It’s the intention of this article to review the outlines of what TA can and can not do. Too often today, we see people on the one hand asking too much of the chart, where they take an almost superstitious view of analysis; and on the other, denigrating TA to the point where they consider it worthless. We’re all aware with the disillusionment that followed in the wake of the popular s2f model that failed to perform as predicted, and then the resort to memes, such as the rainbow ‘chart’. In my opinion, what’s going on here [from a more critical perspective], is the view that TA is primarily about pushing the right emotional buttons, where it has ‘degenerated’ into a meme for the masses. Of course, some consider this a positive - they will feed the bull ‘animal spirits’ at any cost in the continual manufacture of uber-bullish charts, whereas others, understandably, scoff at such and simply fly the rainbow flag… or go full-blown ‘bear’.
My aim here will be to sketch out the rational case of TA - a system and a philosophy that rises on quite distinct grounds from the views that spring fully-formed from the popularity of memes on social media. First, I’ll consider the notion of ambi-valance, then look in turn at the hedge and the hypothesis that logically follow. My aim is to justify the idea of rational modeling [contra the cynicism] as something you can take seriously…. but not too much so.
First of, a note on the use of the word ambivalence. A hyphenated form of the word was used [ambi-valence] in the title in order to draw attention to the meaning. Many at face value, and with common usage in mind, may consider it a tepid, luke-warm and uncommitted word. And yet, strictly speaking, the exact opposite is the case as is seen by the etymology of the word:
The prefix ambi- means "both," and the -valent and -valence parts ultimately derive from the Latin verb valēre, meaning "to be strong." Not surprisingly, an ambivalent person is someone who has strong feelings on more than one side of a question or issue.
If you say that someone is ambivalent about something, they seem to be uncertain whether they really want it, or whether they really approve of it.
The essential points here are that there are strong feelings on both sides of an issue; that is, a lack of dogmatic single-mindedness with a mindset that is uncertain. ‘But Dave’, the reader might be asking, ‘how could a positive TA rise from this, which looks to be a ‘zero sum game’ with each side balancing out the other?’ And here the rational and objective scientific view comes into play. The scientific view is that all we have are theories, models, provisional truths that we pragmatically accept as long as they work, as long as they ‘save the appearances’. There is always a ‘tension’ with such that so-called ‘truths’ are held at arm’s length until better ones come along. Given this, those of the scientific temperament will never marry a theory, but will instead enjoy a series of flirtations. In other words, the scientific rational mind always hedges.
It may help to think of the hedge first in literal terms. Just as a hedge literally divides a landscape down the middle, so too does it, in more figurative terms, divide in two our ‘mental landscape’. Yes, we have the strange capacity to hold more than one opinion at one time, and indeed can partially believe two mutually exclusive ideas.
The ‘hedger’ is in fact an enlightened sceptic, wary of all certainties and ultimate explanations. Explanations might be true [and certainly useful at times], but they also might not be true. The hedge here involves a ‘negative capability’. For the hedger, an explanatory idea [ideology] is only ever a provisional and pragmatic ‘truth’. As no particular idea is entertained at the exclusion of all else -opposite ideas might happily co-exist, and find themselves jostling side by side. This and that [not either/ or] is the motto of the hedger…
Of course, in terms of pure logic, this is not true - something can not be both true and false…. leading to the law of the excluded middle. But in the real practical world, or in the marketplace, or in dealing with the future, we are not dealing with pure logic, or with abstract truths, which are really only tautological truths. When dealing with the future, of which price development in the market is our concern here, practical reason of a more scientific outlook is the appropriate one. The practical view [as opposed to the purely theoretical] is that we can take something as provisionally true [not ultimately true], and so, at the performative level, we are in actual fact hedging against that view insofar as it’s provisional. The theory is ‘true’ in practical terms provided it is not invalidated/ falsified. This then brings us to the hypothesis.
