A lot of people have been privately asking me if I think we are finally at “the bottom”. It's a foolish question because the bottom is completely abstract. The bottom is not empirical but is a posteriori observation of chart appearances, so can’t be known until after the fact.
The better question is, did this last dip force more than 90% of investors out of the market? If it did then this is most likely the bottom. In reality though, even this question is ambiguous. Why? Because, there’s really no way to know how many are truly out of the market at any given time. Again, you can only know these types of things after the fact.
MY ARGUMENT AGAINST TECHNICAL ANALYSIS
This brings me to the reason I wrote this article. I’ve spent many years arguing with T/A gurus and Elliott Wave theorists, that most of the principles they swear by are much too vague to be useful. Of course, those that have spent many years studying these theories don’t like what I have to say. In fact, just recently I was blocked by Philakone @PhilakoneCrypto, a largely followed crypto chart guru, because he didn’t appreciate me questioning his methods. It always amazes me how just saying “T/A doesn’t work”, can bring such wrath from so many investors. Still, this doesn’t change the fact that T/A actually doesn’t work. In fact I have no problem taking my statement one step further by saying T/A actually causes investors to lose money. I know, I know, here comes hate posts and emails.
While I’m obviously not an advocate of T/A, I will say there are some things you can learn from these types of analysis. Things like OBV, MACD, among several others, can tell you things like multiple new high non-confirms, major negative divergences, de-trending, etc etc. The question still remains though, can this help someone to make money? Admittedly, there are times these techniques could give you a 51/49 advantage, that’s assuming you react quickly enough and make no mistakes. Though this can be seen as a good thing, these indicators also work against you because they force you to focus on the wrong thing.
CAN ANYONE REALLY PREDICT THE FUTURE WITH ACCURACY?
Trading charts gives you a false sense of security because it fools you into thinking you can know the future, especially when some of your trades may be profitable. I’ve had people say to me, as long as I’m 51% correct that’s all I need to make money, but is this really the case? This type of thinking brings to mind December of 1999. Many Elliott Wave zealots were bragging about how they made bank while everyone else was going bankrupt. Many traders claimed to make millions, day trading AMZN, during one of the biggest crashes in NASDAQ history. Ironically those same guys that were bragging are now mostly non-factors, Robert Prechter being one of the biggest of them. Prechter was a legend, until the 1987 crash, and hasn’t been right with any of his calls since.
The reason guys like Prechter lose over the long haul is that they’re consumed with beating the market instead of investing in it. These so-called gurus who thought swing trading Amazon was a good idea, later discovered they blew the biggest opportunity of their short-lived careers. Meanwhile, ones who bought Amazon at the top in 1999, only to get lambasted by investors for holding, are now millionaires 100Xs over. This principle of holding, though not popular, would have held true back then not just for AMZN but for 100’s of stocks. This is because the investors that held on to Amazon shares during that nasty drop in 2000, were forced to build true conviction in their investment and Amazon as a company. As you can imagine, only ones with the strongest of convictions would be able to hold on for the next 18 years. So what’s the point?
TRADING AND CHART READING KILLS CONVICTION, PERIOD!
T/A kills conviction, period. Likewise, so does trading! For those of us that have been invested in Crypto from the beginning, we’ve seen several major highs and lows. Some of us “Hodlers” have held through it only to be ridiculed by many so-called experts. But this won’t change the fact that when the next massive move up happens, and it will, traders and chart readers will have zero conviction to hold anything. Without conviction, every move higher will be doubted and before you know it this market will be well over a $1 Trillion market cap and beyond.
In the end, my only advice for those reading is this. The future does not exist now and can't be known. There is no structure of history going forward, there is no "momentum" in current and past events. Becuase of this, people can make the future into anything they want. Back in the 80’s, when Robert Prechter made his big breakthrough, there were a plethora of people jumping on the bandwagon of predicting market movements. Though most were shown over time to be completely inaccurate, many believed they had some degree of accuracy touting themselves as T/A gods.
These "T/A gods" have to keep on believing they can know the future while denying any false predictions in order to continue to feel like they know more than the average investor. When you think about it the whole thing is absurd. Deceive yourself to feel good and get notoriety. Meanwhile, their days are numbered because over time the media puts these “gods” out there for covert ridicule since they have public records proving their hypocrisy.
STEP RIGHT UP
Though history has shown trying to predict market movements is both hopeless and absurd, these so-called experts continue to sucker investors into believing. One should not forget PT Barnum, for he was a smart man nonetheless. So there we have it, the majority continues to believe some individuals are blessed with the talent to predict the future, primarily because they must believe in something that gives them hope. The whole process is pathetic and testament to the gross superstition which continues to dominate our society. If nothing else, this stuff is entertaining though!