Finance Assignment Help With Challenges To Technical Analysis

Challenges to technical analysis

Results of testing correlations between prices and runs and the use of trading rules, with respect to the weak-form Efficient Market Hypothesis, have shown that technical analysis based on past market data does not provide superior performance.
If sufficient technical analysts are operating in a market then they will drive price moves.
This will lead to technical analysis working, but only in the short term, since if a price move is not based on fundamentals the price will return to its equilibrium.
If a trading rule is found to be successful, several technical analysts would follow the rule so it is unlikely to continue to generate profits.
Trading rules are subjective. Different analysts will reach different conclusions when presented with the same market data.

When referring to technical analysts it is important to differentiate between:

Contrarians who believe that as the market approaches peaks and troughs, investors will generally become over-bullish or bearish, and
Analysts who ‘follow the smart money’; they wish to follow the positive sentiment of sophisticated investors.

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