TraderMade International Ltd Technical Analysis and Charting software

Why Use Technical Analysis?

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Why do people use Technical Analysis?

Firstly some definitions:

In finance, technical analysis is a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume.
Kirkpatrick and Dahlquist. Technical Analysis: The Complete Resource for Financial Market Technicians.

It is possible that what is now called technical analysis, or market analysis, is the oldest form of financial analysis in the world. Several centuries ago in the corn markets of England and the rice markets of Japan traders developed a method of recording transactions that would enable them to see at a glance how much people had been paying for the product. With the help of that information they were able to assess where supply and demand were in balance and thus see better what price they should agree for their future transactions.
Bronwin Wood, Society of Technical Analysts (UK)

While fundamental analysts examine earnings, dividends, new products, research and the like, technical analysts examine what investors fear or think about those developments and whether or not investors have the wherewithal to back up their opinions; these two concepts are called psych (psychology) and supply/demand. Technicians employ many techniques, one of which is the use of charts. Using charts, technical analysts seek to identify price patterns and market trends in financial markets and attempt to exploit those patterns.

But why do traders and other market practitioners use technical analysis?

To attempt to predict future price actions based upon observation of historical prices.

Technical Analysis: Back in fashion?

CitiFX released their first poll of global foreign exchange traders in late 2010. The survey found that 53% of those polled use a combination of fundamental and technical analysis in their trading with 36% using only technical strategies. Only 8% use solely fundamental analysis to trade.
The Technical Analyst Q1 2011

A final word from Wikipedia:

Whether technical analysis actually works is a matter of controversy. Methods vary greatly, and different technical analysts can sometimes make contradictory predictions from the same data. Many investors claim that they experience positive returns, but academic appraisals often find that it has little predictive power. Modern studies may be more positive: of 95 modern studies, 56 concluded that technical analysis had positive results, although data-snooping bias and other problems make the analysis difficult. A Federal Reserve working paper regarding support and resistance levels in short-term foreign exchange rates "offers strong evidence that the levels help to predict intraday trend interruptions," although the "predictive power" of those levels was "found to vary across the exchange rates and firms examined".