below 9500, I was writing about the imminent return to an upward trend. Someone indignantly asked me a question whether I did not really see three black crows on the chart, which made me quite happy :).

Therefore, I post my thoughts about technical analysis in the CryptoMarket.

The basic principles of technical analysis are as follows:

  • all factors affecting the price have already been plotted in the chart;
  • price always moves in trends
  • the history repeats itself.

To a certain extent, it does work in classic financial markets. You can create a successful trading system based on TA. And with proper risk management you will have enough not only for bread, but for butter as well. Usually, it is precisely TA that serves as the basis for successful models of high-frequency algorithmic trading.

From my own experience only the levels of support and resistance, as the places where the stops accumulate, are important in the CryptoMarket.

Everything else works either on history only (a TA specialist will very convincingly tell you why a coin increased or fell over the past two months), or when TA expectations are reinforced by the actions of major players or the news background.

That is, TA tools in this case serve as a justification of what has already happened.

In order to understand why, we’ll analyse the applicability of TA rules to the CryptoMarket.

All factors affecting the price have already been plotted in the chart.

If Amazon announces opening sales for cryptocurrency, or that China decides to criminalize ownership of cryptocurrency — has this been considered in the chart? Obviously, not. Hence, the first news is capable of dramatically expanding even a falling market, while the second one to collapse a growing market.

Let’s take, for instance, the FOREX market with a trading volume of several trillion a day. The influence of the news on the market is smoother. TA can be completely broken only by something extraordinary, like the earthquake in Japan in 2011 (I was engaged in active trading and remember the market reaction).

In the CryptoMarket, where tens of millions can move the chart in any direction, the important news supported by the volume of whales will break any TA.

Price always moves in the trends.

That’s right, it moves. As long as this coincides with the interests and position of major players at a given time. But if the position involves growth, no heads and shoulders or the crows mentioned above will cancel it.

The difference from the classical markets is the same — small volumes and few large players. These factors make the market capable of changing a trend at any time and in any direction. Therefore, trend channels and trend lines do not give an understanding of where the price will go next. It often leads those who focus on them to unexpected and unpleasant results.

History repeats itself.

This idea is that participants react approximately equally to certain events within the same market. For classic markets, in general, it is fair. Thus, the FOREX of year 2000 does not differ much from the FOREX of 2019. But is it possible to compare the CryptoMarket of 2010–2012 and 2019? Even the 2015–2016 comparison will be incorrect.

The grown capitalization by times, the interest of institutionalists, the position of regulators, the completely different meaning of altcoins, the increased number of participants, the influence of FUD and FOMO on the masses, information manipulation. All these reasons make the 2019 market unique, unexampled, and therefore this principle does not work either.

There is no history — there is nothing to be repeated. I think that when institutionalists enter the market and the market capitalization exceeds at least 10 trillion, the value of TA will increase significantly. But for now, when making trading decisions the identification of stop zones and the mood of the crowd play for me a rather auxiliary function.

And now — the good news.

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