When it comes to technical analysis, people often say that chart shapes can give traders a glimpse into the future trend of asset prices. It is said that forms such as head and shoulders, double bottoms, wedges, triangles, etc. have the potential to uncover the mysteries of market behavior and guide traders to make wise trading decisions. Therefore, these forms have long attracted the attention of traders.
In some cases, traders believe that chart shapes are reliable indicators, and the abundance of performance percentages online also supports this assumption. A study by Michael Kahn showed that chart shapes have a certain level of accuracy in predicting price reversals, with a success rate of 89% achieved through head and shoulder shape predictions
As day by day, the advantage of chart form will bring traders substantial profits, but is the optimistic percentage data of 89% accurate? Chart FormreallyCan it reflect the future price trend?
Chart analysis is not without skeptics. Skeptics argue that the assumption of a certain correlation between current price trends and the past is flawed, as dynamic financial markets are influenced by multiple factors and cannot be predicted solely by historical data. News events, economic indicators, and investor sentiment can all seriously affect price trends, making chart shapes less reliable.
Although chart shapes can indeed provide insights and dispel some speculation, it is best for traders to combine other analytical tools instead of relying solely on one tool to make wise trading decisions. For example, traders can incorporate fundamental analysis and market sentiment analysis to make the analysis methods more comprehensive.
Fundamental analysis can reflect the current economic situation and performance, and can explain unexpected changes. Market SentimentEvaluating and measuring the overall sentiment of market participants is often more important than logic and statistical evidence.
In contrast, there is a viewpoint that supports the application and technical analysis of chart forms, and this viewpoint is difficult to ignore.
The intertwined relationship between chart form, trader psychology, and market dynamics adds complexity to this exploration. When a large number of traders identify potential reversals based on standard chart patterns, their collective behavior can affect the direction of the market, potentially making this pattern prediction a reality.
In addition, there are thousands of artificial intelligence trading robots on the market that also use chart shapes as predictive benchmarks. According to the formed chart form, these robots can open and close hundreds of orders every day. Under the joint action of humans and robots, the market will develop according to the chart shape predicted by traders.
The self fulfilling prophecy phenomenon emphasizes the volatility of the market and the potential impact of collective trader behavior on price trends.
Although chart shapes can provide insights, they should be used in conjunction with other analytical methods. Market dynamics, trader psychology, and the possibility of self fulfilling prophecies can all affect the effectiveness of chart analysis.
The statement mentioned at the beginning of this article that the head and shoulder chart shape has an accuracy rate of 89% still needs to be confirmed, and this data may need to be corrected. Although this data is widely circulated online, Kahn's research is more of a myth than a set of methods, and may not have existed from the beginning.
David Aronson's 1994 research is more reliable, which can also be found online. The study found that the accuracy of head and shoulder morphology can reach when predicting the reversal of a downward trend64%Of course, the accuracy of this data is also difficult to verify. If you want to delve deeper, you need to purchase Aronson's books.
Aronson's 64% may be much lower than Kahn's 89%. However, if this data is accurate, it can still bring traders the advantages they are pursuing, especially when utilizing itcompounding effectWhen managing risks.