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The internet loves a good dunk on technical analysis. It’s pattern recognition run amok, critics say. Tea leaves in a Bloomberg terminal. Astrology for men who refuse to admit they’re into astrology.
And you know what? They’re not entirely wrong.
Walk into any trading floor or scroll through finance Twitter long enough and you’ll encounter true believers who treat candlestick patterns like sacred texts. They see head and shoulders formations the way ancient priests saw future in bird flight. A double bottom becomes prophetic. Support levels turn into cosmic force fields that prices simply cannot penetrate because, well, because they haven’t before.
This is where technical analysis earns its mockery. Not because the tools are inherently useless, but because people use them as if market prices follow laws of nature rather than the accumulated anxiety and greed of millions of humans making decisions with incomplete information.
But here’s the thing about astrology comparisons. They miss the point entirely.
The Map Is Not the Territory
Technical analysis fails not because charts can’t tell you anything useful. It fails when traders forget what they’re actually looking at.
A price chart is not a map of some underlying truth about a stock or commodity or currency. It’s a historical record of what people were willing to pay at various moments in time. Every data point represents a transaction, which means it represents two people who disagreed about value. One thought the price was too high and sold. Another thought it was too low and bought.
The chart is a fossil record of past disagreements about the future.
This matters because when you stare at a chart looking for patterns, you’re not discovering laws of market physics. You’re looking at the archaeological remains of human behavior. And human behavior does follow patterns, but not the way gravity follows patterns.
The pattern isn’t in the chart. The pattern is in the way groups of people tend to respond to uncertainty, hope, fear, and the terrifying possibility of being wrong in public.
Why Patterns Sometimes Work
Here’s something that sounds counterintuitive: technical analysis works precisely because it shouldn’t work.
Think about it. If enough traders believe that a certain pattern predicts a price movement, they’ll trade based on that belief. Their trading creates the very price movement they anticipated. The pattern becomes real not because it was inscribed in the fabric of reality, but because collective belief manufactured it into existence.
This is the essence of a self fulfilling prophecy, and financial markets are basically self fulfilling prophecy engines.
When a stock breaks through a widely watched support level, it often continues falling. Not because the support level had any magical properties, but because breaking it triggered stop loss orders, which triggered more selling, which triggered fear in other holders, creating a cascade. The technical analysis didn’t predict the future. It coordinated behavior that created a specific future.
This is wildly different from saying technical analysis reveals market’s truths. It’s more like saying fashion trends are real. They exist. They have predictable patterns. But they’re social constructs all the way down.
The Fibonacci retracement levels have no relationship to actual market mechanics. But if enough traders watch them and place orders around them, those levels become real in the way that third base is real. It exists because we agree it exists and we act accordingly.
The Deadly Trap of Sophistication
The most dangerous technical analysts aren’t the simple ones drawing trend lines. They’re the sophisticated ones who’ve moved beyond basics into elaborate indicator combinations and multi timeframe analysis and probability calculations.
They’ve created such complex systems that the systems feel scientific. All those calculations create the illusion of rigor. But complexity doesn’t equal validity. You can build an incredibly sophisticated model on top of shaky foundations and all you get is precisely wrong instead of approximately right.
There’s a cognitive trap here that’s worth understanding. When you invest significant time learning a complex system, your brain becomes invested in that system being meaningful. You start seeing confirmation everywhere. The losses were just bad luck or imperfect execution. The wins prove the system works.
This is the same mechanism that keeps people believing in astrology or conspiracy theories or any other pattern matching system that occasionally produces accurate predictions. Anything that’s right even 40% of the time can feel convincing if you weight the hits more than the misses.
The human brain is an aggressive pattern detector. It evolved to spot predators in rustling grass and recognize faces in clouds. It will find patterns in static. In fact, it can’t not find patterns. That’s not a flaw in technical analysis specifically. It’s a flaw in human cognition that technical analysis exploits.
What Actually Matters
So if technical analysis is mostly self fulfilling prophecies and pattern matching run amok, what’s the point? Why do major institutions employ technical analysts? Why do some traders swear by it?
Because it can tell you something genuinely useful, just not what most people think.
Technical analysis is useful for understanding where other people might act. It’s not a crystal ball. It’s more like a survey of where the crowd is likely to panic or feel confident. It tells you about consensus, not truth.
Support and resistance levels matter because traders believe they matter. Trend lines work until they don’t, which is exactly when they become most informative. The break of a trend that everyone was watching tells you something shifted in collective sentiment.
