Hello Chart Watchers!
With weekends typically ho-hum days due to low volume, this break is a good opportunity to talk about slightly different topics apart from SPS. A nice breath of fresh air from our usual intense price action mapping if you will. 😊
When I first started this SPS tracking blog, I had to promote it in the discord community to gain some initial traction. I gained a fair bit of pushback, whether it’s “TA is gambling”, “I’m a fundamentals only guy”, “Reading charts is a whole bunch of nonsense”, “why bother, just HODL” etc.
While I respectfully disagree with these points, the deeper issue here is a lack of understanding of what TA is, what its underlying principle is, and how it’s supposed to be used. This has led to TA’s bad reputation, because a lot of shitty individuals have taken advantage of its obscurity to sell outright dishonest services such as “day trading strategies” and “get rich quick forex trading schemes” online.
So let’s dive into it: why is technical analysis important and necessary for all investors to learn it?
Price Über Alles: TA’s Underlying Principle
The main reason why technical analysis exists is because for people who know how to properly use it, we all believe in the underlying principle of Price Über Alles (German), or “Price Above All”. This is because at the end of the day, when everything is said and done, the only thing that matters is PRICE.
Price is the best and most beautiful expression of value, because it’s a single data point that takes into account ALL FACTORS that contribute to where it is at any point in time. In SPS’ case, it’s the consolidated expression of the game devs’ design, how good the game is, how much the mavericks, die-hard, casual, new and old fans of the game, non-player investors and traders value Splinterlands and its token. In other words, when it comes to any asset, price is the closest approximation of truth.
This is why technical analysis involves having strategies, indicators, tools, trendlines, charts, candles, lines: they’re all focused on tracking its behavior. The closer we are to understanding price, the more we uncover an asset’s truth. Will it likely go up or down? Should I sell or not? Will I make money if I do xyz? All these questions are a result of trying to find the truth and using this knowledge to be in the best position we can be to maximize the opportunities.
Clarifying A Major Misunderstanding
There’s a MAJOR misunderstanding among those uninformed that TA is used to tell you the exact price at a specific point in time, hence it’s “almost always wrong”. Good TA is not about singular price predictions, but rather an exercise in mapping realistic scenarios that may play out over short-, medium- and longer-term spans. If you read my SPS tracking entries, this is why I always stick to this format when analyzing price action:
- The current situation and the patterns at play
- The most likely scenarios that may happen based on what we know
- The conditions that have to be met to counter or invalidate what we think may happen
Other excellent technical analysts operate in the same manner. They give OPTIONS or HIGH LIKELIHOOD OUTCOMES, NOT exact predictions.
Scenario Mapping For Risk Assessment
The reason why good TA leads to options is because it is not enough to show what’s happening. We have to map scenarios to identify the best opportunities that are out there. In a way, understanding price action allows us to assess risk in a systematic way.
Is price heading to our Fibonacci target? It may be a good idea to realize profits when it reaches that level. Is price mooning but you’re looking for a way to buy in? Then it’s more prudent to wait for it to go back to test support at moving averages. If during a price correction, RSI tends to go down to a certain support level before bouncing off, it may be a good opportunity to place a buy order at that level because there’s a good probability that price will bounce off from there. These are some examples of how knowing TA equips anyone with a system to know when to buy and sell.
Will good TA lead to price always playing out the way we want to? OF COURSE NOT. The market will always market. There’s always a chance it’ll go the other way. The goal is to be right more times than be wrong, rather than be right all the time or calling a specific moon shot.
Wrapping it all up
And this is why it’s necessary to learn technical analysis. It is the best way to really get to know any asset like SPS. It provides a system of analysis that gives options so we can map out opportunities to better ourselves in the short, medium and long term.
This post’s a bit long. If you made it all the way through, I really appreciate you taking time. Have a good weekend! 😊
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