Hi, I have a really interesting question but I can’t seem to find the answer, I wonder if you can help me with this.
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 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 explanation for why TA works then what has me puzzled is why it works on indices
Now let’s look at the FTSE100 which is a representation of those top 100 companies in UK. My question is, an index that has 100 companies plotting their move all the time, surely the charts would be completely random. 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?
How can it be possible for technical analysis to work and the patterns so predictable when ideally the charts should be completely randomly moving. When I apply trend line, support and resistance, it touches accurately and turns or breakthrough these levels. How is this possible on indices which is made up of so many companies. I would have thought the charts for FTSE and all other indices would be completely random but they are so predictable when you apply technical analysis