Does technical analysis have any basis in reality or is it just innovative imagination? Now this question may sound a little blunt, but believe it or not, for decades now, people have been debating on this topic. As far as I’m concerned, I believe that technical analytics is a study of price and definitely it has a lot more to offer than what people give it credit for.

However, I also believe that one of the reasons technical analysis works is because of its self- fulfilling prophecy. So what is a self-fulfilling prophecy? A self-fulfilling prophecy is a belief that comes to reality just because we believe in it. Though it might sound a bit strange, let me give you an example to explain this.

Let’s say that you are going to meet a famous person for the first time and assume it is the actor, Aamir Khan. Now you have never met Aamir Khan before and ask a friend of yours who has met him earlier and asked, “ How is Aamir in real-life?” It turns out that your friend had a bad  experience with Aamir and told you that he was very rude, insulted you for no reason and was arrogant.

Hence you would be taken aback by this feedback because you were looking forward to meeting Aamir and after hearing all this, you still went ahead and met him. Obviously, you would not be as forthcoming and open and will not be as appreciative as probably you would have been earlier because you would not want to become vulnerable. You would not want to be intimidated and may start acting defensive around him. You might even perceive a positive comment from his side as sarcastic. Hence that feedback that you got from your friend changed your behavior towards Aamir.

Now, look at it from Aamir’s perspective. Before meeting you, Aamir might have had all the intentions of being nice to you, but because of the way you came across to him, he may perceive you to be rude and might feel insulted himself. As a result of this, he might actually start acting rudely towards you.

Now, as soon as he does that, what will you say to yourself? I knew he was a rude person. So this is how a self-fulfilling prophecy works. You believed that Aamir is a rude person, which by the way, you don’t have any firsthand experience of and ends up making him behave rudely towards you. Hence that belief basically manifested in reality only because you believed in it.

Technical analysis also has an element of self fulfilling prophecy built into it. For example, if everyone learned the same thing, and assume everyone learned through books or through courses that the previous day price acts as a support. Now, what do you think will happen?

Well, what would happen if Nifty or Bank nifty or any other stock, which is followed by a lot of people, goes to the previous day’s low? Well, what will happen is that now that enough people believe that the previous day will act as a support, they will buy at that level. The very act of buying will make the price bounce back up from that level. Hope that you guys can see my point here, because let’s say if nobody would have told you that the previous day’s low acted as a support, then the chances are that not enough people would have placed their orders at the previous day’s low and this theory would not have worked. However, since enough people do believe in that theory now, that theory starts to work in reality.

Now, what does it all mean? Does it mean that technical analysis is just something that we all made up and now that enough people believe in it, it has actually started working. Personally,

I don’t think that is necessarily the case because I believe that technical analysis is not just about a certain level and it is also about human behavior and human psychology. There are a lot of other aspects involved in Technical analysis and hence a much wider subject. However, I do believe that there’s an element of self-fulfilling prophecy, which works in the favor of technical analysis.

My intention on making the video was not to confuse you guys, but just to give you another perspective so that you don’t blindly start believing everything that you hear.