The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

the hAnDbook of teChnICAl AnAlysIs

1.5 Subjectivity in Technical Analysis

As with most forms of analysis, technical analysis has both objective and subjec-

tive aspects associated with its application. It is objective insofar as the charts

represent a historical record of price and market action. But it is subjective when

the technical analyst attempts to analyze the data.

Analyzing price and market action consists of three main activities, namely:

1. Identifying price and indicator patterns


2. Interpreting the data


3. Inferring potential future price behavior

Analyzing price and market action is ultimately subjective because all analysis

is interpreted through various behavioral traits, filters, and biases unique to each

analyst or observer. Behavioral traits include both the psychological and emo-

tional elements. As a consequence, each analyst will possess a slightly different

perception of the market and its possible future behavior.

Subjectivity in the Choice of analysis and technical Studies

The sheer number of ways to analyze an individual chart contributes to the overall

level of subjectivity associated with each forecast. The problem is twofold:

■ (^) What is the most appropriate form of technical analysis that should be applied
to a particular chart?
■ (^) What is the most appropriate choice of indicators to apply to a particular chart?
fIgure 1.8 The Idealized Six‐Stage Self‐Fulfilling Prophecy Cycle.