What Technical Analysis Cannot Do
The honest chapter.
This section has taught you a toolkit. It would be dishonest to end without saying plainly what the evidence supports and what it does not. It describes, it does not predict Every tool here is computed from past prices. None of them contain information about the future, and the ones that appear to are usually being read with hindsight. Patterns are found, not discovered The human eye finds shapes in noise effortlessly. Print a chart of random numbers and you will find head-and-shoulders in it. The evidence is weak for most of it Decades of academic testing have found little reliable predictive power in most indicators and patterns, once you account for trading costs and the number of things that were tested. What survives testing better Trend and momentum, in the broad sense that things that have been going up tend to keep going up for a while. Not a specific crossover, but the underlying idea. The self-fulfilling part is real Some levels work because everyone is watching them. That is a genuine mechanism, but it makes the well-known tools crowded and the crowded ones easy to hunt. So why learn it Because it gives you a language for describing what price is doing, and a discipline for deciding in advance where you are wrong. That is worth a great deal, and it does not require believing that a chart pattern predicts anything. Use fundamentals to decide what deserves your money. Use technicals to decide where to act and where to stop. Use risk management to make sure that being wrong, which you will often be, does not matter very much. The most dangerous state in this discipline is a beginner with a screen full of indicators that agree. It feels like certainty and it is usually the same number computed six ways. 1 min boolean string number nv_learn_read ).toLowerCase(); if (tag === || tag === ) return; if (e.key ===, onKey); return () => window.removeEventListener(, gap: 0, height: `calc(100vh - 62px)`, boxSizing:, background:, flexDirection:, boxSizing:, fontSize: 12, outline:, color: T.dark, background:, padding: splits into a quiet label and a loud name, so // the two halves of the book announce themselves without the sections // beneath having to shout back. const [pLabel, pName] = part.title.split(, color:, borderRadius: 8, padding:, margin: pi > 1 ? 4px 0 10px uppercase -0.2px c.level === level); if (items.length === 0) return null; const open = isLevelOpen(level); return ( space-between 9px 10px default pointer transparent baseline baseline rgba(255,255,255,0.7) hidden ellipsis rgba(255,255,255,0.75) transform 0.15s rotate(90deg) Referring page: None detected baseline 5px 10px pointer transparent rgba(0,0,0,0.03) transparent tabular-nums 10px 16px 14px Educational content, not investment advice. nv-scroll, padding:, alignItems:, gap: 8, marginBottom: 12, flexWrap:, letterSpacing: 0.6, color:, background: T.primary, padding:, background: T.primary, borderRadius: 4, transition:, justifyContent:, textAlign:, flex: 1, textDecoration:, textAlign:, flex: 1, textDecoration: Next ›
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: Charts.