Like many people, you heard your buddies describing the fantastic returns that some people are making trading cryptocurrencies, and since it seemed easy, you decided to cut yourself in on a slice of that pie. You listened to those same friends and bought Bitcoin and few altcoins, and at first, everything was rosy in your empire. Since then, though, your dreams of racing Italian sportscars across the lunar surface have lost their glow and begun to fade. The market took a bearish turn, your positions moved south, and the value of your portfolio shrunk to an alarming level. Now, you're concerned about wiping out your trading account before you find a way to stop the bleeding and turn your ship around.
You're No Quitter.
You're not ready to give up, so you make all the usual moves. Since it makes sense that learning more about crypto and the market will improve your trading, you start down the path of doing more research. You begin by bookmarking "crypto-news" outlets, carefully reading their stories while also studying social media websites. After only a few days, you're on a first-name basis with multiple YouTube crypto gurus who offer such a broad spectrum of trading "advice" and "insight" that you, very correctly, begin to suspect they know little more than you do.
With your brain reeling from trying to absorb all the information coming your way, you spend more time scouring Twitter and Reddit. As your crowdsourcing of crypto investment advice reaches a crescendo pitch, you read whitepaper after whitepaper of numerous altcoin projects, fruitlessly searching for the next "hot" coin to grab The Herd's attention.
In the midst of all this, you run across some information on a "system" that traders use to help them figure out what moves to make, something called Technical Analysis.
If This Sounds Like A New Language, You're Right.
You investigate further by looking at charts made up of "candlesticks" and reading about something else known as "indicators." You've seen similar charts, generally in TV ads for some investment firm, but you never looked closer to see how you would read them or if they made sense. You take a look around and find many sources for information on Technical Analysis, some of which promise to reveal its secrets to you, for a nominal fee, of course. Much like the You Tube crypto gurus, no two people can seem to agree on what sort of system you should learn to be able to make profitable trades. Now, you find you're even more confused regarding what to do next than when you began trying to figure your situation out.
If what you've read so far sounds like your story in whole or in part, you and I have some things in common. That's because this story is from my experience of how I began to see the need to study technical analysis to improve my trading. I've learned from conversations with other crypto-traders that this process is a common experience for many of us.
It Isn't Easy.
When you are new to crypto trading, it is both confusing and challenging to try to decide what you need to learn first and where you go to get the information you need to know. The student has all manner of instruction available to them through books, videos, podcasts, and online courses. Looking online, one will easily find a wide variety of "trading groups" which cover everything from nefarious Pump & Dumps & paid signal groups to legitimate groups that work to instruct and help their members learn the art of trading.
Here's the truth: there are so many resources available to utilize; it can be overwhelming to find the right ones, and it's easy to move in a direction that's not the best one for you. The task of sorting out what you need to know from what you don't may be so daunting that you give up entirely and look elsewhere for your trading guidance. You might decide that since you can't make heads or tails of the subject, you're going to give up trying to learn anything further and subscribe to that signal group that promises massive rewards.
Before you consider making such a move, allow me a few minutes to explain some of the reasons a novice trader should master at least the basics of technical analysis, along with some of the benefits of doing so.
Do What The Others Won't.
First, many people in the crypto trading space don't use technical analysis; learning to do so automatically helps you create an edge over other market participants. It's as simple as that. The market is a battlefield designed to take capital from the ignorant and inexperienced and present it to those who've taken the time and put forth the effort to learn and understand what they're doing. There is no point in sugar-coating the truth: trading is war, a form of martial arts for the mind. Every weapon one can add to their arsenal increases the chances of success. It is unnecessary to learn T/A at a rocket science level to improve your trading skills. The bottom line is this: knowing how to use only the basics gives one a substantial edge over others who do not.
To Thine Own Self, Be True.
Second, learning T/A will give one the confidence to make your own decisions about how you see things in the market. Underestimating the importance of self-confidence and self-reliance to a trader would represent a grave error in one's thinking. Looking to others for guidance and "tips" on which assets to buy and when to open positions is not a situation a trader wants; that is an attitude displayed by members of The Herd. Crowdsourcing trading information through social media is a recipe for losses. When it comes to the so-called "pump & dump and signal groups," the word is out, and the word is: "caveat emptor." Almost always, the largest chunk of cheese goes to the rats that organized the scam to start with, with a group of unsuspecting "traders" left holding the bag. While pump & dumps or similar scams may not be strictly illegal in the Wild West that is the crypto-trading landscape, the morality of doing so is unambiguously murky, and participating in one should be viewed with a jaundiced eye.
Cut Your Losers Loose Early & Let Your Winners Run.
