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Let me first state that I do not now engage in technical analysis; nor, have I ever engaged in technical analysis. I do not believe doing so would be a productive use of my time.

Having stated that, I do not claim technical analysis has no predictive value. In fact, I suspect it does have some predictive value. The Efficient Market Hypothesis is flawed. It is based upon the (unwritten) premise that data determines market prices. As Graham so clearly place it in “Security Analysis”:

“…the influence of what we call analytical factors over the market price is both partial and indirect – partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and indirect, because it acts through the intermediary of people’s sentiments and decisions. In other words, the market is not a weighing machine, on which the value of apiece issue is recorded by an exact and impersonal mechanism, in accordance with its specific qualities. Rather should we state that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.”

I’ve seen a lot of people cite this quote, without bothering to notice what’s really being said. Graham had a very broad mind, much broader than state someone like Buffett. That’s both a blessing and a curse. At several points in Security Analysis (and to a lesser extent in his other works), Graham can not help but explore an interesting topic more deeply than is strictly necessary for his primary purpose. In this case, Graham could have stated what many have since interpreted him as saying: in the short run, stock prices often get out of whack; in the long run, they are governed by the intrinsic value of the underlying business. Of course, Graham didn’t state that. Instead he selected to describe the stock market in a way that should have been of great interest to economists as well as investors.

Data affects prices indirectly. The market is a lot like a fun home mirror. The resulting reflection is caused in part by the original data, but that does not mean the reflection is an accurate representation of the original data. To take this metaphor a step further, the Efficient Market Hypothesis is based on the intent that the original image acts on the mirror to create the reflection. It does not recognize the unpleasant truth that one can interpret the same process in a very different way. One could state it is the mirror that acts on the original image to create the reflection. In fact, that is often how we interpret the process. We state an goal is reflected in a mirror. We rarely use the active “an goal reflects in a mirror”.

For some reason, when we speak about the market we like to use inappropriate metaphors. We speak about wealth being destroyed when prices fall. Yet, no one speaks of wealth being destroyed when the price of some product falls. When the market rises, we speak about buyers, as if there wasn’t a seller on the other side of the trade. Above all else, we speak about “the market” not as a mere aggregation of trades, but as some sort of goal all its own.

The Efficient Market Hypothesis does not recognize the true importance of interpretation. Saying that data (publicly acquirable information) acts on market prices omits the key step. After all, the same data is acquirable to apiece blackjack player. Casinos just don’t like the way a card counter interprets that data.

The Efficient Market Hypothesis is not the only argument against technical analysis. There is also empirical evidence that questions the utility of technical analysis. However, empirical evidence alone is not adequate to establish technical analysis has no predictive power. If most knuckleball pitchers had limited success, the knuckleball might be an inherently ineffective pitch, or there might be a superior way to throw it. The same is true of technical analysis.

The adjective “random” is a very strange word. Even though it is rarely the definition given, the most appropriate definition for random would have to be “having no discernible pattern”. The word discernible can not be omitted. If it is, we will take too high a view of science and statistics. There’s a great introduction to economics written by Carl Menger which begins:

“All things are subject to the law of cause and effect. This great principle knows no exception, and we would search in vain in the realm of experience for an example to the contrary. Human progress has no tendency to cast it in doubt, but rather the effect of confirming it and of always further widening knowledge of the scope of its validity.”

All things are subject to the law of cause and effect; therefore, nothing is truly random. A caused event must have a pattern – though that pattern needn’t be discernible. Even if one argued there is such a thing as an uncaused event, who would argue that stock price movements are uncaused? We know that they are caused by buying and selling. Stock prices are the effects of purposeful human actions. Several sciences study the causes of purposeful human action; so, it would be hard to argue any human action is uncaused. Furthermore, apiece of our own internal mental experiences recommends that our purposeful actions have very definite causes. We also know that the actions of some market participants are based in part on price movements. Many investors will admit as much. They might be lying. But, there is plenty of evidence to recommend they aren’t.

