Why doesn't traditional technical analysis work in the crypto market?

[bitekoin]

There are two main methods used to analyze potential investment choices in stock and to and make investment decisions: fundamental analysis and technical analysis. Technical analysis is favoured by many statisticians and financial gurus, mainly if you are looking at speculation. It seems from its various characteristics that TA could fare well in this crypto space, but how come a majority of models I have seen have been abysmal in detecting some trends in the cryptosphere?

I think two key considerations are:

• Trading volumes are often thin. This means that when a coin has a certain price, that price is not firmly established. So wild fluctuations are inevitable - particularly evident with smaller coins, where a big buy or sell can potentially wipe out the whole order book.
• Every coin relates to BTC (and/or ETH) as the other half of the trading pair. So it's not the same as traditional markets, where a product can lean on the stability of a fiat currency. So what this means is that BTC or ETH price moves can dramatically affect the price of smaller coins.

An example combining these two - Say a coin has a price of 0.1 BTC, with BTC at $6,000. But that price is based on a single order, the next sell is at 0.2 BTC, and the next buy is at 0.05 BTC. In this scenario, a single buy or sell can double or halve the coin price. But maybe the order book is so thin that there are no more orders fulfilled for another week, and during that time, BTC climbs to $9,000 - so this coin at 0.1 BTC has suddenly had a 50% price rise in fiat.

Makes sense, but then from this logic we should conclude that BTC trends should adhere to TA fundamentals, since BTC does not apply to the two considerations itself, right?

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[cuprice]

I think this crypto investments are not following any patterns and this makes those traditional methods as only a reference. Sometimes it works but not all the time.

[The_Dark_Knight]

There are two main methods used to analyze potential investment choices in stock and to and make investment decisions: fundamental analysis and technical analysis. Technical analysis is favoured by many statisticians and financial gurus, mainly if you are looking at speculation. It seems from its various characteristics that TA could fare well in this crypto space, but how come a majority of models I have seen have been abysmal in detecting some trends in the cryptosphere?

This is something that can be resolved by reading a decent book about trading, if you do that you will realize that the first thing you need to have in order for technical analysis to work is a market that is big enough and that has a big volume as well, and there are only a few coins that meet that criteria, all the rest of the coins do not fit that criteria and technical analysis should not be used.

[i7claufe]

It does work in the past for me specially when the market was stable, today it does not really work because the market is in a very bad state and we all know we are currently in a bear market. Also we can't short the cryptocurrency exchange market which is possible to do on the stock market and that's where we make money during bear markets on a stock exchange.

[randythered]

Traditional technical analysis does work in the crypto market but only as a signal and when used as guidance not a rule. This is the same in more traditional markets, anyone who follows TA at all times will get burned, intuition is always needed in the form of knowing when or when not to follow a buy/sell signal generated from TA.

[Gabb]

The efficiency of the predictions and signals provided by the technical analysis has remained in constant debate over the years, and most of the true experts in financial mathematics take for granted that this is a pseudo-science plagued with assumptions and myths that have made it very overvalued by those who do not want to take on the great uncertainty that reigns in the markets and seek some anchor to hold on to before the stormy swings of the market.

Therefore, it is true that Technical Analysis does not work in the Crypto market due to its remarkable differentiation with respect to institutional markets, however it has not even been possible to demonstrate that it works properly in any other market.

[randythered]

The efficiency of the predictions and signals provided by the technical analysis has remained in constant debate over the years, and most of the true experts in financial mathematics take for granted that this is a pseudo-science plagued with assumptions and myths that have made it very overvalued by those who do not want to take on the great uncertainty that reigns in the markets and seek some anchor to hold on to before the stormy swings of the market.

Therefore, it is true that Technical Analysis does not work in the Crypto market due to its remarkable differentiation with respect to institutional markets, however it has not even been possible to demonstrate that it works properly in any other market.

I highly disagree, if you read my above comment you'll see much of my reasoning but it is akin to receiving advice from a friend on a difficult situation. You still have to interpret that advice in your own way and make your own conclusions so that you can make the best decision, you do not just follow it word for word.