Why technical analysis won’t work for Bitcoin

Why technical analysis won’t work for Bitcoin

Before we get started, this isn’t your average Bitcoin trading strategy, but rather a lesson on market sentiment and why it rules the current cryptocurrency space. Many believe that technical analysis applies to cryptocurrencies, and they are right to a certain extent. Although, technical analysis requires years upon years of data in order to apply it to an asset, a history we simply don’t have with bitcoin.

Technical analysis was engineered on the back of years of historical data. If we take a look at the early 1800’s , when the stock exchange was first developed, there was no form of technical analysis. There was no true way to predict the market because there was limited historical data. Add to the mix limited regulation and price manipulation, and you get a very similar result to the cryptocurrency market we have today.

To trade in the 1800’s you needed to find a stock broker to carry out the trade manually, papers were signed and you went home with your paper stock. Because of communication and transport boundaries, the data from that sale would take a long time to translate itself into the market price. What this meant is that the Data could be hours or days behind what the current market was showing, so people could not rely on a stock price as actual fact. So what data do you rely on when you don’t have valuable historical data to conduct market analysis ?

The answer is market sentiment

This attitude is what ultimately drove markets in the early days of trading, crowd psychology could be derived from casual conversation with friends, the newspaper, coffee shops, large gatherings. To many, market sentiment was the only market data available. If the crowd mentality was bullish on a particular stock, you could bet your bottom dollar that this would eventually be reflected in the market price, with the exception of manipulative influences. This is why some of the best early traders where philosophers or economists, to them, judging market sentiment was second nature.

When applying sentiment to the market, you are using a form of fundamental analysis. Don’t know the difference between fundamental analysis and technical analysis? Read below:

Fundamental analysis attempts to evaluate the intrinsic value of a security. This is derived from the study of everything from the overall economic and industrial conditions, to the financial condition and sentiment. Fundamental analysis is one of the earliest forms of analysis.

In Technical analysis, the stock’s price and volume are the only inputs, with the assumption that all fundamentals are already factored into the price. Technical analysts ignore intrinsic value and focus on charts to identify patterns and trends. Reliable Technical analysis indicators did not come into fruition until there was years of historical data to model against.

The Technical analysis indicators we use today were designed for the stock market by analysts trading on the stock market, so how can we consider these reliable when applying them to crypto-markets?

Simple answer? You can’t. The cryptocurrency market has only been around for 9 years, and therefore, there is no possible way to test modern day models against the cryptocurrency market.

Why use sentiment?

Another chart illustrating 7 year history

7 year sentiment of bitcoin

As you can see, if you were to use the sentiment of bitcoin from google trends and action a trading decision, you would of made a nice profit, if you pulled out before the market slumped, but google can tell you this in realtime.

Tools for evaluating market sentiment

Luckily we live in an era where the internet is full of useful tools that can depict data derived from social media and search engines. I have listed some of these tools below.

Social Mention

Google Trends

Sentiment Viz





Web3 Cryptocurrency enthusiast, shadowy AF.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store