Tuesday, October 9, 2012

Technical Analysis: History Repeat Itself

Forex traders use charts to make profits. All charts contain the same information for everybody and all forex traders has similar assumptions about future market behavior based on their chart formations.
They use technical analysis but it only shows a reflection of past price movements, nothing more and nothing less. Graph itself cannot predict future price movements. A currency pair does not trade up or down only because of some formation on a forex chart.
Price  moves because market traders make their basic assumptions about future pair behavior based on the record shown by past price action. A charted history of price movements is the cumulative story of many thousands of trading decisions. It is just a long record of the past trading behavior of thousands of forex traders.
Price information is however meaningful because trader’s opinions give it a strong predictive power. A simple proof of this limited forward intelligence of a long historical price action is the well attested information that technical analysis can show that history really always repeat itself.

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