I see a lot of back and forth from people arguing over who’s method of analyzing these markets works better. FA (Fundamental Analysis) people argue that TA (Technical Analysis) is worthless and holds little weight when stacked up against the true due diligence on fundamentals. TA people argue that fundamental factors are already priced into the markets and therefore can be read through a trained eye on the charts. Here’s my take:
Neither FA nor TA is a binary outcome. Too many people on both sides treat it like it’s good vs evil. I read a great article recently where the author describes it in terms of automobiles: Fundamental analysis being the specs of the car. It’s got a 400hp, a V8, 5 speed manual transmission, a top speed of 165mph, a 0-60 of 4.2 seconds, etc. etc. Asking if a coin (or stock) is going to go up is like asking if this car is going to drive from California to NYC. It certainly has the ability to do so but there are other unknowns we haven’t yet answered. Is the car heading in the right direction? How fast is it going? A coin could have innovative technology, fucking killer dev team, great use cases, big money backers and brilliant advisors and still go nowhere in the short-medium term. The car is all gassed up and ready to go, but the driver - aka the market - is out to lunch. This is where TA comes in.
Technical analysis is measuring the speed and direction of the car. TA can tell you how fast it’s going and which way it’s going. It’s not predictive. It’s telling the story of exactly what is happening right now. Additionally, price cannot reach new highs with bad technicals. This is an absolute law of technical analysis. Take simple moving averages for example, take the prices for the last 20 days and get the average. Well if today the price is reaching new highs, then the prices for the previous 19 days must be lower than today’s price, otherwise it wouldn’t be a new high. Indicators like ichimoku clouds, MACD, etc are nothing more than a visual representation of this same principal. If price falls below the ICH cloud, that’s an indicator that buy volume has weakened and sell volume has begun to take control of the price action. You also have the added self fulfilling prophecy aspect to TA. If most traders use Fibonacci levels to set their buy orders, then price will inevitably bounce off those levels.
In closing, I look at TA and FA as fundamentally dependent on each other in order to be a successful trader/investor. Cutting out one is like cutting the wing off a bird and expecting it to fly. Personally, I come from a Forex background where TA knowledge is critical so I’ve developed more skill in that arena than FA. But that’s not to say I don’t use FA. I do my own FA then get the opinions of people much better than I am to validate the analysis bias that the TA and FA I’ve done tells me. The key is to find people who’s strengths balance out your weaknesses. If you try to take a hard headed approach to these markets you’re going to get wiped out. Period.
