Is technical analysis real, or is it just a cognitive bias, like attentional, confirmation, or even framing bias? Does the price actually move in patterns, or do we just think it does?
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Technical analysis is real in the sense that it reflects how traders collectively behave in the market. Price patterns, support, resistance, and trends exist because large numbers of participants react in similar ways to fear, greed, and liquidity. It is less about predicting the future and more about identifying recurring behaviors shaped by psychology and order flow.
Bias does play a role. Traders often see patterns that fit their expectations, so results depend on testing and discipline rather than belief alone. The value of technical analysis comes from probabilities, not certainty. When used with proper risk management and awareness of its psychological limits, it becomes a structured way to read market sentiment rather than random chart art.
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TA is real. When price is moving e.g. upwards, the most likely thing it will do next is continue moving upwards.
But there are 6 other things it could do next and in aggregate one of them is a more probable outcome than an immediate continuation upwards. The thing to recognise about TA is that the probability of any one of those 6 other things being what price does is lower than the probability of a continuation. This means they would not be your first choice of response if your choice is going to be based on TA - your first choice would be to plan a trade based on continuation.
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TA is totally real, simply by definition. It is nothing more than the application of mathematics or joining-the-dots onto current and historic prices.
Where it is no longer objective is in the interpretation of these applications to project where price is most likely to go in the future, and how far. That is speculative and subjective, but can function well if applied in conjunction with sound risk management. It is just probability management.
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It’s a cognitive bias, but it isn’t “JUST” a cognitive bias.
Some of us over-interpret the patterns, but they do exist and are real.
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It works cause people trade off it. The patterns aren’t magic, they’re just what happens when everyone’s watching the same stuff.
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In my opinion, technical analysis emphasizes price history to predict future prices, but it’s not 100% accurate. The primary drivers are supply and demand volume.
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Technical analysis is real. It is not guesswork because it employs a variety of tools in making informed decisions of the markets future direction. It uses charting tools to guage the prevailing or dominant sentiment of the markets.
A person who has not undergone trading education may not fully appreciate the opportunities technical analysis offers.
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Charts don’t predict the future, they just show where humans freaked out before, and we tend to do it again.
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Both, IMO.
Yes.
I don’t think anyone could realistically deny that “support becomes resistance” far significantly more frequently than “random levels become resistance”?
In fact I’m pretty sure that’s been reliably, objectively validated on multiple occasions by independent academic studies.
That’s a convincing enough example for anyone, I’d hope?
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Yes TA is real. It is patterns we tend to use again, creating new patterns and so on. Obviously respect the fundamentals, if something absolutely chaotic is happening in the US then you cant expect a hourly on GBP/USD or USD/JPY u-shape to do any good. But it is a great way to trade
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Thank you for your response. Could you please explain more? specially about the 6 other things you mentioned? I’ appreciate it.
Thank you for your answer my friend. but how and where can we draw the line? How can I understand that what I expect is real or is only my expectations?
Thank you for your answer my friend. But doesn’t that mean the market makers can and will take advantage of these general expectations?
Price in an uptrend can
- continue upwards
- go sideways
- go downwards
- retrace downwards and then continue upwards
- go sideways and then continue
- go sideways and then go down
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I’m hoping those three, according to what I read, are slightly more likely than the other three? So an upward entry some time during an uptrend might at least put chances in our favour?
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The general principle is valid and correct but it’s still a long way from that reality to trading with an overall edge (knowing which way something has a “more than 50% chance of going” doesn’t in itself confer an edge).
In the overall scheme of things, risk management and trade management (two different but overlapping things) are far more important than “when to enter a trade”.
Even “when to exit” is more important than “when to enter”.
But certainly your comment above is entirely valid, because trending prices are statistically more likely to continue than to reverse. And welcome to the forum!
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Yes, price going up will always keep “trying” to go up. You can argue the reasons for this either way - either people see price rising so they “blindly” follow the chart, or the underlying reasons for price to rise are still in place, so people decide to continue to buy.
The other side of the coin of course is that if a reversal occurs, even though it is less probable to occur, the price movement against the trend can be very dramatic, so these can be profitable trade opportunities too.
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So you’re perhaps saying that from trend following trades you might get a higher proportion of smaller winners but with reversal following trades you might get a lower proportion of winners but some bigger ones? Did I understand correctly?
Yes, exactly.
Trend-following trades tend to be high probability, long duration, give modest returns, but are repeatable, easy to plan using TA, and have potential for pyramiding.
Counter-trend trades tend to be low probability, short duration, but give dramatic returns: they are not easily repeatable, and can be hard to plan using TA, with little potential for pyramiding.
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