Myths and Truths
A few of the myths surrounding technical analysis have been covered: the self-fulfilling prophecy, basing future price activity on past performance, and reading tea leaves. There can be some truth to self-fulfilling prophecy. After a stock breaks higher from a chart pattern, new buyers are drawn in. They push the price higher and that, in turn, draws in still more buyers.
The problem with this explanation is that it unknowingly merges short- and long-term analysis with a one-time action (breakout) into one story. Short-term analysis would have told short-term traders to buy before the breakout. If technical conditions continue to improve after the breakout, then long-term analysis would confirm it with improved momentum (prices ...
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