When investors/ traders have in mind a working hypothesis [as opposed to hype, memes or dogma] they will only ever be sufficiently bullish, which is to say they will be bullish enough without being overly bullish. This is also to say they will be hedged. As a hypothesis stands somewhere between fact and fiction, between the real/ future world and what we think, then it will always be held at arm’s length… or critically. A hypothesis is considered a provisional truth; it works as long as it works. As there is no certainty involved, such as to be found with mathematics, geometry and logic, there can be no complete investment in it, whether that investment be financial or psychological, complete psychological investment coming with hype.
One is always ambi-valent about a hypothesis. It can be considered in loose language as a ‘strong opinion loosely held’, which demarcates it from a dogma [strong opinion always held]. What distinguishes a hypothesis from a meme on the other hand is that it’s a form of rationality [conditional]. The hypothesis is the great ‘as if’, so for example one can that price is moving as if it were observing a line that functions as support. The hypothetical language is dropped in common use because it would be tiresome to repeat, and so becomes redundant. Those that take the language literally, or in all seriousness, and hence rubbish it, actually betray a naivety and an ignorance toward hypothetical language. They have simply not learnt to observe the rules of the ‘game’.
The language of ‘as if’ that applies to TA equally applies to modeling. So for example one can say the price of Bitcoin has been developing as if it has been observing the development of a logarithmic growth curve [a well-known phenomenon in nature]. One could go on to attempt to explain why that should be so, but this will always remain in the realm of conjecture. What really matters is results - the predictive power of both TA [preferably on a higher time-frame] and modeling. Accordingly, a model is not valued because it is ‘right’ in say data-driven terms, or mathematical certainties, or explanatory verities. Rather, a model is valued insofar as it’s further confirmed, validated, supported, or corroborated. It is valued/ valid insofar as it has passed crucial tests that involve prediction [future price prediction] and performance [the subsequent observance of those predictions]. Given this, the language of ‘right and wrong’ is wholly inapplicable to the hypotheses of TA and models - they are simply considered valid or invalid [of value or not] at the practical level.
The Practical Takeaway
The Objective Status of TA and Modeling
If the particular form of rationality of hypothesis were recognized, those armies of commentators ‘clashing by night’ would neither take a model dogmatically nor would they rubbish all attempts at modeling per se. They would take a model pragmatically, consider its predictions, observe whether those predictions in turn come about in subsequent performance, and evaluate the model invalid or valid based on that. If a model has continued validity/ performance then it is still only provisionally ‘true’ [valid] and open to being invalidated at some future date. All models are useful until invalidated… and so all models, considering what a model actually is, are hedged against in the most basic and conceptual terms.
The Subjective Positioning Based on an Investment Thesis
Given the above outlook, actual investment made on the basis of a model/ long-term analysis by the investor is always hedged.
To hedge, in finance, is to take an offsetting position in an asset or investment that reduces the price risk of an existing position. A hedge is therefore a trade that is made with the purpose of reducing the risk of adverse price movements in another asset.
Given the definition of hedging, BTC investment is best offset by also sitting on a counter-balancing USD position. This is based on the uncertainty principle involved in hedging, which runs counter to all narratives. This hedge may also involve actively trading the extra volatility of alts with a portion of that USD fund in order to grow the fund. This would serve to counter-balance to one’s core BTC position as it [or should it] also increase in value.
In sum, with modeling, hypothesizing, and hedging, a mindset of ambi-valence always and everywhere sits center court [interesting that value is associated with this word… a ‘double value’]. And yet too often today we find that opposite frame of mind that is either unable to cope with ambivalence [what has come to be known as the discomfort of ‘cognitive dissonance’] or simply habituated against it [the problem of ego-centered thought?]. This is the primary cause for capitulation to idealistic dogma on the one hand, or capitulation to the more realistic case made out for the marketing of mere memes in my opinion. The rational, moderate and comprehensive course would seem to involve a critical maneuvering between these extremes. In doing so, one would then follow something more like a philosophy of pragmatism, which is what I’ve sought to describe in the course of this article.