What is interesting is that technical analysis does not drive the trends of currencies, but it certainly does affect price behavior with amazing accuracy.
Why does technical analysis work? The vast majority of currency traders use technical analysis, therefore technical analysis works because so many traders are behaving in predictable ways based on their use of technical analysis. There are many mathematical studies and trading techniques used in technical analysis. Some are extremely complex theories and others are really quite simple. I’m a big fan of easy.
As a frequent speaker at forex conferences around the world, I’ve seen a lot of technical analysis techniques outlined in presentations given by other speakers. I will never forget one particular speaker who gave an incredibly detailed seminar about his outrageously complicated technique. It was amazing! No one could figure out what he was talking about. Then, about 45 minutes into his one hour speech, he realized that he had made a mistake. After flipping through his notes and sorting through some slides, he left his audience totally confused.
Remember, because technical analysis is a self-fulfilling prophecy, it works best if everyone is behaving in the same way. Maybe the speaker actually used his technique profitably, but he may be the only one in the world trading that way.
In my humble opinion, simple is better. Using a simple technique, many traders will likely see the same patterns ...