Third, developing one's trading skills helps prevent you from entering into trades that lack good opportunities for profits. Shortly after I first got a handle on T/A, I could not find set-ups that looked worthy of putting some capital into, which was concerning to me. After all, I had worked hard to get my new-found skills and wanted the chance to put them to the test. After several days of fruitlessly studying charts, the truth of the situation began to dawn on me. I was using my new skills; they allowed me to stay out of trades with a low probability of success, representing a considerable value to a trader. At that point, the market was in an overall downtrend, and opening long positions were swimming against the tide. Along the same lines: knowing T/A gives one the ability to assess others' charting work and draw your own conclusions on its validity. I often use set-ups from trusted sources to save time, but I always re-draw their work myself and make up my own mind about what I'm seeing before moving forward. Knowing how to accurately assess the market or an individual asset is another example of the value that thinking for oneself brings to a trading operation.
What Is This T/A Stuff Anyway?
Technical Analysis focuses on patterns of price movements, trading signals, and charting tools to judge an asset's strength or weakness and potential for profit. The charts we look at and work with are graphic representations of an assets' price action within a given time frame. Traders look to find trends and patterns that will signal the price is more likely to go one way over another and then seek to capitalize on that information.
The basics of what we now think of as Technical Analysis dates back to Charles Dow. Along with many others, Dow helped revolutionize thinking regarding stocks' price action beginning in the late 1800s. There is, however, much more to the story than just that.
What Are Candlesticks and Why Are They Important?
Candlestick charts originated in the Japanese rice markets in the 1700s, when traders discovered that, along with a powerful connection between the supply and demand of rice and its price, traders' emotions also influenced the market. In the latter part of the last century, Steve Nison, through his book, Japanese Candlestick Charting Techniques, is credited with introducing Western traders to their use. They are not the only ways that people track price action: traders also use bar and point and figure charts in various markets, but for our purposes here today, we're discussing candlesticks.
If You're Looking For A Crystal Ball, No Such Thing Exists.
Here is the first and often, the biggest obstacle that people choose to focus on when considering the need to study technical analysis: the very best, most accurate, and well thought out T/A cannot predict the future with 100% certainty. While we're on the subject of prognostication: no trading system and no trader can do so either. Consider what such an endeavor would involve. Millions of participants make up the crypto-market, each with their skill levels, motivations, and goals. It's unreasonable to think that someone could devise a system that will accurately predict the end sum of how all these players will interact with one another and do so flawlessly every time. Developing such a system would be the Holy Grail of trading, but clearly, it's beyond our reach to grasp.
Here, it is reasonable to ask: " Since technical analysis doesn't predict the future accurately 100% of the time, why learn and practice it?
I answer because it's the closest thing to scientific analysis that traders have in their toolbox. Just because it isn't perfect doesn't mean it isn't useful. By studying price action, volume, and candlestick patterns, support, resistance, and trendlines, by applying indicators and examining previous price history, it is possible to conclude where the price of a given asset may go and to respond in a way that has a strong likelihood of earning a profit. The goal is not to have winning trades every time one opens a position but to create an edge in the market while managing risk so that the trader succeeds just like a properly run casino does: over the long-haul. The best traders never sweat any one position they've opened; they don't need to. They've already managed their risk in such a way that even if the trade goes south, their loss is minimal, and they move forward to the next opportunity.
It's All About Leveling The Playing Field
As a retail trader new to this space, it's easy to underestimate what you will be up against and how hard you will have to work to overcome it. Whales, bots, flash crashes, stop-hunting, all these and more represent threats, and one can easily find themselves at a disadvantage because of their impact in the Wild West of the crypto-market.
Consider this: you can be sure that the people with the money to hire professional technical analysts do precisely that. If they're finding that level of value in it, it's probably a good idea for you to learn more about it. Developing your T/A chops helps you keep the edge you're working to create over other market participants. Since so many other retail crypto traders don't use technical analysis at all, if you only get the basics down, you're light years ahead of The Herd, and that's right where you want to be. T/A gives one the chance to grab the bull by the horns and make your own decisions about where the market is going so that you can turn a profit from it.
Studying technical analysis is a vital part of any student's education as they seek to learn the skills needed to make money trading in the crypto market. Work and effort are required to begin to unravel the complexities of T/A, and doing so could take you a lifetime to master. If you're still wondering whether or not studying technical analysis is worth your time and effort, here is one last thing to consider: once you have worked and developed your T/A skills, they are yours for life. You can put them to work for your benefit in any market, and no one can take them away from you. The investment you're making in yourself by learning those skills will pay high returns throughout your trading career.
As I continue producing these articles, I hope you will come back for more. Up next: Part 7: Survival Of The Fittest
