Hi all,
It’s been proven by science that chart patterns and generally TA DO NOT WORK.The lack of empirical evidence that by trading chart patterns will allow you to forecast future price swings thus making you more profitable is scientifically FALSE. A couple of reasons:
1) Cluster Illusions – this is the brains to find patterns in randomly generated data sets. For example, if you stare up at the sky on a partly sunny day with a friend the both of you can see different objects in clouds. Maybe see a house in one, a face in another or even a bitcoin [BTC]! The point is the brain is easily fooled into seeing patterns in random sequence of data. So if you assume the candle sticks are the clouds and that the price action over time is random than this means that any outcome from the patterns themselves is random.
But how can this be? You can easily look at past price action and find these patterns and show when we see a , more times than not, the price continues to fall….
2) Hindsight bias – this is how online trading gurus profit by marketing their latest or trading strategy to show you how they can make you a fortune. It’s easy to go back in time and tell a story that fits and show cases how amazing you are. But what you’ll find is that when these same people have to project future prices movements they are completely off more times than not. So what many of them do is have huge ranges of what prices might do so that they have a larger safety net in case their projections don’t go quite to plan. That way they still have a positive outcome even though the overall strategy would not have been as profitable.
BUT:
Even though scientifically chart patterns by themselves won’t make you a more profitable trader the exercise of putting together a “scientific hypothesis” on future price movements may lead to higher returns:
It’s kind of like being an athlete. So let’s say you are an elite runner and so for 9 months you are racing, training, and focused on literally running. Well in the off season normally you have rest and cross training. In this cross training phase you will do Yoga, lift weights, bike, swim and do other sports that exercise different muscle groups. Now the cross training doesn’t necessarily make you a better runner, but it’s been scientifically shown that the act of keeping your muscle memory engaged leads to higher growth when you do return to running phase.
So my quick point is that I do agree that chart patterns are more of a 50/50 event. However, because trading is merely engaging different probabilities and because you are going through that exercise of thinking of different outcomes you will then more than likely have a risk management strategy which is strips out emotional decisions with more factual. And because of this you’ll have a better overall risk management strategy vs. just trading randomly with no plan.
Please keep this in mind when you’re reading my publications and others. That no one is perfect. Everyone has their own confirmation bias and has a way to read the market. We are most likely wrong, but try to understand how we are slicing and dicing the market to come up with a overall risk management plan. That’s the key message I’m trying to communicate.
Ok – now back to my 100% factual prediction on 🙂
We can see prices getting squeezed the past 9-10 days into an formation. Everyone is thinking this is a , however, when you look at the overall context it’s forming at the bottom of a capitulation drop from roughly 6k to 3k. So this pattern is known as a . So, based on this chart pattern there is a greater than 50/50 chance we go down further. However, if can break through some key resistances being (4k, 4,250) than the bull trend illustrated is possible (I’ve talked about pattern zoomed in on other publications). In the bear scenario things look much more bleak. I do believe in the next 5 days or so market will decide if we are going up or down. Enough of this range trading. Prices are getting squeezed into a tighter range and eventually the market will explode upside or downside. If we go down again I do not feel a scenario is likely off the December lows. We have been ranging sideways for too long and I do not believe 3.1k is confident support. I do believe we will blast through 3k like w did 6k in November and we will continue to test supports all the way down until we hit major oversold conditions again.
Until then there is really nothing to do if you are only holding cash. You can go for a buy above $4,250 or a short position below $3k. We are range trading in the dumb zone and it’s better to sit on the sidelines and wait for more interesting prices.
If you do hold coins than I’ve outlined to you my risk management strategy and you can probably see on this chart where I have my stop’s in place and where I could be taking profits. Also NOTE: Even if the bear scenario takes place you really have to decide for yourself what kind of trader/investor you are. If you have a longer time frame maybe you need to think about accumulation vs. short term profit making. Whether you buy at 6k, 4k, 2k, I really don’t think in 2-3 years it matters if you have that kind of strategy. No one can buy the bottom or sell the top. That’s a fact.
Trade safe. Be patient. Always wait for interesting prices. It’s always a game of hot potato.
Have a good weekend,
Bobby
-Don’t hate the hair, hate the game
Published at Sat, 19 Jan 2019 04:14:12 +0000