Technical analysis describes different ways of predicting the future of the stock market based on its history. Unfortunately, technical analysis is not an exact science. Many prominent scientists label it as "voodoo science". They claim that due to market efficiency, if you use TA to find your entry positions, you?e no better off than someone who chooses those positions randomly. Market efficiency means that all the available information is already calculated in the stock prices, and that you can only guess how will the price behave in the future.
The "voodoo science" theory would make sense if it wasn? for the fact that there is a significant number of traders who are able to consistently make profits in the stock market. These traders use technical analysis as their main tool. Since any trader has or can have access to the same TA tools we have to ask how can small group of traders consistently win and the other larger group, more or less consistently lose in the stock market game.What is it that winning traders know about technical analysis that gives them the upper hand?
The answer is simple: Technical Analysis works but not necessarily for the reason most people believe. Many successful traders don? want to share this secret. TA works because many people use it,
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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 effect as the price continues to decline. However,
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No TA tool by itself will give you reliable buy or sell signals. There is no holy grail or magic black box that will give you the perfect,
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