I know that sounds like an odd question but let me explain.
As I understand it, technical analysis is basically a self fulfilling prophesy.
Forgive me if I am wrong, but many many traders look at the same charts and see Support and Resistance levels, trend lines waiting to be broken, double tops, double bottoms, fibonacci levels, special cycles, patterns, moving averages, divergences etc and they all use those same levels (Admitedly in many different ways) to decide their entry and exit points.
So therefore price will bounce off a trend line or fibo level, broken support will become resistance etc simply because there are so many traders looking for those levels, they make it happen. I can't think of a better explanation for why Technical analysis works on Forex, shares etc.
If the above is a true explanatoin for why TA works then what has me puzzled is why it works on indices. :confused:
For example the value of the FTSE 100 is simply a sum or some such calculation of the value of the top 100 shares at any given moment. Now I can understand why technical analysis. would work for each of those shares individually for the reasons above, but in that case wouldn't the value of the index itself be chaotic - as it is made up of the TA applied to so many different shares, all of which behave in different ways at any given moment?
I hope I explained the question well enough to make sense.
Any thoughts anyone?
Rich
As I understand it, technical analysis is basically a self fulfilling prophesy.
Forgive me if I am wrong, but many many traders look at the same charts and see Support and Resistance levels, trend lines waiting to be broken, double tops, double bottoms, fibonacci levels, special cycles, patterns, moving averages, divergences etc and they all use those same levels (Admitedly in many different ways) to decide their entry and exit points.
So therefore price will bounce off a trend line or fibo level, broken support will become resistance etc simply because there are so many traders looking for those levels, they make it happen. I can't think of a better explanation for why Technical analysis works on Forex, shares etc.
If the above is a true explanatoin for why TA works then what has me puzzled is why it works on indices. :confused:
For example the value of the FTSE 100 is simply a sum or some such calculation of the value of the top 100 shares at any given moment. Now I can understand why technical analysis. would work for each of those shares individually for the reasons above, but in that case wouldn't the value of the index itself be chaotic - as it is made up of the TA applied to so many different shares, all of which behave in different ways at any given moment?
I hope I explained the question well enough to make sense.
Any thoughts anyone?
Rich
Why does technical analysis work on indices?
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