Topic: Technical Analysis - logical explanation - Poll - page 2. (Read 528 times)

How do you calculate emotions? I don't think emotion is even a factor to consider in technical analysis. I think you should have used the word pattern instead of emotion. To come up with a good technical analysis you need to use tools like RSI, MACD, Aroon Indicator and more. This tools uses statistics, trends, patterns based on the trading volume and also price movement.

If a trader Buys or Sell based on emotions then that is not technical analysis, they are trading based on chances and luck. Those who uses emotions in trading are more likely to lose money. Example is when a coin is being pumped, if you use your emotion, most likely you will Buy (FOMO), but if you use TA, like RSI or Bollinger Bands, you will have an idea where the price is trending, if its about to go down or up based on TA that uses statistics, trends and averaging.

Yes but what was changing price in 1900 when TA was developed? What was making this price and volume transformations to give data to made TA? What? magic wand?
TA is as you said "based on the numbers" but those numbers are made by price and volume change made by INVESTORS DECISIONS. To buy or not to buy. Price will not move if invesotor wont make decision. And his decision is alwais subjective.

If TA gives sell sygnal price is going down becouse analysis said so and magic wand make it happend or becouse someone made decision to sell? And what made him to do this decission in 1900 when there was no TA?

Investor caused by his emotions make transactions what change price and volumen what gives data to technical analysis. I didnt say that TA is based by someones relationship with his mum.

Chemistry describes love by enzyme flow (especialy testosterone dopamine oxytocin vasopressin). But its still chemistry not lovestry.

Really mate! Then we should call it "emotional analysis" and not technical analysis!

The definition says "Technical analysis employs models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, inter-market and intra-market price correlations, business cycles, stock market cycles or, classically, through recognition of chart patterns".

I don't see any emotional quotient is being used in this type of analysis. Technical analysis is purely based on the numbers and not by the emotions. That is the reason why TA doesn't really help understanding the crypto market which is driven by global emotion.

Introduction - nothing special :
The very first and most obvious statement is that price move up and down when investors are selling and buying. Change in demand and supply have influence on price what push it up or down. It don't magical moves. Every point on chart is point where 1 investor said "this is the lowest point - ill buy" and second investor "this is the highest point it won't go higher - ill sell".

Second obvious statement - to earn on trading other investor have to lose. That's why to earn on market you need to better than he is.

Third obvious statement - it TA works it shows you when money will be pumped by investors into asset. It definitely not work by magic.

Now jump to Technical Analysis:

How TA works then?

TA was made to calculate emotions of average investor (edit: TA was made to calculate next moves of average investor). I mean that we are not special. Most of the investors buy when price goes up and sell when it goes down (mostly). It was calculated into indicators to give you time advantage to show what will average investor do in next time frame to be before him. If you know that average investor who invest by his emotions will sell in next time frame all you need to do is sell before him.

For example, he will sell because price is going down - TA indicator will show it by crossing average.
For example some of the investors won't sell because price was that low few weeks ago and it bounce. But he will sell when price will be lower (break support)

TA gives huge advantage to be before average investor and earn money on their emotions by your calculated method.

Historic:

The principles of technical analysis are derived from hundreds of years of financial market data.[6] Some aspects of technical analysis began to appear in Amsterdam-based merchant Joseph de la Vega's accounts of the Dutch financial markets in the 17th century. In Asia, technical analysis is said to be a method developed by Homma Munehisa during the early 18th century which evolved into the use of candlestick techniques, and is today a technical analysis charting tool.[7][8] In the 1920s and 1930s Richard W. Schabacker published several books which continued the work of Charles Dow and William Peter Hamilton in their books Stock Market Theory and Practice and Technical Market Analysis. In 1948 Robert D. Edwards and John Magee published Technical Analysis of Stock Trends which is widely considered to be one of the seminal works of the discipline. It is exclusively concerned with trend analysis and chart patterns and remains in use to the present. Early technical analysis was almost exclusively the analysis of charts, because the processing power of computers was not available for the modern degree of statistical analysis. Charles Dow reportedly originated a form of point and figure chart analysis. Wikipedia - https://en.wikipedia.org/wiki/Technical_analysis

Back to Technical Analysis:
As you can see TA indicators was made in 17-18th century. Who was average investor then? Most of them was published to everyone in 1920. Average investor from 1920 didn't have computer and to make transaction he had to go to exchange next day and make offer personally.

Since TA indicators was developed word change dramatically. Average investor is completely different investor.

How does average investor look now compared to 1920 investor:

1- He has computer and can make decision/trade in few seconds than change his mind and make oposit trade. In 1920 you had to go to exchange personally or in 1970+ call your broker to make a transaction.
2- He has access to news few minutes after they appear - in 1920 you had to w8 for newspaper
3- HE IS USING TA because its common knowledge and first think you are facing with when you decide to trade is TA - in 1920 average investor didn't know what TA is
4- Average investor now probably is not a person any more. It is trading bot or IA bot
5- How many daytraders was in 1920 and how long they had to wait for their trade to be made?

6'- Cryptocurrency trader world is changed by arbitrage bots from various exchanges that is short term change charts dramatically (you have lots of buy offer where only few would buy because arbitrage bots are buying to sell on other exchanges).

Conclusion
From logical point of view TA indicators should not work any more. It was made in different world to know what will 1920 investor do in next time frame to do it before him. Now average investor use TA. You will not be better than him using TA too especially if average investor now could be trading bot that will always be faster and better than you. Because he is using the same indicators but he is always on market and makes decision in less than second.

In 21 century the only way to be better than other investors is to be a whale. Yes. He knows that average investor use TA or is a trading bot who use TA.

He knows that if price will bounce from support it will make TA lovers think that its "double bottom" and huge demand will appear. He can help price to bounce from support to dump price after on bigger demand (when whale wants to sell).

He knows that if price will break support it will make TA lovers think that its "price is going to next support" and huge supply will appear. He can help price to break support to buy after on bigger supply (when whale wants to buy).

In this point of view the only method to earn on trading when you are not a whale is to swim with whales. Looking for them on market. Trying to find them in the sea of charts.

I would love to discuss what you guys think about it. How TA worked and if TA works in 21 century. I'll set a poll for that too.