It still amazes me how often I hear otherwise intelligent, experienced market participants dismiss technical analysis as a “self-fulfilling prophecy.”
Let’s be clear about what that claim actually implies.
Saying technical analysis is self-fulfilling suggests that market events occur because a group of technicians predicted them – that all the prices of all the assets in the world move simply because enough chart-watchers expected them to move that way.
I can understand hearing this from newer investors who don’t know any better. Maybe they heard it once, it sounded smart, and they repeated it. That’s human nature.
But from people who should know better by now? Come on.
Everyone Is Not looking at the Same Chart
Technical analysis isn’t a single thing. It’s a broad discipline used by market participants with wildly different time horizons.
There are patterns, indicators, momentum studies, and moving averages being applied across intraday, daily, weekly, and monthly charts – and everything in between.
So when you dismiss technical analysis as “self-fulfilling,” you’re implicitly assuming the entire market is operating on the same timeframe, looking at the same indicators, interpreting the same patterns, and acting on them in the same way.
And if you aren’t assuming that, then you’re assuming something even more absurd: that every price pattern and every technical concept works exactly as the textbook says, on every timeframe, all the time.
If that were true, maybe that’s meant to be flattering. But anyone with common sense knows that’s not how markets work.
Markets Don’t Reward Uniform Thinking
Technical analysis is deeply subjective. It’s an art, not a science. This isn’t physics, where identical inputs always produce identical outputs.
I’m friends with some of the smartest technicians on the planet, and we don’t always agree – not even close. In fact, some of the best and most respectful debates I’ve ever had about markets have been with other technicians.
Even when we’re looking at the same charts, on the same timeframes, often trained in the same methods, we still interpret them differently.
Now let’s take this argument to its logical extreme.
Let’s assume every technician on Earth uses the same timeframe. Let’s assume we all agree on what the chart means. Even then, for technical analysis to be “self-fulfilling,” we’d all have to trade it the exact same way.
Same instruments. Same entries. Same execution. Everyone buying the breakout instead of the pullback. No anticipation. No confirmation. No variation.
Really?
And even if all of that were somehow true, you’re still giving the market far too little credit.
The market is smarter than any individual participant – and smarter than any group of participants.
If something truly obvious worked consistently, the market would correct it almost instantly, because the moment an edge becomes obvious, it gets arbitraged away. Mr. Market doesn’t allow free lunches.
Even if the traders weren’t human and were purely algorithmic, those systems are still designed, adjusted, and improved by humans.
If every system behaved the same way, adaptation alone would immediately break that uniformity.
This would never happen in the real world.
John Murphy summed it up perfectly:
The self-fulfilling prophecy is generally listed as a criticism of charting. It might be more appropriate to label it as a compliment. After all, for any forecasting technique to become so popular that it begins to influence events, it would have to be pretty darn good. We can only speculate as to why this concern is seldom raised regarding the use of fundamental analysis…
Exactly.
If you think charts move markets by themselves, you’re not criticizing technical analysis. You’re admitting you don’t understand markets.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs