Does value investing in the crypto world require technical analysis?

Discussing the relationship between fundamental analysis and technical analysis, while also answering a netizen’s question. This netizen expressed a viewpoint that fundamental analysis is very useful for value investors when choosing stocks, but using technical analysis to determine specific entry points would be better. The statement itself is correct, but in practice, there may be issues. The reason it’s problematic isn’t because the method itself is flawed, but because the user has inherent shortcomings. No tool is perfect; the main reason isn’t the tool itself, but whether the user can use it effectively.

Human nature influences how people use technical analysis, often bringing many side effects. This doesn’t mean technical analysis is useless, but its side effects can outweigh its benefits. Like taking medicine—there’s always some toxicity, but if a drug has seventy percent toxicity and only thirty percent benefit, you’d likely give it up. I want to say that technical analysis has benefits, but compared to its side effects, the benefits are minimal. Based on my experience, I have used technical analysis for many years in my investment career and have tried other technical methods.

Technical analysis is particularly useful for judging short-term entry points. I believe the key word is “short-term.” Technical analysis has certain advantages in short-term buy-in points. I have produced a series of programs sharing how to identify the best short-term entry points, totaling three or four episodes. Technical analysis does have an edge in short-term entry decisions. Every technical chart—whether candlestick charts or other types—reflects investor sentiment fluctuations, so human emotions are reflected in these charts. By observing these charts in the short term, one can generally infer market sentiment. Human emotions are cyclical and follow certain patterns; anything with regularity can be exploited.

From a technical analysis perspective, human emotions are somewhat predictable in the short term. But here lies the problem: the key word is “short-term.” If you become obsessed with or overly reliant on technical analysis, it can lead to frequent short-term trading. You might buy at a good price and sell at a good price, but you’ll be eager to find the optimal buy and sell points, ultimately falling into short-term trading. What are the consequences of short-term trading? There are two major drawbacks: one is that it blinds you to the bigger picture—picking sesame seeds but losing the watermelon. For example, at the end of a bull market, many stocks may already be overvalued, or even if the company’s fundamentals are good, the stock can be in an overvalued position, not to mention junk stocks.

If a stock is overvalued, technical analysis might still find a low point during oscillations to buy. Some traders often lose sight of the fact that the stock is overvalued. Because stock prices oscillate, with lows and highs, they enjoy short-term trading within these fluctuations, which can easily lead to trouble. When a rally ends, they are likely to be caught at a high point. Holding a good stock long-term might give an opportunity to recover from losses after a few years. Junk stocks, however, might never recover unless a more insane bull market occurs again, at which point they might be able to recover temporarily. This is why many people in the crypto and stock markets lose money using technical analysis.

Some say, “I won’t get caught in a trap; I will cut losses.” Stop-loss methods do have some protective effect, but the problem lies with the user. Because as long as the user is human—no matter how many times they succeed in stopping losses, if they fail once to cut losses when they should, they will make mistakes, potentially leading to long-term losses. Many investors have this experience, especially seasoned ones—they often find themselves making money repeatedly, but then one or two wrong trades or a big shock causes significant losses or consecutive limit-downs.

In the US market, there are no daily limit-ups or limit-downs, so investments can experience a sudden large drop—say, 30-40%. Do you choose to cut losses? Human weakness can cause poor judgment, leading to irrational decisions. Ultimately, if you make 99 correct stop-loss decisions but fail once, it could bankrupt you.

This is a typical scenario when relying solely on technical analysis for short-term trading: you might trade short-term every year without knowing your position, which is very dangerous. People shouldn’t be arrogant; they should have self-awareness. I have a program discussing what humans are—half animals, half divine. The same applies in crypto and stock markets: try to shed your animal greed and fear, and let go of arrogance.

In crypto and stock markets, be aware of the side effects of technical analysis because it can cloud your judgment of a company’s true value. It can cause you to become obsessed with price fluctuations, believing you can always buy at the lowest point. Even if you are generally skilled and can buy low, it doesn’t mean you’ll succeed every time or can always cut losses promptly. Stop-loss is useful, but sometimes you might choose not to cut losses, and if that happens once, it could lead to severe capital loss.

