Technicals Don’t Matter in Crytpocurrencies?

I've seen numerous comments in trading chatrooms, Twitter and elsewhere with regards the irrelevance of cryptocurrency technical analysis. The usual refrain is that technicals don't matter in cryptocurrency or that the charts cannot provide any useful guidance for various reasons, in particular, that they are too volatile.

Most of these are naive or emotional comments that are used as a means to blanket statement market action that cannot otherwise be explained through rational technical or fundamental analysis.

I have been very careful in my career to avoid statements that allude to technical analysis being irrelevant. With solid liquidity, I cannot remember a time that technicals did not matter in a market. In the last 29 years of my use of technical analysis, if there is a time, I would love to see examples of such experience as I am always open to learning!

Nonetheless, even some well respected leaders in the blockchain investment world can make such statements. Just recently a guy I listen too a lot, and admire, Michael Novogratz (@novogratz 18 Dec 2017) tweeted a reply

"Right now this is just a firehouse of liquidity. Normal technicals don’t matter. Prices will go up until 1) regulators do something drastic or 2) the pace of new account openings slow down."

To be fair, these are short statements that often get misinterpreted or left needing further explanation. His "firehouse of liquidity", ("firehose"?), statement is definitely a qualified phrase, as is "Normal technicals", which allows for plenty of explanation wiggle room. I will not speculate, but the point is, it's important not to throw the baby out with the bathwater, especially when you are a very influential person.

In my published trade chart for Ethereum (ETH), I reference a double top formation just below the psychologically important $1,000 level. The importance of the two technical points are increased because they are occurring simultaneously. The market makes a new all time high at about 1,015 and then begins the selloff to just below the 950 level, which I had noted as the first main level retracement. This is technical anlaysis and using it to manage your risk is what this is all about.

You can see in more detail what happens here:

Another example, with the use of a candlestick formation:

And another:

Enumerable published ideas of cryptocurrency technical analysis on Tradingview offer a treasure trove of education.

Technicals are a representation of the collective market mentality. Without getting into the deeper theory of it all, suffice to say, human nature does not change. The fear and greed factors of human emotion are a constant for us all and will therefore playout in the representation of price in the charts.

During times of economic reports, news and otherwise, choppiness in the price charts will occur, showing gaps in the price bars. This is a period of short term illiquidity and a time not to trade based on technicals. In fact, I have in place, rules that preclude me from trading during these periods. Know your markets and normal liquidity patterns. Then you will be able to discern if your market, and others, are at a satisfactory level to trade using technical analysis.

The lesson? Learn to use technical analysis effectively to your advantage with the singular qualifier of sufficient liquidity, yes, even in the nascent cryptocurrency markets.

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