We have discussed various styles of investing, including one based on technical analysis. Technical analysis flies in the face of the efficient-market hypothesis. EMH says that the prices of assets already reflect all past publicly available information. However, by using technical analysis, one is trying to use past data to project future prices, something that wouldn’t be possible under EMH.
Even if EMH were to be true for individuals, people behave differently when they are in groups. Sometimes a person will be relatively individualistic and at other times the same person will be relatively willing to conform to expectations imposed by others. Individual behaviour is not easily predictable, but group behaviour is.
Over the next few posts, I will be reviewing chapters, in sequence, of the book: The Psychology of Technical Analysis. Hope you will join me in the journey towards discovering the secrets of technical analysis!
