Technical Analysis is not horoscopes, it's worse
In what sense can we say that Peugeot SA (the company’s official name) exists? There are many Peugeot vehicles, but these are obviously not the company. Even if every Peugeot in the world were simultaneously junked and sold for scrap metal, Peugeot SA would not disappear. It would continue to manufacture new cars and issue its annual report. The company owns factories, machinery and showrooms, and employs mechanics, accountants and secretaries, but all these together do not comprise Peugeot. A disaster might kill every single one of Peugeot’s employees, and go on to destroy all of its assembly lines and executive offices. Even then, the company could borrow money, hire new employees, build new factories and buy new machinery. Peugeot has managers and shareholders, but neither do they constitute the company. All the managers could be dismissed and all its shares sold, but the company itself would remain intact.
- Sapiens, Yuval Noah Harari
It’s 2022, you are reading this on the internet, so you have at least a superficial idea of what a meme is.
Chances are, you think a meme is a funny pic, with or without a caption, shared on the internet.
Now, a good meme is not just funny, it goes viral. Like a virus, it reproduces itself across the internet (that is, people) through likes, reshares, screenshots
Turns out someone smart wrote a definition of meme that goes beyond the funny pictures, and it goes more or less like this:
A meme is an idea, behavior, or style that spreads by means of imitation from person to person within a culture and often carries symbolic meaning representing a particular phenomenon or theme.
The important thing here, which we must stress, is that a meme does not have to necessarily have a connection to the phisical reality. It can be just an idea, a concept, as long as we (participants, or infected hosts) all agree on its meaning and existence.
In the quoted text above, the brand Peugeot exists regardless of material conditions, it’s a legal entity, which is a way to say that we are writing black on white that we all believe in the delusion that Peugeot “exists”.
Now we are all meme experts and we are ready to talk about Technical Analysis.
Wait what?
Yeah.
Technical Analysis is a meme.
If you are with me so far, I hope you understand by now that I do not mean this as in “TA is a joke”, it’s something deeper.
Technical Analysis, that is, drawing lines on charts of the past to try and predict the future, is a meme. It works, when it does, because a sufficient enough number of people and market players believe certain formations, shapes, curves, work, and like a self fulfilling prophecy, they indeed work.
The lucky thing is that whales and big volume movers mostly believe in it, so it affects the outcome a lot.
What is a bull flag and why does it work? Because the majority of people believe that if you break out of a bull flag, price will go up, and they bid, and it does. Magic!
Head and shoulders? It works because when people start seeing the signs, they start shouting “oh no I see a shoulder and head, next shoulder is coming!” and enough people believe it to make it real (or whales have incentives to make it real)
Now, you can use this to your advantage, to learn a bit and try to play some obvious patterns (refer to my article about timeframes regarding your strategy), just don’t be stupid enough to look at the chart for signs of a possible russian invasion of Ukraine.
Please.