Reasons Why technical analysis work?

Reasons Why technical analysis work?

Technical analyses are described in different ways of predicting the future of the stock/futures market based on its history. Regrettably, technical analysis is not an accurate science. Many well-known scientists label it as "voodoo science". They declare that due to market effectiveness, if you use TA to discover your entry positions, you are no superior off than somebody who chooses those positions arbitrarily. Market competence means that all the accessible information’s are calculated in the stock prices, and that the trader can only estimate how the price will act in the future. The "voodoo science" hypothesis would make wisdom, if it were not the reality that there are significant traders who are capable to make profits consistently in the stocks/futures market. These profit making traders use technical analysis as their major tool. Since any trader can have the ability to access the same TA tools. We have to ask how a small group of traders consistently wins; more or less constantly lose in the equity market game.

What winning traders identify about technical analysis that gives them the upper hand?

The answer is simple: Technical Analysis works but not automatically for the grounds, most people believe. Many unbeaten traders do not desire to share this secret. TA works for the reason that many people use it, and victorious traders are capable to predict how other people will reply on the different TA indicators and signals. In other words, the trailing traders are using TA to decide their trades; the winning traders are captivating because they identify how the losers are going to respond based on this data. For example, when the price of any share goes below one of the key moving averages (MA’s) most of the investors sell that instrument to guard themselves adjacent to additional losses. By doing so, they will force the price of that instrument inferior and that will prompt some traders to start short selling that instrument in eagerness of further decline. Prices continue the downward trend, forcing traders who were long on that stock to sell their positions because it is going below their stop limits. This creates a domino result as the prices continue to turn down. However, at this point, successful traders understand that most of the current price actions created is artificially. They start entering positions on the buy side and more often, the price starts to reverse. The losing traders have sold their contracts based on the TA tools. The winning traders buy the contract because they recognize that the variation was temporary, and they grab the prospect based on the trailing trader’s reactions. Now TA tools by itself will give you dependable buy or sell signals. There are no Holy Grail or magic black box that will give you the accurate signal. However, the combining of the right group of TA indicators with discipline and adequate trading capital has been the road to fortune for many traders. There is no reason why you cannot emulate their success.