I got an email today from a person wondering if technical analysis was a self-fulfilling prophecy. In other words, if everyone is following the same chart, won't the action of the market simply be dictated by people taking action based on the same lines, indicators, and levels?
This is a question I've heard before, and my response is something along the lines of the Drake equation. Specifically:
P=Number of participants in the equities markets
A=Percentage of participants with an awareness of technical analysis
K=Portion of those aware of technical analysis that have accumulated a knowledge of it
E=Proportion of knowledgeable technicians whom effectively apply its methods
Thus, P x A x K x E=probably about 7 people, and that includes you.
Seriously, though, my belief is that the quantity of those people who use technical analysis effectively in their own trading represent a very, very small amount of the collective buying power in the market (let's call it 1%, and I'm probably being kind), so I think the notion of TA being a self-fulfilling prophecy is incorrect.