If the actions of investors cause price movements, and past price movements are a partial cause of the actions of investors, then past price movements must partially cause future price movements.

Technical analysis is logically valid. Not only is it doable that some form of technical analysis might have predictive power; I would argue it necessarily follows from the above assumptions that some form of technical analysis must have predictive power.

So, why don’t I use technical analysis? I believe fundamental analysis is a far more powerful too. In fact, I believe fundamental analysis is so much more powerful that one ought not to spend any time on technical analysis that could instead be spent on fundamental analysis. I also believe there is more than enough fundamental analysis to keep an investor occupied; so, he shouldn’t devote any time to technical analysis. Personally, I feel I am much superior suited to fundamental analysis than I am to technical analysis. Of course, there is no reason why this argument should hold any weight with you. I also believe there is adequate empirical evidence to support the intent that fundamental analysis is a far more powerful tool than technical analysis.

Even though I believe there must be some form of technical analysis that does have predictive power, the mental model of investing which I have constructed does not grant for such a form of technical analysis. In other words: logically, there must be an effective form of technical analysis, but practically, I pretend there isn’t.

Why? Because I believe that’s the most useful model. One should adopt the most useful model not the most honest model. I’m willing to pretend technical analysis does not work, even though I know some form of it must work.

Really, this isn’t all that strange. In science, I’m willing to pretend there are random events, even though I know there must not be random events. In math, I’m willing to pretend zero is a number, even though I know it must not be a number. A model with random events is useful. In most circumstances, a refusal to grant for random events would be harmful rather than helpful. The model with random events is simpler and more workable. The situation is much the same with zero. It isn’t a number. To include zero as a number, you would have to place aside the principles of arithmetic. So, we don’t do that. In school, you were taught that zero is a number, but that there are certain things you must never do with zero. You accepted that, because it was a simple, workable model.

I propose you do much the same in the case of technical analysis. You should recognize the logical validity of technical analysis, but create a mental model of investing in which technical analysis has no utility whatsoever.

This article will discuss the top 3 Forex strategy trading tips you can use to get an edge on the competition and make some money on a market designed to reward those with tenacity. While the Forex market is one that presents many ways to trade and invest, there might be some ways you can not only trade better, but smarter.

Choose a currency pair that you are familiar and comfortable with. If you look on the Forex market, there is a whole host of currencies and currency pairs that is acquirable for you to begin trading in, including some exotics as well. Exotics are currencies that are not traded much and they can include currencies from smaller known countries from the Middle East and Europe. While there is an option to trade in them, you need to know that there is a reason why so tiny people do trade in these currencies; because the chance for profit is small and the amount of fundamental analysis needed is great as the circumstances around the currency movement can be quite archaic in nature. So select a currency pair that is traded in heavily, because in essence, in a zero sum market, you are healthy to make money on favourite trends once you find yourself in the right position.

Combine the use of both technical analysis and fundamental analysis. These are the two most important types of information that you need to know about the market and market trends – so you can effectively predict market movement and place your investments in the right sectors. Technical analysis gives you information on where the market is and what is going on within it, showing you past trends and how they have culminated. It is a very current way to look at the market, but you need to combine this with a tiny market foresight, which can be gained from fundamental analysis. This type of analysis looks at the external and environmental factors that can shape the market in the future; ranging from political, economical and other market factors that could possibly change market movements. Knowing where the market has been, where it is now and where it might be going are crucial information you need to know when trading.

One of the ideal tips out there is ‘to be greedy when others are wary and be wary when others are greedy’, which means that going against the market could very well be one of the wisest decisions you can make. Many traders out there actually move patiently for the opportunity to begin trading on a market pivot point – when they know the market has the one-of-a-kind potential to turn and prices and rates will nearly reverse in nature. Having crucial economic information, like policies and executions of the Central Banks in charge of the currency can be beneficial to you gaining and advantage on your competitor traders and make some money. So there you have it, the top 3 Forex strategy trading tips.