【Observation】Before buying, write down what would invalidate your reasoning
Today’s observation is about invalidation conditions. Fidelity’s educational material on support and resistance notes that former support may turn into resistance after it is broken. Technical analysis also leaves room for interpretation. When applying this to buy research, what matters more to me is whether you can state in advance what evidence would make you reassess.
Hypothetical example: An asset has consistently found support around 100, and your reasoning is that demand remains in this area. If the price later falls to 96, then rebounds to around 100 and meets resistance, the original demand hypothesis is called into question. The numbers are for illustration only; they are not real-time prices for any cryptocurrency, nor are they stop-loss instructions.
What you need to confirm is how the price closes over the same observation period, whether the break below the level persists, and whether the rebound can climb back above the original zone. A brief touch alone is not enough to prove that the structure has changed.
In my view, an invalidation condition is like a standard for falsifying an experiment: it cannot guarantee that your judgment is correct, but it can stop you from changing your reasoning on the fly every time counterevidence appears. If the conditions you wrote down in advance have already occurred, yet you keep extending the observation period, then your judgment is no longer testable.
Can you sum up in one sentence what evidence would make you admit that the basis for this purchase no longer holds?
Source: Fidelity educational material on support and resistance; the research process is an extension of the author’s analysis.
Friends, can you clearly explain your reasons before every purchase? If you’d also like to keep growing as a trader, feel free to follow me. I’ll share one little crypto insight every day so we can learn together and make every decision more evidence-based.
Today’s observation is about invalidation conditions. Fidelity’s educational material on support and resistance notes that former support may turn into resistance after it is broken. Technical analysis also leaves room for interpretation. When applying this to buy research, what matters more to me is whether you can state in advance what evidence would make you reassess.
Hypothetical example: An asset has consistently found support around 100, and your reasoning is that demand remains in this area. If the price later falls to 96, then rebounds to around 100 and meets resistance, the original demand hypothesis is called into question. The numbers are for illustration only; they are not real-time prices for any cryptocurrency, nor are they stop-loss instructions.
What you need to confirm is how the price closes over the same observation period, whether the break below the level persists, and whether the rebound can climb back above the original zone. A brief touch alone is not enough to prove that the structure has changed.
In my view, an invalidation condition is like a standard for falsifying an experiment: it cannot guarantee that your judgment is correct, but it can stop you from changing your reasoning on the fly every time counterevidence appears. If the conditions you wrote down in advance have already occurred, yet you keep extending the observation period, then your judgment is no longer testable.
Can you sum up in one sentence what evidence would make you admit that the basis for this purchase no longer holds?
Source: Fidelity educational material on support and resistance; the research process is an extension of the author’s analysis.
Friends, can you clearly explain your reasons before every purchase? If you’d also like to keep growing as a trader, feel free to follow me. I’ll share one little crypto insight every day so we can learn together and make every decision more evidence-based.