Technical Analysis Pros and ConsYou'll get this refrain a lot, people will say "TA is worthless" or "TA is garbage, magic beans tea leaf reading!". The folks who shout these claims never provide any statistical evidence for them mind you, they just like to shout at people because the internet makes us all terrible people.
But what exactly is technical analysis (TA) anyway? Investopedia is always a good place to start:
https://www.investopedia.com/terms/t/technicalanalysis.aspPut simply, it's a tool based off Dow Theory which has plenty of legitimate criticisms but strangely you'll rarely encounter an actual argument on say, Reddit.
So this post is my attempt to briefly highlight the basic advantages and disadvantages to TA. It's important to note that TA can't be your only tool for trading any given market--news cycles matter, fundamentals matter, and yes, trends matter. Don't ever rely on just a single tool to make an important financial decision.
AdvantagesTA serves two primary functions: it helps us identify and confirm trends, and it helps us make educated guesses as to good entry and exit positions of an asset.
If you buy into the efficient markets hypothesis (the idea is that the current price reflects all known information at that given point in time) then price movement can be expected to proceed in a logical manner--we call these "trends", if you can identify the trend then you can determine whether it will be beneficial to take a long or short position on a given asset.
If you *don't* buy into the efficient markets hypothesis, we can still acknowledge that many people do, and because many people do they employ tools that fit the EMH and Dow Theory models in their trades--this creates significant volume and significant liquidity and influences prices which then, as a result tends to conform to what TA indicates more often than not.
It may very well be that TA only functions as well as it does because there is a psychological bias towards it that may not be all that different from a mass hysteria, but whether EMH and Dow Theory is sound or if it's just a spook that fuels mass hysteria, either way we can use it to help us make money.
DisadvantagesTA cannot predict the future, it only helps us see probabilistic outcomes--it can be, and often is, wrong. Anyone who claims to know what price x will be at time y based on anything is a liar, they might be good guessers but if TA could predict the future we'd all be rich. TA also does not factor in news cycles or fundamentals (unless you think EMH is true) but that's not an assumption I would work off of.
ConclusionTA is a tool, I use it in conjunction with looking at the fundamentals of an asset and also factoring in what the news cycle is promoting at the time. If Coindesk publishes a story at 7am that China is going to ban all bitcoins you may want to take an uptrend that your TA suggests with a grain of salt. Be smart, don't risk money you can't lose, and don't rely on just one thing to make your decisions.
Source : Cryptoball - patreon post
