Is TA self fulfilling prophecy?

Discussion in 'Technical Analysis' started by ADX_trader, Aug 14, 2003.

  1. Some claim TA is a self fulfilling prophecy, the more people using the same method, the more 'accurate' it will be. But other say the more people do the same thing will make the method becomes useless. Which one is true?
  2. On May21, 2003 more than 100M shareholders sold MSFT at $24, quite sure that they will see lower prices.
    Another 100M shares were bought the same day. They were all quite sure that they will see higher prices.
    The majority have had some method to trade their money.
    Many of them used the same T/A method, but this was not a problem at all for 100M MSFT shares to change hands.
    When RSI crosses 70, it is a sell T/A signal.
    Check the volumes for such days and you will see equal increased buy/sell pressure.
    Half of the traders buy, instead of selling. They all know the T/A rule. It doesnt mean they follow the rule...
  3. Short Squeeze Profits:

    A rising share price in a stock that is heavily shorted can often lead to some dramatic upward movement as losses mount in the accounts of those who are short. The phenomenon of a rapidly rising stock with a large short interest is known as a short squeeze, a phenomenon that we will explore in this article.

  4. gnome


    I believe both are true. The first, in that marginally more buy or sell pressure comes into the market or a stock because some TA's identify it. The second... when any parameter has become widely followed, players will start to "fade it early" and eventually dilute its effectiveness.

    It's always a moving target, and you should have some understanding of exceptions as well as the rules.
  5. The answer is:


    They're both right. And they're both wrong.

    The basic underlying, and hopefully the basic reason for buying or selling anything as a trader, is the result of price action and volume.

    Everything else, that is any form of TA, is nothing but a set of templates to visually underline patterns of market behaviour in a more comprehensive way, much like a neon marker on black text. However, the longer you look at price and volume, the lesser and lesser you should need TA. I see TA as basically a kind of "support wheel" in reading and clarifying charts.

    Myself, I use TA. Boatloads of it. But not because it's necessary, but because I love it. I like all my channels, matrices, MA's, fib circles and retracements, you name it. It makes things look pretty and can save you work sometimes - in terms of observation. Not to mention your friends are impressed / confused looking at your monitors, which is always worth a laugh. That's all.

    Some of the most excellent traders I know (and particularly those) rely on no form of TA whatsoever, but only price action.
    A simple bar chart tells you everything you really need to know.

    And when you look at i.e. pit traders, they don't use TA, either.

    All this said, we could probably conclude that TA is a self-fuliflling prophecy, in that it predicts particular patterns to occur. On the other hand, we could just say it does nothing but show us a little clearer what's gonna happen anyway, TA or not. If it ever happens. Often, it does not. So, the answer to the question is, ditto, both yes and no.

    ~Scientist :cool:
  6. There's a new theory about where random walk can EXPLAIN technical analysis profitability. general discussion .... under the archive section, I think it's a pdf

    Mindboggling to say the least
  7. None :D