This is why technical analysis divorced from any understanding of what you’re trading is particularly useless. Looking at chart patterns without knowing anything about the company or commodity or currency is like trying to predict human behavior by only watching their shadows. You might notice some correlations, but you’re missing crucial context.
The best use of technical analysis is as a supplement to fundamental understanding, not a replacement. It helps you think about timing and positioning. It shows you where the crowd is positioned, which tells you where the pressure points are.
When everyone is long and convinced a trend will continue, that’s when reversals become most violent. Not because of chart patterns, but because everyone needs the same exit and there aren’t enough buyers.
The Honest Approach
Here’s what shifts technical analysis from astrology to actual tool: use it to understand behavior, not to predict the future.
Stop looking for patterns that tell you what will happen next. Start looking for patterns that tell you what everyone else expects to happen next. Those are different questions with different answers.
Ask yourself: where are the stop losses clustered? Where are traders convinced of support? What would happen if that level breaks and all those stops trigger at once?
This reframing changes everything. You’re no longer pretending to divine the future from chart shapes. You’re thinking strategically about a system full of other strategic actors who are also reading the same charts you are.
It’s game theory wearing a candlestick costume.
The traders who do this well are thinking several steps ahead. They’re not asking what the chart predicts. They’re asking what will happen when other traders who believe the chart predicts something act on those beliefs.
If you know a bunch of traders have stops just below a key level, you know there’s potential energy there. If the price approaches that level, you’re not thinking about whether support will hold. You’re thinking about what happens if it doesn’t, and whether the resulting cascade creates opportunity.
Nobody wants to hear this, but most technical analysis is performative. It’s a way to feel like you’re doing something analytical and thoughtful when you’re really just gambling with extra steps.
The elaborate indicators and custom algorithms and perfect backtests are security blankets. They make the uncertainty of markets feel manageable. They provide narrative structure to what is often just chaos and noise.
This isn’t specific to trading. We do this everywhere. We create elaborate systems and rituals around uncertainty because humans are deeply uncomfortable with randomness. We’d rather believe we’re missing some key insight than accept that outcomes are often just probabilistic and unknowable.
The question isn’t whether you use technical analysis. The question is whether you’re honest about what it can and cannot do.
It cannot tell you the future. It can tell you about the present. Specifically, it can tell you about the current distribution of beliefs and positions in the market. That’s valuable information, but only if you understand what you’re looking at.
Where It Connects
This psychological dynamic shows up everywhere outside of trading. Sports analytics dealt with similar tensions between traditional pattern recognition and statistical rigor. Weather forecasting evolved from pattern observation to complex modeling but still relies on recognizing regimes and behaviors in atmospheric systems.
The key insight carries across domains: patterns in complex systems tell you about the system’s current state and the forces acting on it. They don’t tell you about inevitable futures.
A meteorologist looking at cloud patterns isn’t predicting weather through mysticism. They’re recognizing signatures of atmospheric conditions that tend to produce certain outcomes. The pattern is evidence of underlying dynamics, not a prophecy.
Technical analysts would do better to think like meteorologists than fortune tellers. The chart shows you current conditions and forces. It shows you where energy is building and where it might release. But it’s probabilistic all the way down, and anyone claiming certainty is selling something.
If you’re going to use technical analysis, strip away the mysticism. Stop treating patterns as destiny. Start treating them as information about collective positioning and belief. Use it to think about scenarios. If price does this, what are the likely responses? Where is everyone positioned? What needs to happen for their positions to blow up?
Combine it with actual knowledge about what you’re trading. An ascending triangle in a tech stock means something different if the company is burning cash versus printing money. The chart doesn’t exist in isolation.
And most importantly, hold it loosely. The moment you become convinced your analysis must be right is the moment you’ve crossed from tool use to religious belief. The best traders are ruthlessly pragmatic. They use whatever information helps them make better decisions, but they don’t fall in love with their tools. They don’t confuse the map for the territory.
Technical analysis is astrology when you treat charts like prophecy. It becomes useful when you treat it like ethnography, a way to understand the beliefs and behaviors of the market’s participants.
That shift in perspective makes all the difference. One approach has you searching for cosmic meaning in random noise. The other has you thinking strategically about a complex adaptive system full of other humans who are also trying to figure out what comes next.
Just don’t confuse it with certainty. Markets don’t do certainty. They do probability, chaos, and the occasional spectacular reminder that no one actually knows what happens next.
That’s not a bug. That’s the whole point.