Technical analysis itself is a trap that can easily ensnare users. So, we can say: if you don’t want to get your feet wet, don’t walk by the river. While technical analysis has its advantages, its side effects are significant. What’s the biggest flaw in technical analysis? Watching the screen!

Because once you do technical analysis, you must constantly monitor stock prices. Watching the screen makes you sensitive to price changes, and prolonged focus can cause mental fatigue. A good stock you hold might, due to constant monitoring, lead to regret, greed, and fear, causing you to hesitate or sell prematurely. No matter how good a stock is, it can still fall.

If it dips a little, you’ll regret not selling earlier; if it rises again, you might sell it in a panic. This flaw causes short-term technical analysis to make you overly attentive to price movements, leading to fatigue and ultimately selling a good stock, resulting in missed opportunities—“missing the boat.” This is a form of failure caused by the side effects of short-term technical analysis.

In another program, I mentioned that true success in stocks depends on time compound interest; holding is the most important part. Watching the screen makes you overly sensitive to prices, causing mental fatigue and anxiety. Whether prices go up or down, you’ll tend to sell, exposing your human weaknesses and leading to losses. Therefore, I see technical analysis as just a superficial skill; it’s an optimization tool that helps you find lower entry points in the short term but often neglects the bigger picture.

This is very dangerous—like planting at the wrong season in winter. If you choose the wrong season, even the best timing is wrong. I believe choosing the right time is crucial. In crypto, stock markets, and life, the key is to choose the right things to do, not to optimize wrong choices. Technical analysis is just an optimization method; it uses correct techniques to improve a decision. But if the initial choice is wrong, even the best horse and rider won’t help you if your direction is off.

Planting in the wrong season, no matter how diligent, is still a mistake. So, buying in a bear market is the right approach because assets are usually undervalued then. Buying during a bear market means choosing the right timing, even if the price is slightly high or low. For example, if a stock rises from 10 yuan to 50 yuan in a bull market, but during a bear market, it stays around 10 yuan, whether you buy at 9.5 or 10.5 yuan in the low point doesn’t matter much.

Don’t be obsessed with technicals—simplicity is the ultimate principle. Choose a good timing; buying in a bear market, even if the price is a bit high or low, isn’t a big deal—roughly right. Technical analysis is just an optimization. Don’t indulge in it; many technical analysts are overly clever, always trying to buy at the lowest price, but end up outsmarting themselves. Or they keep watching the screen, focusing only on short-term fluctuations, and sell good stocks prematurely. After a 10% or 20% rise or fall, they regret not selling and rush to sell at the top. Many veteran investors have experienced this—losing a good stock is a huge risk in crypto and stock markets.

Another problem is that sometimes a stock is at a very high level or is just a junk stock with no value. But when it fluctuates at that level, some people sell it at a “jade for stone” price. When the price drops 50% or 90%, some think it’s cheap and buy in. But that stock is still just a stock, not jade; it’s only cheap because the price has fallen.

Even if you think you’ve bought at a low point, it might still fall another 90%. Because it’s that stock—worthless. This is why value investing is most important; fundamental analysis is crucial. Technical analysis is optional. Whether you buy at 10 yuan or 9.5 yuan, or even 10.5 yuan, isn’t that important. If you don’t understand technical analysis at all, it doesn’t matter.

Because as long as the final price can rise from 10 yuan to 50 yuan—due to value returning—because the natural law will bring it back to its intrinsic value. Buying undervalued stocks isn’t about penny stocks; many growth stocks are also undervalued now. The key is to judge the company’s value first. Based on that, using technical analysis to optimize is acceptable. But as I mentioned earlier, technical analysis can foster bad habits like watching the screen or short-term trading, leading to premature selling. I share the side effects of technical analysis here.

In summary: after understanding the basics of value analysis, use technical analysis to optimize, but this comes at a cost—possibly developing bad habits like obsessively watching the screen or engaging in short-term trading, which can ultimately cause your so-called value investing to fail.

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